By Elvis E. Asia
Introduction
With social distancing and restriction of movement occasioned by Covid-19, many public companies whose Annual General Meetings (AGMs) are due are at a loss as to whether their companies can hold the meeting virtually or by electronic means . Beyond Covid-19, the question of the legality or otherwise of virtual meeting is a pertinent question which must be answered in this age of information technology. There are arguments for and against the legal possibility of virtual meetings under the Nigerian law. This article is an attempt to weigh in on this raging discourse. It is the writer’s view that in the absence of any amendment of the Companies and Allied Matters Act (CAMA)[1] and regulatory guidance/directives on virtual meetings, there are serious legal and practical hurdles to effective virtual shareholder meetings by Public Companies in Nigeria.
Virtual vs. Physical Shareholders Meeting under CAMA
A virtual meeting is a meeting held online with the aid of various apps and other information technology communication tools. Unlike a physical meeting that must take place in a particular place or venue, in a virtual meeting, participants can join the meeting irrespective of their physical location. The meeting could be by video, audio, or text.
There is no doubt that CAMA did not contemplate virtual meeting in 1990. Indeed it is doubtful whether any legislation on company law did anywhere in the world at the time. It has however been argued that there is no express provision stipulating that the mode of meeting must be physical under CAMA and therefore virtual meetings are not disallowed[2]. This is a progressive way to look at CAMA but a combined review of CAMA would suggest that it is perhaps, a narrow construction of the provisions. A broader interpretation, which is commended by the authorities, clearly shows that CAMA could only have contemplated physical meetings.
In the first place, under CAMA, AGM and other statutory meetings must be held in Nigeria[3]. Section 218 (1) of CAMA specifically states that the notice calling for the meeting must specify the place of the meeting. Can a Zoom or other online links for a virtual meeting be defined as a place of meeting under CAMA? For 1990 legislation, I think not. Other provisions on notices, voting and rights exercisable by shareholders at the meeting points to a physical meeting only[4].
Another reason why it may be too much of a stretch to say virtual meetings can be held under CAMA is that even when attempt was made to amend CAMA[5], the legislature did not endorse virtual meetings for public companies. The Bill granted the right only to private companies subject to a regulation by the Corporate Affairs Commission (CAC). This shows that the lawmaker intended that AGM be held in a physical location. Of course, it can be justifiably argued that the National Assembly was shortsighted but we cannot substitute our sight for that of the legislature.
Even if the argument is accepted that virtual meetings are not outlawed under CAMA, there are practical issues that must be addressed in a regulation before it can be effective. Generally, you want to be sure that a virtual meeting can accommodate all shareholders without breaching specific rights conferred on them by CAMA. The manner that should take cannot be left to the discretion of individual companies. These issues are important because there are certain disadvantages of virtual meetings as against physical meeting. With a virtual meeting, companies may filter shareholder questions so as to answer those convenient to them, technical issues may arise disrupting the meeting, and shareholders cannot communicate as effectively as they would in a physical meeting thereby limiting the effectiveness and quality of participation generally. A virtual meeting of hundreds or thousands of people will not be easy to conduct and may not be possible without technical support beyond the simple available online applications. There are other considerations like data and cyber security implications. Of course, we have to work towards a system that fully embraces modern technology but not before a clear legislative and regulatory framework on the issue.
Most importantly, in the absence of an express provision permitting companies to hold virtual AGMs and setting out the manner it should be held, the decision to hold virtual shareholder meetings must be made by shareholders. Shareholders can only make the decision in the manner set out by CAMA and the memorandum and articles today. The decision cannot be made until a valid meeting under the current framework is held. For corporate governance and jurisprudential consideration of the corporate form, this is significant. The separation of ownership and control for the purpose of ensuring good corporate governance practice is the hallmark of modern company regulation. CAMA in its provisions on shareholder meetings specifically seeks to ensure that directors who manage the day to day business of the company are kept in check through shareholder meetings by empowering them to approve important decisions of directors. The way and manner the meeting should hold are set aside to avoid a situation where the meeting is deliberately skewed in favour of directors. It must be accepted that a virtual meeting will not carry many shareholders along in a country like Nigeria because many shareholders simply do not have the means and know-how to follow virtual meetings. If directors are allowed to make the decision to hold virtual meetings without any form of control, they will have no motivation to protect the interest of the shareholders. On the other hand, if the company goes ahead to hold the meeting without the concurrence of shareholders, any shareholder entitled to attend may apply to set aside the meeting.
Shareholder meeting is central to corporate control, hence, the manner the meeting is called and conducted is expressly provided for by statute. Physical meetings are regulated, more so virtual meetings with peculiar corporate governance concerns. As we shall see from a review of developments in other jurisdictions, a positive legislative process is imperative for a virtual meeting to be effective. In more advanced societies where laws have caught up more with the times, legislative amendments and executive orders were issued to make virtual AGMs possible.
Review of Suggested Approaches to Legitimizing Virtual Meetings under CAMA
Two approaches have been suggested on the way and manner a virtual meeting can be legitimized under CAMA. They are:
Court ordered virtual meeting
Many people have argued plausibly that an application for a virtual meeting can be ordered under section 223 (1) of CAMA. The section provides thus:
‘’If for any reason it is impracticable to call a meeting of a company or of the board of directors in any manner in which meetings of that company or board may be called, or to conduct the meeting of the company or board in the manner prescribed by the articles or this Act, the court may, either of its own motion or on the application of any director of the company or of any member of the company who would be entitled to vote at the meeting, in the case of the meeting of the company, and of any director of the company, in case of the meeting of the board, order a meeting of the company or board, as the case may be, to be called, held and conducted in such manner as the court thinks fit, and where any such order is made, may give such ancillary or consequential directions as it thinks expedient’’.
There are however issues with the successful invocation of the above provision. The courts are presently sitting only for urgent matters particularly bothering on fundamental human rights and criminal law related cases. It is doubtful whether an application under this section would be heard by the court during this period. Assuming there is a court to hear the application, it will not be granted as a matter of course. The applicant must demonstrate that a virtual meeting will not violate the rights of other persons entitled to attend the meeting. To do this, the applicant must give particulars of the technology to be used at the meeting with evidence that all members have been or will be notified of the meeting and that they have capacity to join the meeting. This may be difficult in a country like Nigeria where there are many illiterate shareholders who do not have the means and skill to participate in such a meeting.
There is another important hurdle. The applicant will need to show that there is no other way a meeting of the company can be held. The court may be reluctant to grant the application in this regard because for AGMs, the company can simply apply to CAC for a three months extension of time to hold the meeting[6].
Amendment of Memorandum and Articles to accommodate virtual meetings
Implicit in section 223 (1) of CAMA above is that the meeting of a company can be conducted in the manner provided for in the company articles. There are arguments to the effect that companies can simply amend their article to provide for virtual meetings. While this is a possibility and a path every company ought to tow going forward, to amend memorandum and articles, a special resolution of members is required[7]. This means that an Extra-Ordinary General Meeting (EGM) of the company must be called to make the amendment. It will be strange to hold a virtual meeting to agree on virtual meeting. This option is therefore not feasible until such a time when a meeting of the company can be held under the current constitution of the company.
Secondly, there is still the challenge posed by mandatory CAMA provisions on where meetings should be held which cannot be bypassed by the memorandum and articles. Even with a liberal interpretation, it is too much of a stretch to say that the current legal regime, which is fixated on a venue or physical location within Nigeria, allows a virtual meeting. It will be too risky for companies to expend time and resources on a meeting that may be set aside by a shareholder or not accepted as sufficient by regulatory authorities.
Lessons from other jurisdictions
Nigeria is part of the global system and its corporate laws were copied from other jurisdictions. Until most countries amended their company laws and issued regulatory guidelines on virtual meetings, virtual meetings were not acceptable.
In the United States (US) where states have regulatory control over companies incorporated in their jurisdiction, whether or not virtual meetings are permitted are expressly stated in law. Such a right is not implied. In New York for example, the Business Corporation Law permits hybrid meeting, i.e., a physical meeting that also allows for virtual participation subject to strict conditions. Governor Andrew Cuomo had to issue an executive order pursuant to the law enabling him to do so on March 20, 2020 that temporarily suspends the requirement for annual or special shareholder meetings to be held at a physical location. The Governor of Georgia issued a similar executive order on March 20, 2020. There are about 40 or so other states where virtual only or hybrid meetings are permitted but under express provisions of the law.
Similar to the US, Canadian provinces have statutory provisions allowing either virtual only or hybrid shareholders meeting but with strict conditions on electronic participation which makes virtual meeting only difficult[8]. In some provinces like British Columbia, the law allows participation in shareholder meetings by telephone or other communication mediums, but there is no express provision for a virtual only shareholders meeting. The law in Manitoba, Alberta, New Brunswick, Prince Edward Island, Quebec and the Northwest Territories and Nunavut, requires that the bylaws must expressly permit virtual meetings. Some companies had to obtain Court orders to hold virtual shareholder meetings because of the uncertainty surrounding virtual meetings[9]. In Nova Scotia, the government issued a directive on April 11, 2020 allowing incorporated entities in that jurisdiction to hold virtual meetings or defer it for up to 90days. Ontario issued an order pursuant to the Emergency Management and Civil Protection Act suspending the Business Corporations Act and the Corporations Act allowing meetings to be held by electronic means notwithstanding restriction in the company’s bylaws and extending the time within which meetings could be held.
There is also an African example. Section 63(2) of the Companies Act 71, 2008 (as amended) of South Africa permits virtual/electronic meeting of shareholders unless a company’s Memorandum of Incorporation provides anything to the contrary, provided that the electronic method adopted enables all persons participating in the meeting to communicate concurrently with each other and reasonably effectively without an intermediary. South Africa recognized electronic meetings in its Companies Amendment Act 3 of 2011 but it was not until March 31, 2020 the first general meeting was held virtually.
In all cases where virtual meetings have been permitted, the company’s Board of Directors must mandatorily establish procedures and systems for hosting the meeting that would enable shareholders and proxies to participate and vote at the meeting through remote communications. The measures must ensure those shareholders’ rights and privileges under the laws are guaranteed in a secure and verifiable process. Shareholders or their proxies must have access to the meeting, the shareholders list, and voting facilities.
Conclusion
Virtual meetings are expedient not just because of Covid-19 but because it is the future of meetings. Unfortunately, Nigerian legal framework does not seem to support the practice. Though the law does not expressly prohibit its use, there are legal and practical reasons why it is risky for a public company to conduct virtual meetings. Going forward, companies must ensure that they amend their articles to allow for virtual meetings. The legislature must also wake up to its responsibility of updating the law to capture the reality of the times.
The Nigerian Stock Exchange (NSE) should take a cue from the Johannesburg Stock Exchange (JSE) which announced on March 30, 2020 that it has partnered with ‘The Meeting Specialist’ to launch the first virtual AGMs to enable companies listed on the JSE to hold shareholders meeting during the pandemic. While it may be impossible for the exchange to do anything during this pandemic for obvious reasons, it should explore that possibility going forward.
In the meantime, as stated elsewhere[10], the only feasible option open to companies in Nigeria during this pandemic is to apply to CAC for extension of time to hold AGMs under section 213 (1) (b) of CAMA. The NSE had advised public companies on the recourse to this option in March 19, 2020 circular. The legality and practicality of the NSE’s subsequent guidance on virtual meetings issued on April 15, 2020 is doubtful in view of the views expressed in this article. In any event, the guidance deliberately omitted shareholder meetings and relates only to Board and Management meetings. This is in recognition of the legal hurdles to the holding of virtual shareholder meetings under the current legal environment.
Elvis is the Managing Partner of Law Future Partners
Email: elvis.easia@gmail.com; elvis.easia@lawfuturepartners.com
09017163850
Footnotes
[1] Cap C20, LF, 2004
[2] See A. Adetuyi and N.Williams (2020), ‘’Covid-19: can public companies hold virtual annual general meetings in Nigeria’’, https://www.lexology.com/library/detail.aspx?g=74f63619-4490-400b-99fe-dd9d50e84c55 (accessed on April 25, 2020).
[3] Section 216
[4] See generally sections 213- 231 of CAMA
[5] See The Companies and Allied Matters Act (repeal and re-enactment) Bill 2019
[6] Section 213(1)(b)
[7] See sections 44- 49 of CAMA
[8] See section 132(5) of the Canada Business Corporations Act (“CBCA”) which specifically provides that a virtual meeting can only be held if the facility (virtual platform) being used permits “all participants to communicate adequately with each other during the meeting”. Similar provisions are found in the legislation of many provinces including section 94 (2) of the Business Corporations Act of Ontario.
[9] For example, the British Columbia Supreme Court granted TELUS Corporation permitting it to hold it a 2020 annual general meeting of shareholders as a virtual-only meeting. Major financial institutions secured similar order for their upcoming shareholder AGMs to virtual-only or hybrid formats.
[10] See Elvis E. Asia, ‘COVID- 19: CRITICAL REVIEW OF THE CORPORATE AFFAIRS COMMISSION’S GUIDELINES ON HOLDING ANNUAL GENERAL MEETINGS OF PUBLIC COMPANIES’, https://lawfuturepartners.com/?p=1554 (Accessed on April 25, 2020)