ASIC recognises that the outbreak of COVID-19, may temporarily impact on a company’s ability to hold an annual general meeting (AGM) or comply with financial reporting obligations. On 20 March 2020, ASIC released guidelines to assist companies in understanding their legal obligations when it comes to holding AGMs or producing financial reports, as a result of the COVID-19 emergency.
Under section 250N(2) of the Corporations Act 2001 (Cth), companies are legally required to hold an AGM at least once every calendar year and within five months after the end of the company’s financial year.
With COVID-19 showing no signs of abating, this obligation is the most pressing for listed and unlisted companies with 31 December 2019 balance dates, who are required to hold an AGM by 31 May 2020 at the latest. This may prove difficult given the prevailing restrictions on large public gatherings, domestic and international travel, as well as concerns from board members with regards to attending large meetings whilst the COVID-19 situation is still ongoing.
- Confirm that ASIC will take no action if AGMs are postponed for two months, to 31 July 2020, and
- Support the holding of AGMs online using appropriate technology.
ASIC does not have the power to grant extensions of time to hold an AGM on a “class basis”, that is to all entities with a financial year end of 31 December 2019; instead they have provided a two-month “no action” position on all upcoming AGMs that will need to be deferred or alternatively held online. As a result, entities will now have until 31 July 2020 to hold their AGM. However, this situation remains under continuous review.
This “no action” position means that ASIC will not take any action against an entity with a financial year end of 31 December 2019 for failing to comply with section 250N(2) of the Corporations Act, provided that the entity holds the AGM by 31 July 2020 or such later date as ASIC may advise.
Public health and safety remains the key priority. Hence, ASIC cautions against entities holding an AGM whilst there are restrictions in place on large, public gatherings. The exception to this is if the entity can provide members with a reasonable and “safe” opportunity to participate in an AGM, for example by holding a virtual AGM.
ASIC Commissioner John Price said “flexible pragmatism” was required to deal with the evolving situation.
“Consistent with the Council of Financial Regulators’ statement that they would move to adjust the timing of regulatory initiatives so financial institutions could concentrate on their businesses and assist their customers, we will focus on helping entities with the difficulties created by this situation”.
Mr. Price stressed that the situation is under continuous review and that ASIC is liaising closely with advisors and industry bodies to understand stakeholder needs and respond accordingly.
Some entities may wish to proceed with holding their AGM by 31 May 2020 using technology in order to comply with the current COVID-19 restrictions. This may include a:
- “Hybrid” AGM, providing both a physical location and less participants, as well as an online option, or
- A virtual AGM which is conducted solely online.
ASIC understands the benefits of hybrid and virtual AGMs in the current climate. This includes encouraging participants to vote by proxy.
If a notice of meeting has already been distributed to members, ASIC permits entities to send supplementary instructions to their members on any changed format for the meeting. ASIC will adopt a “no action” policy on any contravention of the Corporations Act if an entity has dispatched a notice for a meeting to be held on or before 31 May 2020 and, at least two business days before the meeting is held, the entity sends their members supplementary instructions for online participation at the meeting. This “no action” position covers any failure of the supplementary instructions to comply with section 249J of the Corporations Act.
Entities that have a company constitution which restricts participation in a virtual AGM, or that cannot otherwise provide effective online participation for their members, can also rely on ASIC’s “no action” position for the deferral of AGMs. Postponing an AGM where an entity has made advanced preparation may cause significant cost and inconvenience. However, holding an AGM where few members can participate either physically or online may result in breach of the Corporations Act. Essentially, it is safer for companies to rely on the temporary relief being offered by ASIC.
Legal status of virtual AGMs
ASIC considers that hybrid AGMs are permitted under the Corporations Act. However, entities still need to confirm whether their company constitution contains any restrictions on meetings being held that way.
There is some doubt as to whether the Corporations Act permits virtual AGMs. There may also be doubt as to the validity of resolutions passed at a virtual AGM. Entities should again consider whether they are permitted to hold a virtual AGM under their company constitution.
Entities that are concerned about the legal validity of virtual AGMs should seek appropriate legal advice on section 1322 of the Corporations Act. Any irregularities associated with meetings are not invalidated unless the Court makes a declaration to the contrary. A party may also be able to apply to the Court for an order addressing any irregularities associated with a meeting.
ASIC does not have the power to modify the Corporations Act to facilitate hybrid or virtual AGMs.
However, ASIC is also adopting a “no action” position on non-compliance with provisions of the Corporations Act which may restrict the holding of virtual AGMs. This “no action” position will apply in situations where an entity elects to hold a virtual AGM in order to comply with the statutory deadline of 31 May 2020. This “no action” position is conditional on the technology used for the virtual AGM providing members with a “reasonable” opportunity to participate, as per section 249S of the Corporations Act. In ASIC’s view, this includes:
- Members being able to ask questions of the auditor and about management, and being heard; and
- Voting occurring via an online poll, as opposed to a show of hands.
Entities should assess the ability of their technology to comply with these guidelines prior to holding any online meeting. If there are any concerns as to the ability of the technology to meet these needs, entities should consider postponing the AGM to a later date, in reliance on ASIC’s “no action” position for deferred AGMs.
A note on ASIC’s “no-action” position for AGMs
ASIC’s general policy on “no-action” positions and their status is set out in ASIC’s Regulatory Guide 108 – No-action letters. A “no-action” letter is a letter in which ASIC states to a particular party that it (ASIC) does not intend to take regulatory action over a particular state of affairs or particular conduct. It should be noted that:
- A “no-action” letter is an expression of regulatory intention with regards to how to exercise ASIC’s powers. The purpose of a “no-action” letter is to provide an indication as to the future regulatory action which ASIC may take, and
- An ASIC “no-action” letter does not necessarily prohibit third parties, including the Office of the Director of Public Prosecutions (ODPP) from taking legal action in relation to the same conduct, and ASIC will not intervene in any proceedings brought by any third parties in respect of such conduct. It also does not prevent a Court from holding that a particular conduct infringes the relevant legislation in the circumstances.
ASIC is continuing to closely monitor developments which may affect financial reporting. This includes engaging with market participants and auditors and considering possible impacts and responses.
For entities with 31 March 2020 or 30 June 2020 balance dates, ASIC will carefully monitor the prevailing market conditions and how COVID-19 is affecting financial reporting for these entities and will update this guidance as need be.
For entities with 31 December 2020 balance dates, ASIC does not envisage any near-term impact to this timeframe but continues to monitor the evolving situation closely.
Practical guidance for corporations
Companies should continue to monitor the COVID-19 situation closely as it develops. This includes official government mandates as well as ASIC guidance. It is important for companies to be aware that the current situation is extremely fluid and is changing on an almost daily basis.
Some practical steps for company directors include:
- Ensure that you are clear on the exact date by which you are required to hold your AGM
- If required, engage ASIC’s “no action” policy early
- Review your company constitution to determine if it permits hybrid and/or virtual AGMs to be held
- Review your corporate technology and infrastructure to ensure it can adequately support a hybrid and/or virtual AGM pursuant to section 249S of the Corporations Act, and
- Ensure you are clear on your balance date for financial reporting so that you can be prepared early.
Further reading and sources
ASIC Media Release 20-068MR – Guidelines for meeting upcoming AGM and financial reporting requirements, 20 March 2020.
ASIC Regulatory Guide 108 – No-action letters, 18 December 2009
Statement by the Council of Financial Regulators, 16 March 2020.