Virtual Shareholder Meetings

Virtual shareholder meetings – can a general meeting of shareholders be held by telephone or online?

Director’s meetings are often held by telephone.  However, Talbot Olivier has recently advised a client that it could hold a general meeting by telephone.  A telephone or even a virtual face to face meeting could have considerable cost and time saving implications for both companies and shareholders.  This article explores some of the issues.

Is the technology available? 

We can see on the television news and entertainments channels that there is the ability to have online real time face-to-face exchanges, where each party can see the other party’s gestures and expressions. The technology exists for multi party Skype telephone and messaging and for fully integrated video images and sound.  Technology providers are currently offering products to enable participants to simultaneously see each other in real time video windows enabling communication that is much more true-to-life.  

Is a virtual meeting a “meeting”?

Case law regarding directors’ meetings illustrates an acceptance by some courts that any forum constituting a meeting of the minds will count as a meeting, even if it takes place using technology (such as a telephone or video conference).  On the other hand, shareholder meetings are traditionally physical gatherings allowing for face to face confrontation, debate, and deliberation. Clearly a telephone meeting is not face to face in the same room.   See below under “Is the technology available?” for details of virtual face to face meetings.  However, there has been very little judicial consideration of what amounts to a valid meeting of shareholders.  Furthermore, since 2000, Delaware (USA) legislation no longer requires companies to hold their shareholder meetings at a physical location so that a meeting may be held online at the sole discretion of the directors.  Shareholders participating on-line are considered to be “physically present”.  There are similar provisions in Denmark. So far as we are aware only Delaware and Denmark currently permit virtual meetings.

So what is the current Australian position? 

In Australia, there is no express provision allowing a virtual meeting that is to be held at no physical place, although the legislation does expressly provide for a meeting to be held in more than one place. Section 249S of the Corporations Act (“Act”) states that “a company may hold a meeting of its members at 2 or more venues using any technology that gives the members as a whole a reasonable opportunity to participate.”  This requirement could be interpreted to extend to an entirely virtual meeting. In this regard, one leading commentator has stated that “the meeting probably need not take a traditional form if the corporation has a small number of shareholders, or the shareholders are confined to a small number of venues designated by the corporation. The limited case law on this topic suggests that such an approach would not expose the meetings to a legal challenge” (Virtual Shareholder Meetings 2004 Duke L. & Tech Rev. 008).  To permit telephone meetings for companies with a limited number of shareholders would present less of a practical issue than those with a large shareholder base. 

Recent developments in the UK 

The Companies (Shareholders’ Rights) Regulations 2009 (SI 2009/1632) (“2009 Regulations”) came into effect in the UK in August 2009.  The 2009 Regulations aim to improve shareholder information and participation rights in company meetings. All companies are allowed to conduct meetings in a way that facilitates electronic participation by persons who are not present in the meeting room. 

In this regard, section 360A of the UK Companies Act 2006 (inserted by the 2009 Regulations) provides that: 

“(1) Nothing in this Part shall be taken to preclude the holding and conducting of a meeting in such a way that persons who are not present together at the same place may by electronic means attend and speak and vote at it.(2) In the case of a traded company the use of electronic means for the purpose of enabling members to participate in a general meeting may be made subject only to such requirements and restrictions as are—

(a) necessary to ensure the identification of those taking part and the security of the electronic communication, and(b) proportionate to the achievement of those objectives.” 

It remains to be seen how many UK companies will take up this option beyond the usual facility for satellite meetings via overflow meetings in the event of difficulties with room size. 

How do you vote and participate at a virtual meeting?

Section 1322(3A) of the Act provides that a court may deem a meeting to be invalid unless a member has a reasonable opportunity to participate at a meeting held at 2 or more venues. 

It would be for the company to put in place procedures to ensure that its members have a reasonable opportunity to participate and vote at virtual general meetings. The relevant Delaware legislation provides that a meeting may be held online provided that: 

“(i) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxy holder

(ii) the corporation shall implement reasonable measures to provide such stockholders and proxy holders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and

(iii) if any stockholder or proxy holder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation.” 

In Australia, such procedures could be relatively easily managed for shareholders in certain small proprietary companies rather than large proprietary companies or listed entities.  Voting between a relatively small number of shareholders by telephone could be by name in turn.  A more anonymous approach would be for a vote (or a question/answer) to be sent to the chairman or receiving agent through instant messaging.  

Nevertheless, the practical problems associated with participation are probably the biggest hurdle for proponents of virtual meetings, particularly for larger listed companies.  This and the possible preference for “traditional” meetings could help explain why only a limited number of listed Delaware companies have held virtual meetings since 2000. 

Quorum issues 

Even with a quorate telephone or online meeting all sorts of problems could arise if one or more shareholders became disconnected during the meeting making the meeting inquorate. It may be preferable in this regard to hold a physical meeting in one location with a conference connection by telephone or webcasting of the physical gathering to other shareholders elsewhere. The meeting would be quorate at all times given the physical location. 

Summary 

We consider that it may be possible for a proprietary company, particularly one with a small shareholder base, to hold a valid shareholder meeting by telephone or online provided that:

• all shareholders can hear each other and have a reasonable opportunity to participate in discussions on a real time basis;
• a quorum is in place at all times during the meeting; and
• any voting is achieved fairly and accurately. 

Whether it may be appropriate or even technologically possible for companies with a large shareholder base to conduct virtual shareholder meetings will be a question of fact depending on the particular circumstances of each company.  

For further information or advice on whether a virtual meeting may be appropriate for your company, please contact Paul Kordic, Principal, by email at pkordic@talbotolivier.com.au or Louis van Aardt, Senior Lawyer, by email at Lvanaardt@talbotolivier.com.au