Written by Robert Staley, Kristopher Hanc, John Piasta and Jeffrey Kerbel
As a result of measures designed to limit the spread of COVID-19, Canadian public companies are reconsidering typical approaches to annual meetings of shareholders. Many public companies are deciding to hold virtual or hybrid meetings this year. And some public companies are delaying previously-called meetings to permit electronic participation.
What Are Virtual and Hybrid Meetings?
A virtual meeting is held entirely through electronic means, without any in-person participation or physical meeting location.
Hybrid meetings have a meeting location and permit in-person attendance, but also permit shareholders and proxyholders to participate electronically.
Given current restrictions on air travel and social distancing guidance discouraging large public meetings, a virtual or hybrid meeting may be the only means to facilitate shareholder and proxyholder participation in annual meetings this year.
Can You Hold a Virtual AGM?
Although virtual shareholder meetings are historically rare in Canada, several notable Canadian issuers have recently announced plans to hold virtual meetings in response to the COVID-19 outbreak.
Issuers contemplating whether to hold a virtual shareholder meeting should review their constating documents and governing statute to determine whether electronic participation is permitted and whether shareholders and proxyholders who attend the meeting electronically are considered to be present at the meeting for the purpose of establishing quorum.
Generally speaking, companies incorporated under the Canada Business Corporations Act (CBCA) or the Business Corporations Act (Alberta) (ABCA) must be authorized by their articles or bylaws to hold virtual meetings.
By contrast, companies incorporated under the Ontario Business Corporations Act (OBCA) can hold virtual meetings, unless their articles or bylaws expressly provide otherwise. The Business Corporations Act (British Columbia) permits participation in meetings by telephone or other communications medium, unless the articles or memorandum provide otherwise, but unlike other statutes does not expressly address whether the meeting may be held entirely by electronic means.
The CBCA and ABCA require that the facility used to hold the meeting must permit all participants to "communicate adequately" with each other during the meeting. The OBCA does not contain a similar requirement for "adequate" communication.
There have been suggestions by some market participants that existing virtual meeting technology may not allow participants to "adequately” communicate with each other if there are more than a few participants. In our view, provided that the articles and bylaws permit virtual meetings (in the case of CBCA and ABCA companies) or do not prohibit them (in the case of OBCA companies), in light of the COVID-19 events, we think the likelihood of a successful challenge to a virtual meeting is extremely low and that issuers should not, generally speaking, need to seek a court order permitting a virtual meeting. In any event, the saving provisions in most corporate statutes, such as section 16(3) of the CBCA, should be sufficient to correct any technical non-compliance with the governing statute.
There are a limited number of service providers capable of hosting a virtual meeting. Before any decision is made to publicly announce a virtual or hybrid meeting, issuers should identify a service provider with appropriate technology and availability on the meeting date proposed.
Discretionary Relief to Hold a Virtual Meeting
In the event that a company's articles and bylaws do not allow for virtual meetings, most Canadian business corporation statutes give the court broad discretion to authorize meetings to be called as the court sees fit, if it is impracticable to call the meeting in accordance with the company’s articles, bylaws or governing statute.
In light of COVID-19 social distancing guidance, we expect courts will be prepared to authorize companies to hold virtual meetings for so long as government authorities discourage large public meetings and air travel is restricted. Although Canadian courts have suspended normal operations for the immediate future, courts in certain jurisdictions have indicated that they will address COVID-19 related issues during the suspension.
In light of current circumstances, we expect the courts and securities regulators to demonstrate flexibility in relation to meeting issues this year and, as matters continue to evolve, further guidance from the courts, regulators and the Toronto Stock Exchange (TSX) may be released.
Hybrid Meetings as an Alternative to Virtual Meetings
Where a contested meeting is anticipated, consideration should be given to holding a hybrid meeting in place of a virtual meeting. The disruptions often associated with a proxy contest may be difficult to manage in a virtual meeting.
Where it is impermissible (and a court order cannot be obtained) or impracticable to hold a virtual meeting, a hybrid meeting should be considered. As the meeting is held at an identified location, quorum requirements can be satisfied so long as proxyholders holding the requisite number of shares are present in person. This is typically the case where management nominees serve as the designated proxyholder on the management proxy.
Because the meeting is hybrid, it may not be necessary to ensure that all participants be able to communicate adequately with each other during the meeting, as would be the case with an entirely virtual meeting.
Disclosure IssuesIf a decision is taken to hold a virtual or hybrid meeting, the issuer’s proxy materials should clearly explain the rationale for the meeting format. It should also provide clear instructions to shareholders on how to access and participate electronically in the meeting.
Issuers should also review and be mindful of disclosure guidelines published by proxy advisory services such as Glass Lewis and ISS that relate to hybrid and virtual AGMs, recognizing that each has issued more permissive guidance in light of COVID-19 concerns.
What If a Traditional In-Person Annual Shareholder Meeting Has Already Been Called?Where an issuer has already called a traditional in-person annual shareholder meeting and circulated proxy materials, and wants to hold a virtual or hybrid meeting, the company must comply with applicable securities laws or seek relief from those laws from the courts. Among other things, in most jurisdictions shareholders are entitled to receive notice of the meeting location at least 21 days prior to the meeting.
Where this deadline cannot be met, the company may choose to postpone the meeting to a later date for which adequate notice may be given, or apply to the court to abridge the minimum notice requirement.
In postponing a previously-called traditional meeting to permit a virtual or hybrid meeting, issuers should be alert to the statutory requirements, which in some instances require a meeting to be held within 15 months or the last preceding annual meeting and the TSX requirements to hold a meeting within six months of year end, which for most issuers is June 30. Where it is not possible to meet this deadline, discretionary relief is available from the courts and from the TSX.