Corporate Governance - Check your Articles of Association

Posted on June 19, 2020

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At the best of times corporate governance can be a minefield. Legislation aimed at corporates including the Companies Acts 1931 and 2006 place a multitude of responsibilities on directors and other company officers as to the day to day, week to week, month to month and year to year administration and operation of companies and of course there are the wide ranging fiduciary duties placed upon directors at common law.

The global pandemic means that boards probably wish to meet more often than they otherwise might to keep on top of both the effects of the pandemic upon business and also the necessary responses to an increasing number of government diktats (for example as to implementation of new health and safety requirements on return to work).

The COVID-19 pandemic undoubtedly places a strain upon the normal administration processes of corporates and upon compliance with the necessary rules, regulations and laws. This article aims to highlight some of the administrative issues which company boards may need to consider with a particular focus on how companies can continue to pass board and shareholder resolutions whilst meetings are not possible.

The first port of call for company officers to check whether their company has adopted Table A or Model Articles either in whole or in part, or whether it has bespoke Articles. The Model Articles for a 2006 Company expressly authorises remote board meetings, stating:-

“A Director is deemed to be present at a meeting of the Directors or at a meeting of any committee of Directors if such Director participates by telephone or other electronic means and all Directors participating in the meeting are able to communicate with each other.”

Companies incorporated under the Companies Act 1931 and having adopted Table A Articles, do not contain a paragraph which explicitly authorises Directors to attend board meetings remotely, however they do provide:-

Directors may meet together for the dispatch of business, adjourn, and otherwise regulate their meetings, as they think fit…”

In our view, it is clear that such provision allows for remote meetings to take place, however it is good practice for the board to agree at the first remote meeting that such remote meetings are permitted and how they are to be regulated. If there is any concern that the board may have exceeded their authority in holding a remote meeting then this may be rectified by the shareholders passing a resolution ratifying the board’s actions.

Before choosing to have remote board meetings, it would be prudent to check whether there could be any tax or regulatory factors that must be considered. The board must ensure that it does not inadvertently place the Company under the authority of another jurisdiction’s tax or regulatory regime.

Once satisfied that it is possible to hold remote meetings, consideration must be given to the practical aspects of arranging one. Some aspects to consider are:

  • Any mandatory notice requirements.
  • The means of communication. Whilst a video conference may increase the risk of technical difficulties, it shall also make it easier to spot when someone has dropped out of the meeting. Quorum requirements must still be met during a remote meeting, so it is vital you know that everyone remains present at the meeting.
  • Clear ground rules for the meeting. It is important that every Director is given the opportunity to speak. We would suggest that each Director is given an opportunity to verbally explain his/her point of view before votes are taken.
  • Further to the above, it would be less confusing for each director to vote in turn rather than showing their hands during a video call.
  • Whether the Directors should be given a chance to practice joining a remote meeting before the actual board meeting to spot any potential technical difficulties early.

What if remote board meetings are not possible?

If a Company has bespoke articles that expressly forbid remote meetings, then consideration must be made to altering the Articles by way of a special resolution to permit remote board meetings. Such a resolution can be passed through a written resolution of the members, which would avoid the need to have a meeting of the shareholders. If the Company was incorporated under the Companies Act 1931, the written resolution would need to be signed by all members entitled to vote. If it is a 2006 Company, only 75% or another percentage specified in the Articles are required to sign.

Alternatively, it may be possible for the Directors to pass resolutions in writing, without the need for them to meet provided that the Company was incorporated under the Companies Act 2006 as Section 109(3) states:

“Subject to contrary provision in the memorandum or articles, an action that may be taken by the directors or a committee of directors at a meeting may also be taken by a resolution of directors or a committee of directors consented to in writing or by email, telex, fax or other electronic communication by all of the directors or all of the members of a committee of directors (or such specified majority, greater than 50 per cent, thereof as the memorandum or articles may provide), without the need for any notice.”

There is no similar provision within the Companies Act 1931 nor the Table A Articles, as such consideration should be given to amending the Articles with a written resolution of the members to allow board resolutions to be passed by writing in the future.

This article was written by Associate Michael Mudge of M&P Legal

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