Going the distance… or not: How holding virtual AGMs can help Canadian issuers navigate the COVID-19 crisis
In a recent blog post published in September 2019, we discussed the slow adoption of virtual annual general meetings of shareholders (AGM) in Canada. In light of the ever-increasing concerns surrounding the novel coronavirus, a growing number of Canadian issuers seem to be seriously considering virtual (or hybrid) AGMs for the upcoming proxy season. Notably, Enbridge Inc. recently announced that it will be holding its 2020 AGM online, making it one of the first major Canadian issuers to adopt a virtual-only AGM. This may open the floodgates.
As a brief reminder, a virtual meeting may be “virtual-only”, i.e. held wholly by electronic means, or “hybrid”, i.e. allowing shareholders and proxyholders the opportunity to attend the AGM either electronically or in person. Many Canadian issuers already broadcast their meeting online, but the meeting is only considered “virtual-only” or “hybrid” if shareholders are able to participate from a distance.
First Things First: Consider your Governing Statute and Constating Documents
Generally speaking, a Canadian issuer can hold a virtual or a hybrid AGM if its governing statute allows shareholders to participate or vote electronically at the meeting. First, the Canadian issuer must ensure that enough participants are counted as being present to form quorum. Given that under certain statutes, shareholders who participate electronically are not counted as present for the purpose of quorum, even though these shareholders can vote electronically at the meeting, the quorum requirement will determine whether a Canadian issuer should opt for a virtual or hybrid AGM.
Other gating issues must also be considered before choosing the right electronic solution:
- Confirm Whether and Under What Conditions you Are Permitted to Hold a Virtual Meeting Under your Governing Statute
The Canada Business Corporations Act (CBCA), as well as its Quebec, Alberta and Manitoba equivalents, specifically provide that a virtual AGM can only be held if the electronic solution permits “all participants to communicate adequately with each other during the meeting”. These statutes do not specify what is meant by “communicate adequately” and Canadian courts have not yet interpreted these provisions. Canadian issuers will have to coordinate with their electronic solutions provider to determine what technology is available to address this requirement if they intend to hold a virtual AGM.
- Confirm Whether the By-laws Need to Specifically Authorize Virtual AGMs
Even when virtual AGMs are allowed by the applicable federal or provincial corporate statutes, certain statutes provide that the by-laws of issuers must specifically allow for virtual-only AGMs. Canadian issuers incorporated under the CBCA, or under its equivalents in Alberta, New Brunswick, Nunavut and the Northwest Territories, will notably need specific provision in their constating documents (i.e. articles or by-laws) to this effect.
- Confirm Whether the AGMs Must Be Held in a Specific Location
Even if your governing statute does not require that the by-laws permit a virtual meeting, confirm that your by-laws do not explicitly or implicitly prohibit such a meeting. For example, if your by-laws provide that the AGM must take place in a specific location or province, a hybrid meeting would likely be the only option.
Common Concerns with Virtual and Hybrid AGMs and How to Address Them
Canadian issuers may worry that virtual AGMs will not be well received by shareholders, and therefore could negatively impact investor relations. The current health considerations raised by the COVID-19 crisis may alleviate these concerns, at least for the upcoming proxy season.
Canadian issuers may be able to alleviate some of the potential negative impact of virtual AGMs on investor relations by tailoring the disclosure and the information provided in the proxy circular and other proxy materials to address investor concerns. For example, in order to comply with the 2020 Glass Lewis policy guidelines regarding virtual AGMs, Canadian issuers may wish to disclose (i) how to access the meeting electronically, including any device, web browser or internet connectivity requirements, (ii) when and how shareholders can submit their questions to the chair of the meeting, (iii) whether any time or content limits will be imposed on questions and if so, when and how to access the information on these limits at or prior to the meeting, (iv) when and how shareholders can vote electronically at the meetings, (v) who to contact if the shareholders require technical assistance, and (vi) what information will be available to shareholders after the meeting, including any video of the AGM or answers to the shareholders’ questions. Such disclosure should make it clear that shareholders are not being denied an opportunity to communicate with the company’s management or to ask questions simply because the meeting is held electronically.
If a hybrid AGM is held rather than a virtual-only AGM, it may be challenging to convince shareholders to modify past practices and attend the meeting virtually rather than showing up in person. The key to addressing this concern is transparency and adequate communication with shareholders regarding the intended restricted attendance at the physical location and, therefore, the limited facilities that will be available. Further, it will be important to stress the reasoning behind the virtual AGM, i.e. the need to avoid large in-person gatherings and the contamination risk they pose in order to mitigate health and safety risks to all meeting participants, and to urge shareholders not to attend the meeting physically in order to effectively limit contamination risks.
The potential contribution of large in-person gatherings to the acceleration of the spread of the novel coronavirus and how this may affect the upcoming proxy season is only one of many business concerns related to COVID-19. You can find further guidance regarding legal issues arising from COVID-19 and key considerations to factor in when preparing a COVID-19 response plan in our recent Legal Update and webinar presented on March 6, 2020.
If you have any questions or require additional information, please contact either Andrew Parker or Patrick Boucher, Co-Heads of the National Capital Markets Practice.
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