Meetings Disrupted By Covid-19

Many organisations will be looking to hold their annual meetings within the coming months, given 31 March has passed. 

Two things will affect how meetings for companies and incorporated societies alike are going to be held.  First, the lockdown resulting from COVID-19.  Second, even after the lockdown is lifted, the potential need in the short-term to limit certain size groups of people getting together.

We set out in this article some general guidance on the issues to consider for meetings of companies and incorporated societies after the disruption caused by COVID-19.

Companies

Meetings of a company are controlled by the company’s constitution (which needs to be registered with the Companies Office), along with the Companies Act 1993.

A company can have two types of meetings: board meetings (a meeting of the directors) or shareholders’ meetings.

Board meetings

In these modern times, meetings of directors commonly involve some of all of the directors attending the meeting by way of audio or video link.

The legislation is flexible and allows these options[1]:

• A meeting of directors can take place by means of audio, or audio and visual, communication. So, audio or video conferencing can be used here.

• A written resolution approved by all directors can be passed, instead of holding a meeting. This can be circulated and approved by way of email.

You always need to check the company’s constitution before proceeding with either of those options.  The constitution can potentially change the above methods of holding meetings and passing board resolutions (but the number of constitutions that may do this will be minimal).

Because of the above options available to directors, there should be no issues with directors, via audio or video conferencing, being able to communicate with each other and make decisions after the disruption caused by COVID-19.

Shareholders’ meetings

Likewise, legislation allows a meeting of shareholders to take place by means of audio, audio and visual, or electronic communication.[2]  So, audio or video conferencing can also be used here.

The board of the company has to approve the method that shareholders participate in a meeting using audio/visual/electronic communication and can impose conditions in relation to that (including as to confirming the identity of the shareholder).

Annual Meetings

An annual general meeting of shareholders must be held within 6 months after the balance date of the company, and no later than 15 months after the previous annual meeting[3].  The exception to this is either that the stated exception applies[4] or a written resolution procedure is used instead[5].

The stated exception has three requirements:

• First, there is nothing required to be done at that meeting (no proposed resolution to pass).

• Second, the board has resolved that it is in the interests of the company to rely on the exception to not holding a shareholders’ meeting (having regard to whether there is an issue which the shareholders should be given an opportunity to discuss, comment or ask questions about).

• Third, the company’s constitution does not require the shareholders’ meeting to be held.

A written resolution procedure can be used, if everything that would need to be done at the annual meeting of shareholders is done under the written resolution.  When using the written resolution procedure, both the company’s constitution and the legislation[6] needs to be looked at to check what percentage of votes is required to pass the resolution. This is important for the resolution to be valid.

A common resolution passed at annual meetings of a company is opting out of certain requirements relating to the preparation or audit of financial statements and (in some cases) preparation of an annual report.  This opt out procedure is not required for all companies, as any company with fewer than 10 shareholders is opted out as a default position (this does not apply to a large company subject to increased financial reporting requirements, as defined in the legislation)[7]

Disruption from COVID-19

Applying the above to the COVID-19 situation: where a physical annual meeting of shareholders cannot occur, then:

• Where the annual shareholders’ meeting is only proposed to deal with administrative issues (eg opting out of an audit), then a written resolution procedure can be used.

• Where the directors think that shareholders should be given an opportunity to comment or ask questions about a particular issue, then a meeting using audio or video conferencing is best.

Government response

As a result of COIVD-19, the Government has announced that it intends to introduce legislation to relax the deadlines for some corporate governance, such as holding annual general meetings. 

Incorporated Societies

Incorporated societies (such as sports clubs) are perhaps the most challenged with holding meetings after the disruption caused by COVID-19. 

Societies will often need to deal with a large number of members for annual meetings.  Often a wide variety of issues are discussed amongst the members and voted on, including approval of financial statements and election of officials.  These factors means that a physical meeting in a large venue is often required.

Whether such a physical meeting can be carried out in the short-term (even after the lockdown is lifted) remains to be seen.

Annual member meetings and filing requirements

Meetings of an incorporated society are controlled by the registered rules of the society.  Rules of a society must state how general meetings are held and how to vote at those meetings.

A society must file an annual financial statement with the Incorporated Societies Register[8], but this does not include a charitable entity.[9]  Before doing that, the financial statement must have been submitted to and approved by the society members at a general meeting.

The problem with this COVID-19 situation is this: if a general meeting cannot be held then the financial statement cannot be approved and then filed. 

Helpfully, the Companies Office (who administer the filing process) have recognised this difficulty for societies and acknowledged that filing will occur late, saying on its website to those that are unable to file: “don’t worry, we won’t be removing your incorporated society from the register”

Charitable societies

If the society is registered as a charitable entity, then this has a different filing requirement.  The society needs to file an annual return (which includes copies of financial statements) with Charities Services (Ngā Ratonga Kaupapa Atawhai) within six months after the society’s balance date.[10]

The rules of a charitable society need to looked at to see whether the financial statements included in the annual return need to first be approved at a meeting of members. 

Charities Services have also recognised the difficulty for charitable societies given the disruption caused by COVID-19 and acknowledged that some may be late to file.  Given the level of oversight of charitable entities, the process for late filing is more structured.  Charities Services currently provide for an extension request procedure.[11]

What should a society do?

What should an incorporated society do with its annual meeting?  You need to check on the rules of the society to answer these questions:

• When does the annual meeting need to be held?

• Can the annual meeting be postponed?

• How many members need to attend (forms a quorum, which allows the meeting to go ahead)?

• What notice is required to be given to members?

• Can a meeting of members and voting take place using audio or video conferencing?

The rules of many societies will not provide for any sort of audio or video conferencing, and will likely require a physical meeting.  If that is the case then the annual meeting will need to be postponed until a time when it can take place or wait for the Government to allow a meeting to be carried out by electronic means as mentioned below.

Government response?

As a result of COIVD-19, the Government has announced that it intends to introduce legislation to deal with the following:

Relax deadlines applying to incorporated societies, such as holding annual general meetings and filing.
Give temporary relief to incorporated societies where they cannot comply with rules because of COVID-19.
Allowing general meetings to be held using electronic means.

Prior to the COVID-19 situation, the Government was reviewing the legislation applicable to incorporated societies.  A draft Incorporated Societies Bill was released for public comment in 2015.  The draft Bill provides that annual meetings of members may be held using audio, audio and visual, or electronic communication, which can also be used in combination with a physical meeting.  The draft Bill is not the current law, and the Government has yet to introduce the Bill to Parliament.[12]

Concluding Remarks

COVID-19 and the Alert Level 4 lockdown have created problems for holding annual meetings, for both companies and incorporated societies alike.

Companies are better placed to deal with the problems and are able to use technology more easily for meetings. 

Incorporated societies seem to have the more difficult position.  This is a result of outdated legislation and outdated forms of rules used by many societies.  But this also reflects that many societies have traditionally held large meetings, on the basis that members expect to be able to turn up to the meeting and have their say.

While the Government has said that it is putting in place measures to address these problems, the current situation is a reminder that both constitutions and rules can be reviewed to make sure that they are current and provide as much flexibility for meetings as they can.

Disclaimer

The above information is of a general nature only. The information in this article does in no way constitute legal advice and all readers should contact a law firm for advice relating to your specific circumstances.

[1] Section 160 and Schedule 3 Companies Act 1993.

[2] Section 124 and Schedule 1 Companies Act 1993.

[3] Sections 120(1) to (4) Companies Act 1993.

[4] Section 120(5) Companies Act 1993.

[5] Section 122 Companies Act 1993.

[6] Section 122 Companies Act 1993.

[7] Section 207K Companies Act 1993.

[8] Section 23 Incorporated Societies Act 1908.

[9] As defined in the Charities Act 2005

[10] Section 41 Charities Act 2005.

[11] Further information can be found here: https://www.charities.govt.nz/covid-19/frequently-asked-questions/

[12] For more information: https://www.mbie.govt.nz/business-and-employment/business/regulating-entities/incorporated-societies-act-review/