What is the impact of the COVID-19 pandemic on the ability of a public company to hold General Meetings (AGMs/EGMs)?
Kenya - Anjarwalla & Khanna
In light of the COVID-19 pandemic, the Government of Kenya issued a directive under the Public Health Act prohibiting large public gatherings (including meetings) in an effort to curb the spread of COVID-19 (the Government Directive). In line with the Government Directive, the CMA has directed listed firms to defer any annual general meetings (AGMs) scheduled before May 2020 to a later date and to ensure all the affected stakeholders are notified in good time of the deferred dates (the CMA Directive).
Both the Government and the CMA Directives have a direct impact on listed companies’ ability to call for a physical extraordinary general meeting (EGM) or an AGM. Given the current circumstances, it is likely that the Government Directive and the CMA Directive will be extended beyond the May 2020 date. Under the current circumstances listed companies may wish to review their Articles to confirm whether they are able to use the following alternatives (with permission from the CMA) as an alternative to delaying the holding of a physical general meeting:
Holding/hosting the AGM/EGM through video/teleconferencing
The Companies Act does not explicitly provide for virtual meetings with shareholders attending via video, telephone or other electronic means. However, the CMA Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015 (the Corporate Governance Code) while also not explicitly allowing listed companies to hold meetings via teleconferencing and videoconferencing platforms and facilities does require listed companies to facilitate effective exercise of the rights of shareholders by, among other things, employing modern communication techniques including the use of teleconferencing, video-conferencing, websites, and emails to communicate with shareholders.
If approval to hold a virtual meeting is granted by the CMA, a company may hold an AGM/EGM through video or telephone conference. The quorum requirements would still be applicable to this kind of meeting. In tandem, shareholders should be encouraged in the notice calling the meeting to make use of proxies for ease of running of the virtual meeting. The voting procedures (show of hands/poll) set out in the company’s articles should be considered to ensure that any electronic voting is in compliance with the articles.
Use of Proxies
The Companies Act provides for the right of a shareholder to appoint another person to act as the shareholder’s proxy to exercise all or any of the shareholder’s rights to attend and to speak and vote at a meeting of the company pursuant to the satisfaction of certain process requirements and conditions as set out in the Companies Act. Additionally, the company’s articles of association would usually permit any shareholder to appoint a proxy to attend a general meeting and to vote on behalf of the shareholder, subject to satisfaction with the requirements and processes detailed in the articles and the proxy form. Effective use of proxies may therefore assist a company in holding a virtual general meeting in compliance with the Government and CMA Directives.
Ratification of the resolutions in the next AGM/EGM
As an addition, once the bans on public gatherings are lifted or when practical to hold a physical meeting, listed companies should ensure that any previous resolutions passed at a virtual meeting are ratified by their shareholders to ensure that the resolutions are not challenged. In the alternative, resolutions may be ratified at the company’s next AGM
When should a listed company issue a profit warning or cautionary announcement as a result of the impact of the COVID-19 pandemic on its performance?
Kenya - Anjarwalla & Khanna
The Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002 (The CMA Disclosures Regulations) requires listed companies to issue a profit warning statement where there is a “material discrepancy” between the projected earnings for the current financial year and the level of earnings in the previous financial year. A “material discrepancy” in relation to projected earnings for a financial year means that such earnings are at least 25% lower than the level of earnings in the previous financial year. In addition, the CMA Disclosures Regulations require listed companies to immediately disclose information which might reasonably be expected to have a material effect on market activity in the prices of its securities by way of a cautionary announcement if the necessary degree of confidentiality cannot be maintained in relation to the information or that confidentiality has or may have been breached.
The CMA Disclosures Regulations require such public announcements to be made within 24 hours of the happening of the triggering event.
Companies should, therefore, assess on a daily basis the impact of COVID-19 on its operations and financial performance. If directors and management conclude that the listed company’s projections for its current financial year indicate a possible reduction on the company’s earnings by 25% or more as a result of the impact of COVID-19, the company should issue a profit warning statement. Further, if, as a result of COVID-19, changes take place in the company which are likely to materially affect the price of its shares (such as suspension or termination of key contracts owing to frustration or force majeure provisions triggered by the COVID-19 pandemic), listed companies should consider whether such changes meet the requirement for issuing a cautionary announcement on a case by case basis. Given the tight timelines within which these public announcements should be issued, listed companies should obtain legal advice promptly where they suspect changes should be notified to the public.
Given the current circumstances, companies should generally refrain from issuing forward-looking statements relating to performance in order to avoid giving misleading information to the public.
Can listed companies pay dividends at this time? If yes, how/when can distribution of dividends be done?
Kenya - Anjarwalla & Khanna
Companies may pay out dividends at this time following declaration by shareholders, however companies should be mindful and consider whether paying a dividend under the current circumstances is sustainable from both an operational and reputational perspective. While the performance of a company based on the 2019 financials may justify payment of a dividend in the current financial year, pay-outs should be considered in light of future operational needs given the impact on a company’s liquidity due to reduced business, the inability of creditors to make payments and the increased costs of doing business in the current economic environment occasioned by the COVID-19 pandemic.
Pursuant to the Companies Act and the CMA legislative framework, attention should be drawn to director duties placed upon directors of a listed company. Directors of a listed company are under a duty to promote the success of the company by acting in a way in which they consider, in good faith, would promote the success of the company for the benefit of its shareholders as a whole. The Companies Act requires directors to have regard to, among others, the long term consequences of any decision of the directors and the need to foster the company's business relationships with suppliers, customers and others. Directors should, therefore, also consider whether paying a dividend is consistent with these duties. Owing to the business-related difficulties that have come about due to the COVID-19, directors should keep under review whether planned future interim dividends should be paid and their amount and timing. Internationally, there has been a view that companies should generally refrain from paying dividends at this time.
Where a dividend has been declared, the company is required to pay out the dividend within 90 days of the date of the books closure (in case of interim dividends), and 90 days of approval of the shareholders (in the case of a final dividend). If a company has already approved a dividend but distribution is yet to be done, the shareholders entitled to receive distributions may waive their entitlement to a dividend by executing a deed to that effect. This may be difficult to implement where shareholders of a company are widely dispersed or where they are unlikely to be agreeable to waiving their entitlement to a dividend.
However, if the directors of the company have recommended that a dividend be paid but the dividend is yet to be approved by the shareholders at an AGM, the directors can withdraw their recommendation citing difficulties brought about by the COVID-19 pandemic. A notice of non-declaration of dividends should be published in the company’s interim or quarterly report, the annual financial statements of the company or by way of a press announcement as required by the CMA Disclosures Regulations.
The CMA, the Nairobi Securities Exchange (NSE) and the Central Depository and Settlement Corporation (CDSC) issued a notice on 3 April 2020 (the CMA Press Release) allowing directors to declare and pay dividends to shareholders without seeking approval in an AGM subject to procuring all other relevant internal approvals, and making available the audited financial statements to CMA, NSE and the public. However, the payment of a dividend will need to be ratified at an AGM once it is possible to convene one. Companies which are keen on paying out dividends may exercise this option.
What is the impact of COVID-19 on the reporting and disclosure requirements of listed companies?
Kenya - Anjarwalla & Khanna
The CMA Disclosures Regulations impose various reporting and disclosure obligations on public companies. Some of the reporting and disclosure requirements may be affected by the Government Directive against public gatherings, the CMA Directive on postponing AGMs or other difficulties arising from holding meetings or conducting usual business owing to the COVID-19 pandemic.
The CMA has announced various measures aimed at assisting listed companies to comply with various disclosure obligations. One such measure is the extension of the obligation on companies whose audited financial statements were due for submission and publication in March and April by one month respectively if the companies are unable to meet the original timelines. In addition, the CMA also suspended the requirement for listed companies to publish their audited financial statements in two newspapers of national circulation until 30 June 2020 provided that the financial statements are published on:
- the company’s own websites and social media platforms;
- the NSE website; and
- the CMA website
However, any listed company which does not have any challenge publishing its financial statements in newspapers has been encouraged by the CMA to do so.
The CMA Press Release also indicated that the CDSC, NSE, CMA are consulting with industry players to determine what other measures can be put in place to support investors in the capital markets, and these will be announced in due course. We await to see the raft of measures that will be introduced during this period. In the meantime, companies should endeavour to comply with all their reporting and disclosure obligations. In case a company is unable to comply with any of its obligations, it would be necessary to engage the regulators as soon as possible for guidance as they are likely to be lenient on compliance during this period.