How To Manage The Unintended Consequences Of The Guidelines Issued By The CAC On Holding Of AGMs Of PLCs Using Proxies

By Bode Ayeku, FCIS

On March 26, 2020, the Corporate Affairs Commission (CAC) in a bid to assist public companies hold their AGMs as planned in the first half of 2020, issued the Circular titled “GUIDELINES ON HOLDING OF ANNUAL GENERAL MEETINGS (AGM) OF PUBLIC COMPANIES USING PROXIES” (Guidelines).

The Circular demonstrated that CAC identified the restriction on mass gathering of not more than 25 persons as the major problem that would make it difficult for public companies with thousands of shareholders to hold their planned AGMs in the first half of 2020. Consequently, CAC took the decision to solve the problem and how to protect the interest of the shareholders unable to attend the AGMs.

It is necessary to consider the highlights of the contentious areas of the Guidelines and their effects on the existing provisions of the Companies and Allied Matters Act (CAMA) and the rights of the shareholders.

1. i) “Companies can hold their AGMs by taking advantage of S.230 CAMA on the use of proxies”

Section 230 of CAMA gives every member of a company both a right to appoint a proxy and a discretion to appoint or not to appoint a proxy.  Section 230 does not confer any right on a company to appoint proxy. It is therefore not clear how companies can take advantage of that section to hold AGMs. It is doubtful if the defense provided in section 230 (4) to allow an officer of a company avoid imposition of fine for the offence committed by issuing at company’s expense, invitations to appoint as proxy a person or one of a number of persons specified in the invitations to only some of the members entitled to be sent notice of the meeting and to vote by proxy at the meeting, would give a company such an advantage.

1. ii) “The approval of the CAC shall be obtained before such a meeting is held.”

There is no provision in CAMA to the effect that a public company must obtain the approval of the CAC before it can hold its AGM. CAC is only notified and invited to the AGMs of public companies. It is a fact that under section 213 (1) (b) of CAMA, CAC has the power to extend the time within which the second and subsequent AGMs can be held by a period not exceeding three (3) months. It appears that this is the only instance where we have something close to the prior approval of the AGM of a company by CAC.

iii) “The meeting shall only discuss the Ordinary Business of an AGM as provided in S.214 CAMA.”

The items under Ordinary Business are: declaration of dividend, presentation of the financial statements and the reports of the directors and auditors; election of directors in place of those retiring; appointment, and the fixing of the remuneration of auditors and appointment of the members of the audit committee.

Therefore, a public company holding its AGM based on the Guidelines cannot discuss any Special Business (fix the remuneration of directors; seek the approval of shareholders for general mandate to enter into recurrent transactions with related parties; seek the approval of shareholders to increase share capital, etc. CAC probably excluded items under Special Business since they could be contentious, and it would be necessary to give all the shareholders the opportunity to express their views on these items.

However, section 214 of CAMA gives a company the right to transact both ordinary business and special business at its AGM, without any restriction. Consequently, it appears that CAC unintentionally attempted to limit the rights of public companies and their shareholders on what can be discussed at AGMs without considering the effect on the business sustainability of some of these public companies.

The questions are: how can a listed company that procures goods and services from related parties to produce all or most of its finished products or those necessary for its day to day operations, but cannot obtain the approval of the shareholders at AGMs held under the Guidelines (since this item is a special business) continue with its business after the AGM? Since such a listed company is expected by the NSE Rules to obtain approval of shareholders annually to continue the transactions with related parties, can the public company continue with such transactions with related parties after the AGM until when an Extraordinary General Meeting (EGM) would be held later at an additional cost to approve them?

Apart from the above, there are challenges with the limited items under ordinary business that public companies can transact under the Guidelines. Some of the challenges are:

• How are the shareholders’ representatives on the audit committee to be elected since it must be done by show of hands, and not by poll? A public company would only be fortunate to resolve this challenge if there are only three (3) nominees to represent the shareholders.
• How can 25 persons to be allowed to the venue of an AGM based on the restriction on mass gatherings elect the members of the audit committee under this arrangement?
• How can a person appointed to represent 25 shareholders vote by show of hand when it is time to elect the members of the audit committee? Would he raise his hand(s) 25 times?
• If a person is appointed to represent 25 shareholders with divergent views on a resolution, how would such a person speak for and against the same resolution during the meeting? These are some of the limitations of holding AGMs using proxies.

1. iv) “All the members shall be advised in the notice that in view of the COVID-19 pandemic, attendance shall only be by proxy with names and particulars of the proposed proxies listed for them to select”

It is doubtful if section 230 (4) of CAMA can be relied upon to compel shareholders to appoint proxy from the list of proxies compiled and communicated by the company. This is because section 230 (1) of CAMA provides that a member of a company “…shall be entitled to appoint another person (whether a member or not) as his proxy…” Consequently, neither a company nor the CAC has a right to limit, modify or suspend the right of a shareholder to attend AGM as indicated in the Guidelines.

More fundamental is the right conferred on every shareholder by sections 81 and 227 of CAMA which provides that every member shall have a right to attend any general meeting of the company. CAMA states that a member has the right of attendance without any limitation and this aspect of the Guidelines is at variance with the right conferred on every member. That the proceedings are streamed live is not a defense because there is no law in Nigeria compelling shareholders to just watch proceedings of AGMs without the opportunity to participate as the essence of a meeting is to listen to others and be heard.

1. v) Right of CAC to issue the guidelines

With due respect, CAC has no power under CAMA to issue the Guidelines impliedly altering the provisions of the law on how an AGM should be held; issues to be discussed; rights of shareholders or to compel shareholders to appoint proxies.

Even if the Guidelines were to be referred to as “Regulations” and issued by the Minister under S.16 of CAMA, such regulations could not have amended the provisions of CAMA. This is because regulations cannot modify a law as held in the case of Obi Ezeude & Beloxxi Industries Ltd V Hon. Commissioner for Special Duties & Intergovernmental Affairs of Ogun State by the High Court of Ogun State on 17/12/ 2019.

The Guidelines cannot override the rights conferred on shareholders because section 16 only empowers the Minister to make regulations to prescribe forms, returns; how to obtain information and fees.

It should be noted that the presidential directive with effect from March 30, 2020 restricting the movement of persons in Lagos and Ogun States and the FCT for 14 days has at least suspended the application of the Guidelines, during the period of the restriction in these areas. Any meeting held in the three (3) areas within this period can be easily challenged on the basis that those who attended contravened the restriction imposed by the President Buhari and should be punished.

1. D) How to manage the unintended consequences of the Guidelines

The following options are recommended for consideration by public companies:

2020. For those that have scheduled their AGMs and published their details, they should postpone their AGMs until after COVID-19 is brought under control. Afterall, all companies have an interval of fifteen months between the last AGM held in 2019 and the AGM to be held in 2020. In any case, why are public companies in a hurry to hold AGMs when they still have up to June 2020 to hold AGMs as of right, and up to September 2020, after obtaining an extension of three (3) months from CAC?
2021. For any public company yet to fix a date, it is better to wait until a time that there is clarity on the level of success achieved in the fight against COVID-19 and there is no restriction on movement in the State where the AGM is to be held.

• The government should enact a law on COVID-19 covering various sectors and authorizing a company to decide how shareholders are to participate in company meetings. Switzerland adopted the approach when it issued the Ordinance titled “Ordinance on Measures to Combat the Coronavirus COVID-19” of March 13, 2020 for a maximum period of six (6) months. Article 6 of the Ordinance provides that “In the case of company meetings, the organizer may, regardless of the probable number of participants and without complying with the period of notice for convening meeting, order the participants to exercise their rights exclusively:

• In writing or online; or through an independent proxy appointed by the organizer”

Consequently, the companies in Switzerland are protected by law. The current Emergency Economic Stimulus Bill 2020 at the National Assembly should include similar provisions to Article 6 to allow public companies to hold their AGMs.

1. For AGMs to be held if provisions of the Ordinance are adopted, they could also consider using their offices for the AGMs and comply with safety directives, instead of booking bigger and expensive venues. If the cost is not too high, they could get a Television station to cover the AGM live at a discounted rate or stream live, with shareholders given the opportunity to dial-in to express their views.
2. Shareholders should take advantage of the right given to them to ask questions in writing prior to the AGMs by sending such questions to the registered office, at least a week before the meeting and the Chairman of the Board should try to respond.

Bode Ayeku, FCIS
President / Chairman of Council
Institute of Chartered Secretaries & Administrators of Nigeria