COVID-19 Coronavirus – Considerations for Board and Shareholder Meetings

March 16, 2020

The novel coronavirus (COVID-19) is interfering with the normal function of businesses around the world, including in the form of travel restrictions, quarantines, office closures and employees being encouraged (or required) to work from home. Companies should consider whether to hold their usual shareholder and board meetings as planned, or whether rescheduling meeting dates, changing meeting locations or switching to “virtual-only” or partially virtual meetings may be appropriate in these circumstances.

Key Takeaways

  • Depending on the jurisdiction of a company, “virtual-only” or “hybrid” shareholder meetings may be a viable replacement for physical meetings – even for public companies that have already mailed their proxy materials.
  • Corporate boards can postpone directors’ and committee meetings, hold virtual meetings or elect to act by written consent rather than hold physical meetings. 
  • Companies considering changes to meeting dates or times or switching to fully or partially virtual meetings should confirm that they can do so under applicable state corporate law and their organizational documents and should be aware of certain practical ramifications of holding non-physical meetings.

As businesses and governments begin restricting unnecessary travel and closing offices in the face of the coronavirus outbreak, companies may want to consider whether to postpone or change the location of, or whether to hold “virtual-only” or “hybrid” versions of, their annual shareholder meetings. Virtual-only meetings do not have a physical location and are accessible only through remote communication, while hybrid meetings provide both a physical location and access through remote communications. However, some states’ laws may impose restrictions on making changes to a scheduled meeting or do not permit virtual-only or hybrid shareholder meetings, so companies should review applicable state corporate law to ensure that a proposed course of action is permissible.1 Moreover, companies should confirm whether their organizational documents permit virtual-only or hybrid meetings or impose restrictions on when and how meetings can be changed or rescheduled prior to making a switch. Companies are also advised to check whether any of their significant shareholders/constituencies have policies regarding “virtual-only” or “hybrid” meetings―certain proxy advisory firms, institutional investors and others have opposed or criticized the holding of shareholder meetings that do not offer an option of physical attendance.

Public companies that have already mailed proxy statements to their shareholders contemplating a physical meeting may still be able to switch the date or location of this year’s annual meeting or change it to a virtual only or hybrid meeting. To do so, companies should provide timely notice to shareholders (for example, through a press release) and file supplemental disclosures with the SEC detailing the nature of the change. Fortunately, assuming a company takes these steps in a timely fashion, there is typically no requirement under the federal securities laws that the company re-mail its proxy statement or proxy card (though state law and companies’ organizational documents may impose additional requirements, such as mailing a new notice with updated location information). For public companies incorporated in Delaware, the notices and supplemental disclosures with the SEC are generally sufficient to satisfy any state-law requirements associated with the change, so long as, in the case of a postponed meeting, the new meeting date is within 60 days of the record date. Meetings featuring a contested election or a controversial proposal may raise additional considerations as a matter of state law or corporate strategy.

Public companies that have not yet mailed their proxy materials for this year may want to revise their disclosures to forewarn that the time, location and manner of the meeting may be subject to change as the situation evolves. Importantly, they may have additional time to do so―the SEC has recognized the potential burdens imposed by the coronavirus outbreak, and has issued an order granting qualified companies that have a required filing between March 1, 2020 and April 30, 2020 an additional 45 days to make such filings. To qualify for this extension, an affected company must provide, among other things, a brief description of why the report or form could not be filed in a timely manner and an estimated date of when such document is expected to be filed. If appropriate, the company should also provide a risk factor explaining the impact of the coronavirus on its business. It is highly conceivable that the SEC may institute additional relief later in this proxy season given the extraordinary circumstances caused by the outbreak.

Given the potential risks associated with travel, boards of directors should also consider alternatives to physical meetings and potential alterations to their meeting schedules. Generally, implementing changes, including a shift from a physical to virtual-only or hybrid meeting, is simpler for board meetings than shareholder meetings because formal notice requirements are not as burdensome and the use of remote communication for board meetings has been an established practice for some time. Again, a review of state law and the company’s organizational documents is necessary to ensure that non-physical meetings or schedule alterations are permissible and that there are no additional requirements associated with those steps. Boards can also opt to act by written consent rather than by holding a formal meeting; however, unanimous consent may be required if boards choose to take written action, and action by written consent may not be desirable for matters that necessitate board discussion and deliberation.

As a practical matter, companies that ordinarily hold physical board or shareholder meetings but that are considering at least partially virtual alternatives should prepare for how virtual-only or hybrid meetings could disrupt traditional meeting practices. For example, companies should ensure that their physical materials can be presented through virtual means so that all participants can view the necessary documents. Moreover, procedures must be in place to accurately identify participants and implement necessary security measures. The technology used must also permit participants to communicate effectively and exercise voting rights, as applicable.

We all hope to get back to business as usual as soon as possible. In the meantime, it is helpful for companies to be aware of their alternatives. Although there are a number of issues to consider, most companies will find there is flexibility to adjust to the present circumstances.

Dechert has a COVID-19 task force consisting of lawyers from a variety of disciplines available to address your concerns: employment law, international arbitration, data privacy, product liability, commercial contracts, corporate governance, securities law and others.

UpdateOn March 13, 2020, the SEC staff issued a guidance statement concerning the use of virtual shareholder meetings as a result of the coronavirus outbreak. In this guidance statement, the SEC clarified that it will not require public companies that have already mailed and filed their proxy materials to amend their filings or re-mail their materials in order to change the date, time or location of their annual shareholder meetings, or to convert their annual shareholder meetings into “virtual-only” or “hybrid” meetings, so long as they (1) issue a press release announcing the change, (2) file that press release as definitive additional soliciting material on EDGAR, and (3) take all reasonable steps necessary to inform other intermediaries in the proxy process and other relevant market participants (such as the appropriate national securities exchanges) of such change. The staff also noted in the guidance statement that “robust disclosures that facilitate informed shareholder voting” are just as important for “virtual‑only” or “hybrid” meetings as for in-person meetings and reminded public companies to “disclose clear directions as to the logistical details” for any such meetings.  

Update (March 25, 2020): On March 25, 2020, the SEC announced an extension of its initial relief order providing a 45-day extension to public issuers impacted by COVID-19 for filings due between March 1, 2020 and July 1, 2020. The SEC staff also issued additional disclosure guidance for public issuers to consider when assessing the impact of COVID-19 on their business practices and risks and when presenting their financial results.  

Update (April 1, 2020): On March 31, 2020, the SEC staff issued two new Compliance and Disclosure Interpretations (“C&DIs”) regarding Rule 12b-25, the rule concerning notification of inability to timely file all or any required portion of certain periodic disclosure statements. The C&DIs provide as follows:

  • Question 135.12: A company that is unable to timely file a report due to COVID-19 without unreasonable effort or expense and is uncertain if it will be able to file the required report within the applicable Rule 12b 25(b)(2)(ii) period should instead furnish a report on Form 8-K or 6-K, as applicable, including the specified statements required under the order, by the later of March 16, 2020 or the original due date of the required report. If the company files only a Form 12b-25 by the original due date of the required report, it will have not met the condition of the order to provide the required statements by the original filing deadline on a furnished Form 8-K or Form 6-K. Unless this condition is met, the 45-day relief provided in the order will not be available.
  • Question 135.13: A Form 12b-25 filing does not extend the original due date of a report. A company cannot file a Form 12b-25 and then subsequently attempt to rely on the order to extend the filing deadline of the subject report by later furnishing a Form 8-K or Form 6-K unless the company also furnished a Form 8-K or Form 6-K by March 16, 2020 or the original due date of the report. On the other hand, if the company relies on the order for a report, the due  date of the report will be extended for 45 days after the original filing deadline and the company would be able to subsequently rely on Rule 12b-25 if it is unable to file the report on or before the extended due date.
Update (April 7, 2020): On April 6, 2020, the SEC issued a C&DI confirming that a registrant unable to file Part III information of a 10-K within 120 days of the end of the related fiscal year may take advantage of the 45-day extension so long as the registrant meets the conditions of the SEC’s March 25, 2020 order and the 120-day deadline falls within the relief period specified in the order. This gives the registrant 45 days past the 120 deadline to get the Part III information on file.
Update (April 7, 2020): On April 6, 2020, John C. Carney, the Governor of Delaware, issued the Tenth Modification of the Declaration of a State of Emergency for the State of Delaware Due to Public Health Threat. The modification provides that, instead of using one of the notice methods already listed in Section 232 of the Delaware General Corporation Law (mail, courier service and electronic mail), a Delaware public company wishing to change its physical stockholder meeting to a virtual meeting may notify stockholders of the change by filing a document to that effect with the SEC and issuing a press release to be promptly posted to its website. Moreover, if it is impracticable to convene a stockholder meeting due to COVID-19, the meeting may be adjourned to be later held by remote communication if the company provides notice of the date, time and means of remote communication to the SEC and issues a press release to that effect, and promptly posts that press release to its website.
Update (July 6, 2020)On June 23, 2020, the SEC’s Division of Corporation Finance issued guidance regarding operations, liquidity, and capital resources disclosures issuers should consider in light of the COVID-19 pandemic. The guidance emphasizes the need to consider, among other things: whether present market conditions give rise to substantial doubt about the company’s ability to continue as a going concern, the impact of any CARES Act loans or tax relief the company may be utilizing, whether the company has drawn on its credit facility or raised capital through the public or private markets in response to the pandemic, and whether the company has reduced or suspended share repurchase programs or dividend payments.

1) For instance, § 211(a)(2) of the Delaware General Corporation Law permits virtual-only and hybrid shareholder meetings so long as the corporation: (i) implements reasonable measures to verify that each person deemed present and permitted to vote by means of remote communication is a shareholder or proxyholder; (ii) provides such shareholders or proxyholders with a reasonable opportunity to participate in the meeting and vote on applicable matters; and (iii) keeps a record of any vote or action of shareholders or proxyholders that occurs.

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