Business laws — steering clear in a pandemic

General meetings halted

The pandemic has also created issues regarding convening company meetings.

In late March, the Hong Kong government issued three directives to enforce social distancing amid a surge in imported COVID-19 cases, including one that prohibits group gatherings of more than four people in public places, and the restriction has now been relaxed to no more than eight people. However, group gatherings at a meeting of a body of people that must be held within a specified period in order to comply with any ordinance or other regulatory instruments that govern their operation or its business are exempted.

Global law firm Mayer Brown reckons that corporate annual general meetings (AGMs) of listed companies fall within the exemption and may proceed. A company listed on the Stock Exchange of Hong Kong is required to present its annual financial statements to shareholders at its AGM within six months after the end of its financial year under the Listing Rules.

However, extraordinary general meetings (EGMs) do not fall squarely within the exemption. They are invariably held to approve one or more transactions in compliance with the Listing Rules, but it is debatable whether they must be held within a specified period.

In other words, if the convening of an EGM is found to be in breach of the directive of prohibiting group gatherings of more than eight people, then the company and its directors would be subject to criminal liability and may face indemnity claims from shareholders, other participants in the EGM, as well as owners and operators of the EGM venue, not to mention the adverse publicity and reputational damage.

"What constitutes a 'reasonable excuse' is purely factual, and may involve subjective assessment. We call on the relevant authority to issue guidelines to provide more certainty to those who need to arrange their businesses and affairs," said Jeckle Chiu, a partner at Mayer Brown.

"At the same time, we call on boards of listed companies to exercise restraint and set a high threshold for themselves in case they really need to proceed with their EGMs instead of postponing them. The urgency and necessity of the underlying transactions differ from company to company and it would be up to the board to justify a non-postponement as reasonable," Chiu added.

Mayer Brown advised listed companies either to postpone their EGMs, utilize electronic devices or to issue guidance to shareholders to submit proxies and avoid physical attendance.

The issue at stake is that virtual corporate general meetings are not yet fully supported by laws and practices in Hong Kong. If a company encourages its shareholders to vote by proxy only and avoid physical attendance, it is simply against corporate governance norms of accountability. Hence, the logistical questions of convening virtual EGMs, such as setting up such facilities and enabling access and online verification of shareholders' identities, need to be addressed.

Hong Kong-listed Bank of East Asia said it had implemented precautionary measures to protect the health of shareholders and other participants at the AGM held on April 24.

The measures include limiting the number of attendees as necessary to avoid overcrowding at the AGM, body-temperature checking, mandatory wearing of face masks, and non-provision of gifts, food and drinks at the meeting.

Any person who had traveled outside Hong Kong 14 days prior to the AGM, or who is currently subject to quarantines of any kind due to the coronavirus situation, or who had close contact with any person under quarantine or with recent travel history, shall not attend the AGM.