The Annual General Meeting (“AGM”) of public companies is statutorily compulsory and commercially important. It is the forum created by law for shareholders, directors, and other stakeholders in public companies to make decisions, share information and ideas to advance the compan. Traditionally, AGMs have been held in physical locations. However, the Coronavirus Pandemic (“Covid-19”) has made physical AGMs both unreasonable and unlawful in the light of Covid-19 Regulations prescribing social distancing, lockdowns, and travel restrictions. In response to the restrictions, the Corporate Affairs Commission (“CAC”) and Securities and Exchange Commission (“SEC”) have made publications to guide public companies on how to convene their AGMs. While the circulars by SEC are advisory, CAC’s “Guidelines on Holding of Annual General Meetings (AGM) of Companies Using Proxies” (“CAC Guidelines”) seems mandatory and its validity is questionable. In this article, we shall examine the provisions of the CAC Guidelines vis-a-vis the provisions of Companies and Allied Matters Act 1990 (“CAMA”) to determine its validity. More importantly, we shall debate the possibility of holding virtual AGMs for public companies and incidental issues therein.
The CAC Guidelines
On the 26th of March, 2020, the CAC Guidelines was released in response to Covid-19 restrictions especially the one against large gatherings of people. It provides that:
• the consent of the CAC must be sought before any AGM;
• the CAC may send its representatives as observers to the meeting, or require that the Company send the CAC a detailed report of such meeting;
• only ordinary business must be discussed at the meeting. Special approval must be sought from the CAC to discuss special business;
• members can only attend the meeting by proxy, and a list of proxies shall be made available for members to pick from; and
• each duly completed proxy form shall be counted as one to determine quorum.
Apart from the apparent non-consideration of virtual AGMs, the CAC Guidelines can be challenged on a number of grounds – stemming largely from its non-compliance with CAMA. First, CAMA does not state that the approval of the CAC must be sought before AGMs can be convened. Furthermore, Section 219 (1) which lists those who are entitled to be notified of an AGM excluded the CAC, and Section 219 (2) also specifically states that:
“No person other than those mentioned in subsection (1) of this section shall be entitled to receive notices of general meetings.“
Second, by the provision of Section 214, a public company can transact both ordinary and special businesses without extra approval from the CAC.
Third, CAMA spells out the rights of shareholders to attend meetings, speak and vote on any resolution during the meeting. It also states that every member of a company shall be entitled to appoint a proxy in their place to attend a meeting, speak and vote on any resolution during that meeting. It is important to note that further provisions which address the instruments appointing a proxy (e.g. a Power of Attorney, a company seal, etc.) clearly make the appointment of proxies personal and strict. Thus, the CAC cannot legally disenfranchise shareholders by preventing them from exercising their rights to attend meetings, speak and vote. Similarly, the CAC cannot limit the power of shareholders to appoint their own proxies. This move is contrary to the intentions of Section 230 of CAMA.
Is the CAC authorized by CAMA to issue guidelines that bind companies? Section 7 of CAMA, which lists the functions of the CAC, by no means mentions that the CAC can make guidelines, regulations or subsidiary legislations to compel companies to do or not to do. The CAC is only authorized to give full effect to the provisions of CAMA as it is, and to perform such other functions as may be specified by any other law or enactment. If CAMA had intended the CAC to make subsidiary legislations, it would have expressly provided for such. Instead the Minister in charge of trade is vested with this power under Section 16. Hence, the CAC Guidelines are ultra vires. The revered Oputa, J.S.C. in Olaniyan v. University of Lagos, held that:
“…a Corporation or Company which is created by or under a Statute cannot do anything at all, unless authorized expressly by the Statute or instrument defining its powers. It simply has not got the vires or the powers or authority to act outside the Statute. If it so acts, the act will be held to be ultra vires and declared null and void.“
Assuming that the CAC had the power to make the CAC Guidelines, the provisions of the CAC Guidelines cannot be inconsistent with the provisions of CAMA. A subsidiary legislation that is inconsistent with its primary legislation is void. Therefore, the CAC Guidelines is void. In the words of Nnaemeka-Agu, J.S.C in Din v. Attorney General of the Federation:
“A subsidiary legislation derives its validity and authority from a substantive law, constitutional or otherwise. It has not the capacity to extend such jurisdiction or authority.“
The consequence of relying on the CAC Guidelines is best explained in the words of Lord Denning in Macfoy v. United Africa Company Ltd:
“If an act is void, then it is in law a nullity. It is not only bad but incurably bad. There is no need for an order of the Court to set it aside. It is automatically null and void without more ado, though it is sometimes convenient to have the Court declare it to be so. And every proceeding which is founded on it is also bad and incurably bad. You cannot put something on nothing and expect it to stay there. It will collapse.“
Therefore, for companies that have convened their AGMs in compliance with the CAC Guidelines, we believe that such AGMs are invalid, and aggrieved shareholders will be able to obtain court declaration to that effect. For companies that have not had their AGMs, they can either wait till Covid-19 blows over or get an extension of time from the CAC. However, this may not be a commercially viable option for companies, particularly as the pandemic worsens in Nigeria. Business must continue and AGMs are very important for business continuity. The SEC, in one of its circulars, gave a hint that AGMs will not be waived for public companies despite Covid-19:
“Public companies are advised to take appropriate precautionary measures as recommended by the Federal and State Governments as well as the Nigerian Centre for Disease Control (NCDC) to ensure the safety of shareholders and participants at Annual General Meetings/Extra-Ordinary General Meetings and other meetings which may be held during the prevalence of the pandemic.”
Consequently, we advise that the option of having virtual AGMs be considered.
Can Annual General Meetings for Public Companies Go Virtual?
Virtual AGMs may be statutorily possible. For the purpose of this discussion, a virtual AGM refers to one in which participants are able to attend, speak and vote on any resolution during a teleconference/video-conference meeting with the ability to use video, text and audio features. It may include a physical location i.e. a hybrid meeting where certain participants are together in a location and others attend virtually. In every case, each participant would have equal opportunity to speak and vote on any resolution during the meeting.
Meetings are regulated by the provisions of CAMA and each company’s Articles of Association. CAMA stipulates that all AGMs must held in Nigeria. CAMA also specifically states that the notice for a meeting must specify the place of the meeting. While CAMA expressly states that AGMs must be held in Nigeria, it does not specify a mode – whether it must be physical or virtual. It is a fundamental principle of law that what is not expressly forbidden is permitted. Thus CAMA, by not expressly prohibiting any mode of holding AGMs, may be interpreted to permit all modes of holding AGM (physical, virtual, and hybrid) as long as all the requirements on notices, quorum, voting, etc. are complied with, and the company resolves that such meeting shall be its AGM. A similar argument was made in a 2020 mock proceedings: Ogunwumiju SAN v Okutepa SAN, where the claimant argued in favour of the constitutionality of virtual hearings before Affen, J of the High Court of the Federal Capital Territory. The court agreed and, quoting Lord Denning in Parker v Parker, added that:
“…if we never do anything which has not been done before, nothing will change; the entire world will move on whilst the law remains the same and that will be bad for both the world and the law.”
In this instance, not subscribing to the novel idea of virtual AGMs would be bad for business. Virtual AGMs can be attended by all members of a company where it is confirmed that the Internet Protocol (IP) Address hosting the meeting is in Nigeria. It is an interesting time for public companies as virtual AGMs will help to increase shareholder participation, and save the time and logistics issues associated with organizing physical AGMs. The VFD Group already spearheaded the new movement by convening an Open Virtual Meeting in May 2020 – which accorded every shareholder that attended the opportunity to speak and vote on all resolution presented. A 100% shareholder participation!
On the flipside, CAMA specifically provides that the notice of a meeting shall specify the place, date and time of the meeting. And the Supreme Court has interpreted “place” to mean “any part of an enclosure or structure whether separated from the rest of the enclosure or structure by a partition fence or rope.” It would thus appear that AGMs should be held in a physical place. However, we must bring our minds to the fact that both the Supreme Court’s interpretation (1962) and the CAMA (1990) came into force at periods when the internet was not popular in Nigeria: hence, both the court and the draftsman could not have envisaged that AGMs would someday be held by virtual means without compromising the provisions of CAMA. The aforementioned 2020 case lays this argument to rest.
Thus, directors and/or members of public companies may call a virtual Extraordinary General Meeting in strict compliance with Section 215 of CAMA to amend their Articles of Association to provide for virtual AGMs. Due consideration must however be paid to Section 48 – particularly that the Articles must not conflict with the provisions of CAMA and the Memorandum of Association. Alternatively, to encourage public companies to hold virtual AGMs without fear, the Minister charged with the responsibility for trade may invoke their power under Section 16 to make regulations to that effect.
Additionally, the Nigerian Stock Exchange released a very instructive publication: “Guidance on Companies’ Virtual Board, Committee, and Management Meetings” (“NSE Guidance”) on how public companies can effectively convene and conduct their virtual meetings. While the NSE Guidance is neither mandatory nor specifically targeted at AGMs, public companies may find it useful in convening their virtual AGMs.
Interestingly, a Bill to repeal CAMA and enact CAMA 2018, which was passed by the National Assembly but vetoed by the President, permits virtual AGMs for private companies but omits same for public companies. While the omission might have been an oversight (or even intentional) at the time of preparing the Bill, there is now a desperate need for the National Assembly to revisit a new CAMA Bill 2020 to ensure that its provisions support virtual AGMs for public companies.
The AGM for public companies is so crucial that CAMA prescribes a penalty for not convening it as and when due. More importantly, delaying AGM is bad for business. It is the forum for directors, shareholders and other stakeholders to review the performance of the previous financial year and plan for the coming one. Therefore, virtual AGM appears to be the best option in these Covid-19 times when social distancing, lockdown, and travel restrictions have become a norm. While public companies may need to ensure that their cyber security is top-notch and may need to follow the NSE Guidance to make sure that their virtual AGM go as planned, we see a silver lining of increase in shareholder participation, reduced logistics hassles and adjustment to the new normal.
Chidiebere Obialor is a graduate of Law from the Obafemi Awolowo University. He is currently a Bar Part II Candidate at the Nigerian Law School.
Ayomide Ayileka is a graduate of Law from Obafemi Awolowo University where he served as the Secretary General of the International Law Students Association.