Covid-19 has disrupted daily routines and impinged on the work choices for many people. Home working, virtual meetings and utilizing electronic signatures is the new normal; until we get back to the old normal which, the current government suggests, will be after the implementation of the vaccination strategy in the autumn.
A pivotal change for companies is embedding a social distancing strategy throughout all the activities of the organisation. This process raises the important issue: how does a company hold general and annual general meetings?
Companies Act 2006 Articles of Association
The rules relating to company meetings are provided by legislation, in the form of the companies act under which the company was incorporated and the internal company rule book. The company rule book is legally termed the articles of association, or simply the articles.
The articles are often overlooked by small companies. The implications of operating the company without their consideration often leads to court action, as they are legally binding on the member and the company and the members themselves.
The articles of association provide the rules (which have been agreed by the members) on how the company will: make decisions, appoint directors, pay dividends and the procedures for voting and holding a general meeting. The members have reasonable latitude as to the rules they agree, the only limitations being that they must not fetter company law, or contain articles that prove illegal.
Companies incorporated after 1 October 2009 typically incorporate using the New Model Articles (NMA). For companies incorporated prior to 2009, the relevant articles of association will still apply. For example, Table A for companies incorporated under the Companies Act 1985.
New Model Articles
Fortuitously, the government drafted the NMA on the presumption that companies would take advantage of the emerging technology to hold meetings virtually, so a new article, 37(4) was included:
‘37 Attendance and speaking at general meetings: (4) In determining attendance at a general meeting, it is immaterial whether any two or more members attending it are in the same place as each other.’
Nevertheless, a problem may arise for a company incorporated prior to 1 October 2009, whose articles of association may include a provision specifying that general meetings must be held face to face, or indeed, if a company incorporated under the Companies Act 2006 has, removed, altered, or amended provision 37(4).
Without new legislation, companies with provisions contrary to the social distancing regulations would have a considerable problem holding company meetings, the only realistic solution being, the amendment the of existing articles of association to include provisions for virtual meetings.
Fortunately, the government recognising this issue, brought forward the Corporate Insolvency and Governance Act 2020 (CIGA 2020), which received Royal Assent on 25 June 2020.
The act sets out to achieve three key purposes:
- Provide flexibility in the insolvency regime.
- Suspend parts of the insolvency regime.
- Provide easements on company filing and meeting requirements.
CIGA 2020, Sch 14, para 3 (Meetings of companies and other bodies) specifies that meetings of qualifying bodies held during the relevant period need not be held at any specified place, or in the same place, any votes are permitted to be cast by electronic means and members do not have a right to attend or vote by a particular method.
Sch 14, para, (3)(8) overrides all company constitutions, by re-writing any articles that stipulate meetings are to be held in person or confer any rights to vote or attend in person and the stipulation of any specific place the meeting must be held, typically the head office address.
Do companies need to amend their articles of association?
Pending a further announcement by the government, companies affected are not required to amend their articles of association before April 2021. The CIGA 2020 makes provisions for companies to hold company meetings and vote electronically. It should be noted the quorum requirements remain unchanged.
The provisions of the CIGA 2020 were due to expire on 30 September 2020, this was extended by statutory instrument to, first, 30 December 2020, then further to 30 March 2021. The CIGA 2020 legislation is extendable by statutory instrument in intervals of three months but cannot be extended past the 5 April 2021.
On the basis the CIGA 2020 will cease to have effect in April 2021, companies with articles of association that restrict the use of electronic meetings and voting will be required to amend their constitutions or hold meetings in person, as per the rules of the company. Overriding the articles of association may lead to any decisions made at the relevant meeting deemed void, the members have legal recourse to the courts to challenge the outcome of any vote, undertaken in breach of its articles.
The directors should carefully review their articles of association and decide if they are fit for purpose for the modern company using the relevant technology to hold meetings. Restrictive provisions around meetings and voting stating they must be held in person should be removed or redrafted.
There is a final complication for companies incorporated before 1 October 2009, whose memorandum or articles contains any entrenched provisions. For these companies, a court order is required to amend the company’s constitutional documents.
Amending the articles of association
To amend the articles, the members must pass a special resolution, which requires 75% of the votes cast by shareholders to approve the new articles of association. A copy of the approved articles must be submitted to Companies House within 15 days from the date on which they will take effect, together with a copy of the resolution.