Maintaining corporate governance during COVID-19
As COVID-19 (SARS-CoV-2) has spread, it has not only changed the way we interact with each other but has also brought legal norms and laws into the spotlight that are not part of day-to-day business. A key question that arises is how to ensure a company’s operations meet corporate governance requirements during these complicated times.
Here we look at a number of issues emerging for corporate governance professionals in light of COVID-19.
Annual General Meeting (AGM)
All entities newly incorporated in 2019 must be compliant with the local economic substance requirements since inception, and pre-existing entities are subject to the same obligation since 1 July 2019 in most jurisdictions. Notification and reporting are due as early as January 2020 in some jurisdictions.
If a local entity has not yet looked at its economic substance obligations, this task should be prioritized as soon as possible. Citco GSGS stands ready to assist you through our local presence and to provide you with the support you need at each stage of the process.
Virtual meetings are one potential solution to a perennial problem for shareholders worldwide, and COVID-19 has accelerated a breakthrough in virtual meetings. However, not every jurisdiction allows them. The bylaws of numerous companies still indicate that general meetings must be organized in accordance with the principle of immediacy, requiring shareholder(s) be physically present or represented. This excludes the possibility of voting by mail, by telephone or taking decisions by circulation. In light of the current restrictions on movement, this has severely restricted the possibilities for meetings and could render companies incapable of acting.
As a result, we might start to notice the tendency of countries giving a ‘green light’ with a direct guidance for virtual meetings. Argentina, Australia, Belgium, Brazil, France, Germany, The Netherlands, Democratic Republic of Congo and many other jurisdictions have urged shareholders to stream meetings online, giving them flexibility. Where technology does not allow this approach, companies may be able to take decisions via circulation of resolutions in writing, in lieu of annual general meetings. However, this should be allowed by local regulations as well.
Another option is to hold a ‘hybrid’ AGM, which combines both a physical meeting and electronic participation. If a company’s bylaws allow electronic participation, such companies may proceed via a physical meeting with a quorum being present and having other members participate via livestream or audio and videoconference. In cases when a company’s bylaws do not indicate such option, there might be relaxations of local laws, as in Australia, which temporarily overwrote statutory documents of the company. With restrictions on travel and the number of attendees at gatherings likely to persist, a hybrid AGM could be an ideal solution, although potentially not a cheap one.
Exercise of voting rights
The voting rights of the shareholder(s) may be exercised not only via an online meeting or in writing, but also by granting a proxy upon the suggestion of the Board of Directors. In some jurisdictions, the Board of Directors may propose to the shareholder(s) to vote on the agenda items through a representative, and they will ensure that voting mechanisms are clearly communicated in the invitation to the general meeting. This enables the shareholder(s) to exercise their voting rights while avoiding the need to physically attend the place where the general meeting of shareholder(s) is held.
Can AGM due dates be extended?
In light of recent events, another potential risk is missing the statutory due dates for approval documentation for annual accounts, and their further submission with the relevant bodies, either tax authorities or commercial registers. Depending on the size of a company and jurisdiction, the due date for filing annual accounts varies. Normally, the annual accounts, annual return and any other relevant annual notifications have to be filed within a defined period, with the standard permitted grace period, which depends
on the requirements and flexibility of local authorities.
The recent practice shows that the registries and other relevant authorities of the affected jurisdictions apply relaxed requirements, with most of them announcing the reasonable extension of the deadlines. We also see such examples as Portugal and Uruguay where virtual meetings are still prohibited by local law, but the period for the submission of annual accounts is therefore prolonged. Such postponements do not imply a breach of duty, as governments have put in place waivers, extensions, acceptable delays or measures that will govern public administration during this time.
Acceptance of electronic signatures
Even though the majority of transactions today can be completed electronically, a lack of understanding of e-signature legal requirements and their utilization, security concerns, or industry customs has meant that physical signatures still prevail.
COVID-19 has cast a spotlight on whether the electronic signature can be accepted for the moment on an exceptional basis. Nonetheless, documents, which are signed as deeds, require company seal and this cannot be completed electronically.
If your local entity has not yet looked at its upcoming statutory obligations, this matter should be prioritized as soon as possible. Citco GSGS enables the corporate compliance in response to regulatory provisions of any jurisdiction and may assist with an overview of the current situation, as well as providing the remedial actions to be taken to mitigate the risks.
Kseniya Cheshyk, Junior Legal Office, Citco Global Subsidiary Governance Services
Citco GSGS Focus – Summer 2020