This client alert deals specifically with the Prevention and Control of Disease (Prohibition on Group Gathering) Regulations (Cap 599G, Laws of Hong Kong) (the Regulations) which were enacted with effect from 29 March 2020 for three months. The Regulations prohibit group gatherings of more than four people in public places. Although the framework regulations have a three month validity, the immediate direction is that for a 14 day period i.e. up to and including 11 April 2020, subject to limited exceptions, no meetings of more than four people will be allowed in public places.
If you are a Hong Kong listed company with a December financial year end and are planning your annual general meeting or any other shareholder meeting, this is relevant to you. By now, you will either have issued your audited financial statements or have announced your unaudited preliminary results with an indication of when your audited financial statements will be available. You will either be planning an AGM in the next three months or have to think about what to do about a shareholders’ meeting originally to take place on or before 11 April 2020. The 14 day period may also be extended or implemented from time to time during the next three months.
Breach of the Regulations without lawful authority or reasonable excuse, means that participants in such meetings can be fined HK$2,000 and if you organized such meetings, you could be liable for a HK$25,000 fine and imprisonment of 6 months.
- What is a “public place”?
Under the Regulations, “public place” means “a place to which the public or a section of the public may or are permitted to have access from time to time, whether by payment or otherwise”, and hence, we take the view that a shareholders’ meeting venue, which is open to a section of the public, will be a “public place” for the purpose of the Regulations.
- How are the Regulations applicable to Shareholder Meetings?
Shareholder meetings, whether extraordinary/special general meetings (EGM/SGM) or annual general meetings (AGM), may proceed if it is 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”.
In order to determine if your shareholders meeting “must be held…in order to comply with any Ordinance or other regulatory instrument..” it is necessary to consider all the laws, rules, regulations and orders which may govern your company, and they typically include:-
- in the case of Hong Kong incorporated companies, the Companies Ordinance (Cap 622, Laws of Hong Kong) and in the case of companies incorporated outside of Hong Kong, equivalent laws in the jurisdiction of incorporation of the company (the Companies Laws);
- the articles, bye-laws or other equivalent constitutional documents of the company (Constitutional Documents); and
- any court or judicial order relating to the timing for holding of meetings (together with the Companies Laws and the Constitutional Documents, the Governing Documents).
The above sources are not exhaustive. Whilst there are typically time periods within which AGMs must be held, it is less clear if that would apply to EGMs/SGMs.
- What should you do if the notice of general meeting has been despatched?
Our recommendation is that all shareholder meetings convened for a date on or before 11 April 2020 be adjourned. Any such adjournment must be made in accordance with the provisions of the Governing Documents (e.g. adjournment proposed by chairman of the meeting, quorate meeting (which can take into account proxies received)). This means, unfortunately, that someone from the Company will still have to turn up and you need to seek legal advice as to the procedures to adjourn a meeting. An announcement should be made as soon as practicable. Notices of general meetings and proxy forms are typically stated to apply to adjourned meetings, so in most cases, there is no need for company to re-issue notices and proxy forms to its shareholders if the matters to be considered remain unchanged. However, if dates change, you may need to change the venue of any adjourned meeting or, as for some companies, their Governing Documents may contain provisions specifying that if a general meeting is adjourned for longer than a specified period of time, new notices of meetings will need to be issued.
Where shareholders have been informed that there is a resolution to be proposed at the meeting for the payment of a final dividend, this may create an expectation of the shareholders that they will be paid the dividend at a specified time. If the meeting is adjourned, it is more than likely that the original payment date of the final dividend may no longer be feasible. Subject to this being permitted under the Governing Documents and not requiring approval by shareholders, the Company could consider an interim dividend in lieu of the final dividend. If that were the case, advice needs to be taken for the procedures and notifications necessary.
- What if the notice of general meeting has not been despatched?
Please see recommendations in paragraph 6 below.
- What should you include in an announcement to adjourn a meeting?
Where the meeting is to be adjourned, consider an announcement along the following lines after taking independent legal advice:
The Prevention and Control of Disease (Prohibition on Group Gathering) Regulation (Chapter 599G of the Laws of Hong Kong) (the “Regulation”) came into effect on March 29, 2020. The Regulation prohibits group gatherings of more than four people in public places during the period specified by the Secretary for Food and Health, Government of the Hong Kong Special Administrative Region. A notice has been published that the specified period will take effect on March 29, 2020 for a period of 14 days, until April 11, 2020. In view of the Regulation and after taking into consideration the legal advice provided by the legal counsel of the Company, the Company considers that it is no longer possible to hold the [SGM/EGM/AGM] at the original scheduled date and time.
In accordance with the [Articles/Bye-Laws] of the Company, upon the commencement of the [SGM/EGM/AGM], the Chairman of the [SGM/EGM/AGM] will put forward resolutions to adjourn the [SGM/EGM/AGM] to a date and time to be determined by the board of directors of the Company (the “Adjournment Resolutions”). If the Adjournment Resolutions are approved, this would result in the [SGM/EGM/AGM] being adjourned to a time and place to be determined. The Chairman will vote in favour of the Adjournment Resolutions with any proxies received unless otherwise specified therein. Subject to the results of the Adjournment Resolutions, the Adjournment Resolutions will likely be passed and no other business will be discussed or considered at the [SGM/EGM/AGM].
The Company wishes to emphasise that the health and safety of the Shareholders and compliance with the Regulation are its primary concerns. As no business will be discussed aside from the Adjournment Resolutions at the [SGM/EGM/AGM], Shareholders are encouraged not to attend the [SGM/EGM/AGM] in person. If Shareholders do attempt to attend the [SGM/EGM/AGM in person, they may unlikely be able to gain access to the meeting venue given the requirement for the Company to ensure compliance with the Regulation.
The Company will issue a new notice setting out the date and time of the adjourned [special/ extraordinary / annual] general meeting of the Company (the “Adjourned [SGM/EGM/AGM]”) as soon as reasonably practicable. The resolutions set out in the [SGM/EGM/AGM] Notices to be proposed at the [SGM/EGM/AGM] [will/will not] remain unchanged, and will be proposed and transacted at the Adjourned [SGM/EGM/AGM].
- What should you consider if you do wish to hold or proceed with a shareholders meeting?
- Consider use of technology (audio/video conferencing) to host meetings and to allow shareholders to participate. However, the voting method for such meetings should be considered carefully and you are encouraged to speak to your Hong Kong share registrar about it in order to, amongst other things, ensure that the identities of shareholders who intend to vote will be verified properly. Without a reliable “remote voting” option, shareholders should be encouraged to complete and return proxy forms in order to be able to validly cast their vote. In the absence of a reliable method of verification of the identity of shareholders attending meetings remotely, and remote voting arrangements, shareholders should be encouraged to cast their vote by way of proxy forms, completed and returned in accordance with the instructions printed thereon.
- Limit the number of board members and company representatives who will attend the meeting to only those who need to be there. At least one director, if possible the chairman of the meeting, should attend in person, and the other directors may attend by way of video conferencing. In any case, the meeting will need to have a quorum.
- During registration, you can consider asking attendees to complete health declaration forms. However, care must be taken in the collection and storage of completed forms, as they will inevitably contain personal data, the collection, storage and transfer of which will be subject to the Personal Data (Privacy) Ordinance (Cap 486, Laws of Hong Kong).
- All staff and service providers at the meeting should be aware of the precautionary measures imposed, and should be encouraged to enforce them (e.g. to remind shareholders to wear masks). One person should be designated as the contact point should any matters arise.
- The Chairman script should include reminders of hygiene etiquette to be maintained during the meeting.
As the circumstances on the COVID-19 pandemic (and the related regulations) are rapidly changing, the views and recommendations above will also be subject to change. You should speak to your usual contact at Reed Smith Richards Butler for specific advice.
Our Reed Smith Coronavirus team includes multidisciplinary lawyers from Asia, EME and the United States who stand ready to advise you on the issues above or others you may face related to COVID-19.
For more information on the legal and business implications of COVID-19, visit the Reed Smith Coronavirus (COVID-19) Resource Center or contact us at COVID-19@reedsmith.com.
Client Alert 2020-175
