In the ever-changing climate of health risks and uncertainty surrounding the developing global outbreak of COVID-19 (coronavirus) and with shareholder meeting season fast approaching, companies need to give serious consideration as to whether they are in a position to hold their annual shareholder meetings (“AGM”) or other shareholders meetings virtually, rather than in person.
Holding a virtual AGM, rather than a regular in-person AGM, allows companies to proceed with their AGM business, comply with applicable laws created in response to the outbreak, ensure the health and safety of management, directors, employees and shareholders, and reduce the potential for increasing the outbreak in the community.
However, before companies proceed with a virtual AGM, they will need to consider whether a virtual AGM is permitted by their constating documents and governing corporate statutes.
Holding an AGM entirely electronically
Companies that are governed by the Canada Business Corporations Act (“CBCA”) and the corporate statutes in Manitoba and Alberta are expressly authorized to hold an AGM entirely by electronic means, provided that the company’s by-laws permit it to do so and the company provides the electronic means to allow participants to communicate adequately with each other during the meeting. While the courts have yet to provide guidance on what constitutes adequate communication, at a minimum, adequate communication requires that all participants be able to hear each other clearly at the meeting. The corporate statutes in British Columbia and Saskatchewan, on the other hand, are silent on and do not expressly authorize a company to hold an AGM entirely by electronic means.
Companies governed by the CBCA, or the corporate statutes in Manitoba or Alberta, that are not currently authorized to hold an AGM entirely by electronic means should consider amending their constating documents to allow them to do so.
Participating in an AGM electronically
While a company may be authorized to hold an AGM entirely electronically, that doesn’t necessarily mean that a shareholder may participate electronically. The CBCA, and the corporate statutes in Manitoba and British Columbia, provide that a shareholder can attend and participate in an AGM provided that, once again, the adequate communication requirement is met, and unless the by-laws state otherwise.
The corporate statute in Alberta, similarly, authorizes a shareholder to participate electronically if the electronic means permits all persons participating in the meeting to hear or otherwise communicate with each other, however, it must be authorized by the company’s by-laws.
The corporate statute in Saskatchewan, on the other hand, only provides that an individual shareholder may “attend” a meeting by electronic means, subject to the constating documents of the company. The distinct use of the terms “attend” and “participate” as separate concepts in Saskatchewan, the CBCA and other provincial corporate statutes, makes it possible that legislators deliberately excluded virtual attendees from participating in an AGM electronically.
Companies with constating documents that do not currently authorize shareholders to attend AGMs electronically should consider amending their constating documents to allow them to do so. Companies, other than Saskatchewan companies, with constating documents that do not currently authorize shareholders to participate in AGMs electronically should consider amending their constating documents to allow them to do so.
Establishing quorum for an electronic meeting
In order to hold an AGM in accordance with corporate law, a quorum must be established. The CBCA and the corporate statutes in Manitoba, Alberta and British Columbia provide that shareholders participating in the meeting electronically are deemed present at the meeting for the purposes of establishing quorum.
That is not the case for the corporate statute in Saskatchewan. In that case, the lack of a deemed presence provision for shareholders raises concerns that a shareholder participating electronically may not be considered present at a virtual meeting for the purposes of establishing quorum. The same statute does include a deemed presence provision for director meetings where a director participates electronically. The deliberate distinction between the two may demonstrate an intention by legislators for shareholders participating electronically to not be deemed present.
Other restrictions preventing an electronic meeting
Companies should carefully review their constating documents in order to ensure that there are no other restrictions that would prevent the use of an virtual AGM. One example of this is where a company’s by-laws include a provision that a company’s AGM must take place at a specific physical location. In such a case, holding a virtual meeting may be in violation of such company’s by-laws.
It is important to note that as the COVID-19 outbreak evolves, so will the regulatory framework for corporations. Corporations should continue to monitor the legal landscape to ensure that they are not only complying with applicable laws, but accessing any exceptions or relief that may become available to them.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.