COVID- 19: CRITICAL REVIEW OF CAC GUIDELINES ON HOLDING ANNUAL GENERAL MEETINGS OF PUBLIC COMPANIES

Introduction

On March 26, 2020, the Corporate Affairs Commission (CAC) issued guidelines on holding Annual General Meeting (AGM) by Public Companies in view of the coronavirus pandemic. The guidelines in effect allow public companies to hold AGM by proxy in accordance with section 230 of the Companies and Allied Matters Act (CAMA)[1] but with the prior approval of the commission.

A review of the guidelines shows that the commission overstepped its statutory authority and that it is useless in the face of the lockdown and restriction on movement in many cities across the country. A viable option for CAC is proposed in the review.

Review of the Guidelines

1.    The guidelines provide that companies can choose to hold AGM by proxy under section 230 of CAMA. This is a misinterpretation of section 230 of CAMA. Section 230 does not confer discretion on companies to determine whether to hold meetings by proxy. It only allows a member to nominate a proxy. The distinction is significant. The decision to hold a meeting including the choice of venue, business to transact at the meeting and other arrangements for the meeting are decided by the directors. Directors do not have the power to decide to hold AGM by proxy only as members have the statutory right to be physically present at the meeting and cannot be compelled to appoint proxies. If the directors choose to hold AGM by proxy only, they will be denying members of that right[2]. A proxy only meeting therefore cannot be achieved without amending the law or the memorandum and articles of the company.

2.    The guidelines require companies holding AGM by proxy to seek the approval of CAC before holding the meeting. This requirement has no place in section 230 of CAMA upon which the guideline is allegedly predicated.  The section merely gives a member of a company entitled to attend and vote at a meeting of the company, the right to appoint another person to represent him at the meeting. The right to appoint a proxy is not vested on the company but on the member with a guide on how the company should allow the member to exercise the right. The right already exists and does not require any further guidelines from CAC and certainly does not require its approval before it can be exercised. Requiring companies to seek approval before members can exercise their proxy rights amounts to a regulatory legislation.

3.    The guidelines also provide that the AGM shall only conduct ordinary business of the company as provided in section 214 of CAMA. Again, CAC does not have the power to limit the type of business to be transacted at the AGM of a company. There is nothing in CAMA and any other law that empowers CAC to limit the kind of business that can be transacted in an AGM.

4.    Clause 5 of the guidelines suggests that the companies shall by the notice of meeting list proposed proxies for the members to select from. This is worrisome and totally defeats the purpose of section 230 and ultimately, an AGM. Section 230 of CAMA absolutely reserves the right to appoint a proxy to the member. Giving the company the right to come up with a list of proxies for the member to choose from has no place in the section and has the capacity of destroying the purpose an AGM. The essence of an AGM and other meetings of members is  to enable checks and balances for good corporate governance. If the directors of the company who are in charge of management and control of the company are now empowered to determine who acts as proxies for members, members would lose that statutory right because nothing stops the directors from teleguiding who can act as proxies to rubber-stamp their actions.

5.    Generally, the guidelines seek to reduce the spread of coronavirus but a meeting by proxy is still a meeting of people in a physical location. It is therefore doubtful whether the guidelines are relevant to the fight against the global pandemic.

Conclusion

The powers of CAC under CAMA[3] are specifically defined under the Act and are not at large. The CAC guidelines on AGM by public companies are not well thought out considering the mandatory provisions of CAMA and the exigencies of the times. The application of the guidelines may occasion grievous unintended consequences for corporate governance. To the extent that the guidelines do not prevent the congregation of people in a particular location, its value in the fight against coronavirus is very doubtful. In any event, in view of the lockdown of major cities and restriction of movement in the country, the guidelines cannot be effective.

There is only one option opened to CAC. The commission should exercise its powers under section 213 (1) (b) to extend the time within which AGMs should be held by companies[4]. The section empowers CAC to extend AGMs by as much as three months. That period hopefully appears long enough to contain this global pandemic. The other option which is being explored by similar authorities across the globe including capital market regulating agencies is virtual meeting. Even with a liberal interpretation, it will be difficult to say that the current legal regime, which is fixated on a venue or physical location within Nigeria, allows a virtual meeting[5]. Many companies will also need to consider its financial, data and cyber security implications but this is an opportunity for all stakeholders to begin to work together to make virtual meetings a reality in Nigeria.

[1] Cap C.20, Laws of the Federation of Nigeria, 2004

[2] See sections 227 and 228 of CAMA. See also sections 216- 222, 224-226 on notices and voting at the meeting.

[3] See section 7 of CAMA

[4] The Nigerian Stock Exchange had earlier implemented a similar extension by granting listed companies a sixty (60) day grace period for the submission of their Audited Financial Statements for the year ended 31 December 2019 (AFS), which are due to The Exchange on Monday, 30 March 2020.

[5] See section 216 of CAMA. The Companies and Allied Matters Act (repeal and re-enactment) Bill 2019 which was not assented to by the President did not fundamentally changed the situation. It provides for electronic meetings only for private companies in accordance with regulations issued by the CAC. It also allows electronic service of notice of meetings and electronic voting at meetings.

. This makes no much difference because private companies could easily do written resolutions without the need for a physical meeting.