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On 1 April 2020, the Securities and Futures Commission (“SFC”) and The Stock Exchange of Hong Kong Limited (“HKEx”) issued the “Joint statement in relation to general meetings in light of the Prevention and Control of Disease (Prohibition on Group Gathering) Regulation” (“Joint Statement”) to clarify listed companies’ obligations to hold general meetings in light of regulations to combat the COVID-19 pandemic.
The Prevention and Control of Disease (Prohibition on Group Gathering) Regulation (Cap. 599G of the Laws of Hong Kong) (“Regulations”) came to be among the mid-March rise in the number of patients infected with COVID-19 in Hong Kong. To promote and maintain social distancing, the Hong Kong Government enacted the Regulations to prohibit, excluding some prescribed exemptions, a gathering of more than four persons at any place to which the public has access. The prohibition came into effect from midnight on 29 March 2020 and will remain until 11 April 2020, subject to renewal
Under the Regulations, it is an offence for anyone to participate or organize a prohibited group gathering. The person who owns, controls or operates the venue where the prohibited group gathering takes place also commits an offence if he/she knowingly allows the prohibited group gathering. A person convicted is liable to a fine of HK$25,000 and imprisonment for six months.
Schedule 1 of the Regulations provides exemptions to the prohibitions, of which paragraph 11 exempts:
“any group gathering at a meeting of a body that must be held within a specified period in order to comply with any Ordinance or other regulatory instrument that governs the operation of the body or its business.” (the “Exemption”)
Hong Kong companies are required by the Companies Ordinance (Cap. 622 of the Laws of Hong Kong) to hold annual general meetings within a specified period, and those would therefore fall within the Exemption. However, the Exemption is less clear regarding other general meetings, particularly: (i) extraordinary or special general meetings; and (ii) general meetings convened by listed issuers incorporated overseas.
In the Joint Statement, the SFC and HKEx clarified that, having consulted with the Hong Kong Government:
(a) annual general meetings as required under the Companies Ordinance and/or the Rules Governing the Listing of Securities on the HKEx (the “Main Board Listing Rules”) or the Rules Governing the Listing of Securities on the Growth Enterprise Market of the HKEx (the “GEM Listing Rules”) are in general exempted under the Exemption; and
(b) extraordinary general meetings and special general meetings of Hong Kong-listed issuers are exempted under the Exemption if the meeting must be held within the specified period in order to comply with:
(i) any law or regulation in Hong Kong or overseas that is applicable to the listed issuer or a subsidiary of the listed issuer (as part of the listed issuer’s business);
(ii) any Main Board Listing Rules or GEM Listing Rules or The Codes on Takeovers and Mergers and Share Buy-backs;
(iii) the issuer’s own memorandum or articles of association; or
(iv) other regulatory instruments.
From the Joint Statement, it is clear that the Exemption would generally apply to all annual general meetings. However, not all extraordinary or special general meetings are exempted from the Regulations.
The applicability of the Exemption appears to depend on whether the extraordinary or special general meeting “must be” held under law or regulation. To take a conservative view, this would suggest that if the applicable law or regulation allows the adjournment or postponement of the meeting to a later date, then the Exemption would not apply, and that the issuer should adjourn or postpone the meeting to comply with the Regulation.
In addition to the legal requirements above, the SFC and HKEx have also asked listed issuers to consider, when deciding on the timing of their general meetings and the manner in which such meetings are to be held, whether any business to be considered at the meeting is of such urgency and importance that an adjournment or delay would, taking into account all facts and circumstances, materially harm the interests of the listed issuer and its shareholders considered as a whole.
Issuers should carefully consider whether their meetings are required by applicable law, or are of such urgency and importance that an adjournment or delay is not possible or permissible.
For listed issuers who decide to proceed with a physical general meeting in Hong Kong during the specified period from 29 March 2020 to 11 April 2020, the SFC and HKEx recommend that they should:
(a) take all practicable precautions to ensure the safety of attendees, including mandatory screening of body temperatures and use of face masks, physical distancing, no food and beverage service, no handing out of corporate gifts at the meeting; and
(b) where possible, adopt other appropriate measures to manage the number of physical attendees, including the use of multiple meeting rooms or venues linked by telecommunication facilities to reduce the headcount at a single venue; and restricting the number of non-shareholder attendees.
Listed issuers that have called a general meeting during the specified period should also publish an announcement as soon as practicable to:
(a) confirm whether their general meeting will proceed as scheduled;
(b) if applicable, explain the necessity for holding the meeting during the specified period; and
(c) if applicable, outline the meeting arrangements and precautionary measures to be adopted to ensure compliance with the Regulation.
Issuers that will hold meetings in places other than Hong Kong should consider what (if any) local laws say about public meetings and gatherings. For example, the Singapore Infectious Diseases (Measures to Prevent Spread of COVID-19) Regulations 2020 came into force on 27 March 2020 to prohibit certain activities and events and limit attendance for non-prohibited events to 10 individuals, and impose safe distancing measures for non-prohibited events held in public places.
Governments will continue to implement new measures to combat COVID-19 as it continues to spread and impact societies around the world. In light of the Regulations, and the continuation of travel restrictions and mandatory quarantine measures for arriving travelers globally, listed issuers should more than ever consider the adoption of technology-assisted virtual meetings, hybrid virtual meetings, or participation via teleconference when interacting with their shareholders provided these measures are allowed under the laws and regulations governing the listed issuer in question as well as its constitutional documents (for example, its articles of association). Adopting such non-physical approaches not only serves to promote compliance with laws such as the Regulations; but would also demonstrate the issuer’s ability to adapt and respond to adverse changes, and to avoid the potential reputational damage from a virus outbreak.