Holding (or not holding) General Meetings of Members in extraordinary circumstances

The current issues relating to the COVID-19 virus give rise to some difficult problems for many organisations that are required to hold regular meetings of members (including companies and not-for-profit organisations such as societies and charities).  This is particularly pertinent in March when many organisations face the need to hold an annual general meeting within a specified period after the end of an entity’s financial year – commonly 31 March.  While the current issues do not often arise, it is not uncommon for organisations to face difficulties holding meetings where their constitutions require a specified quorum but some members are unable to attend.  Legally, a meeting held without the required quorum being present is invalid (see Re Dannevirke Motor Co Ltd [1920] GLR 266).

“On 16 March 2020, the Government advised public events or mass gatherings where 500 or more people are together in one place, at one time should be cancelled” (a quotation obtained on 16 March from the Ministry of Health website. Where there are restrictions on the movement of people or meetings of groups of people the inter-related legal obligations imposed on organisations concerning the meetings they are required to hold need to be considered.  Those organisations need to comply with those obligations, but they also need to consider their other legal obligations, such as:

  • The requirements of the constitution of an entity (such as a company, a society or a charity) to hold an annual general meeting at certain times (typically 3-4 months after the end of the financial year, allowing time for the entity’s annual accounts to be completed and then reviewed or audited before the annual general meeting),
  • The minimum number of people required to be present at an annual or special general meeting to comply with the quorum required by the entity’s constitution,
  • Statutory obligations to file annual returns with regulatory bodies within specified time limits (e.g. the Registrar of Incorporated Societies, Charities Services or the Registrar of Companies), and
  • In some cases, the requirements of various regulatory bodies or their contractual obligations to funding organisations.

Fortunately, difficulties in complying with these obligations are unusual or rare, and are most frequently caused by weather-related transport problems, and are less frequently related to earthquakes and civil emergencies.  This present article has been prompted by the restrictions on some travel and, potentially, on larger meetings related to the COVID-19 virus.

The following sections of this article explore these issues and offer some suggestions about possible ways to overcome these problems (based on information available to the author on 16 March 2020).

 

Epidemic Preparedness Act 2006

The Government sensibly enacted this statute in 2006, and its focus is on enabling Government agencies to prevent the outbreak of epidemics in New Zealand, and to respond to certain possible consequences of epidemics in New Zealand.  The Act also has express ancillary purposes, namely “to ensure that certain activities normally undertaken by people and agencies interacting with government agencies can continue to be undertaken during an epidemic in New Zealand,” and “to enable the relaxation of some statutory requirements that might not be capable of being complied with, or complied with fully, during an epidemic.”  It is unfortunate that the statute does not address some of the issues for non-Government entities which are discussed below.

Section 12 of the Epidemic Preparedness Act 2006 authorises the “prospective modification” of statutory requirements and restrictions imposed by statute to enable compliance during an epidemic (a “quarantinable disease” within the meaning of the Health Act 1956, such as COVID-19).  Section 23 of the Incorporated Societies Act 1908 requires that every incorporated society “shall deliver annually to the Registrar, in such form and at such time as he or she requires, a statement containing the [specified] particulars” and that “The said statement shall be accompanied by a certificate signed by some officer of the society to the effect that the statement has been submitted to and approved by the members of the society at a general meeting.”  Similarly, section 41 of the Charities Act 2005 requires every registered charitable entity, within 6 months after its balance date to lodge an annual return with Charities Services.

It is reasonable to assume that when there is an epidemic, such as COVID-19, the appropriate steps will be taken (by the Registrar of Incorporated Societies and Charities Services) to modify the requirements under Section 23 of the Incorporated Societies Act 1908 and section 41 of the Charities Act 2005.

 

What can an organisation do if it cannot comply with requirements to hold a meeting by the specified date? 

The Epidemic Preparedness Act 2006 does not enable the “prospective modification” of any requirements or restrictions under an entity’s constitution or pursuant to contractual obligations with other entities.  Theoretically, an organisation has no alternative but to comply with such requirements, and few constitutions deal with issues arising from the postponement or cancellation of meetings which are required to be held by dates specified in a constitution.  In reality, most regulatory authorities and Courts can be expected to take a lenient approach if an organisation, for justifiable, genuine reasons, is unable to meet its statutory or contractual obligations in extreme and unusual circumstances (of which the COVID-19 pandemic must be one).  However, there may be means by which entities can get around the problems, and those means should be explored when such problems arise:

  • Where an entity’s constitution does not specify that an annual general meeting or a special general meeting must be held at just one place to be specified in the notice of such a meeting, it may be possible to hold the meeting at one or more physical venues for those able to attend in person with the venues linked by telephone and/or by use of other technology such as a Zoom meeting.
  • However, most constitutions specify the number of people required to be “present” to constitute a quorum (the minimum number of attendees for a valid meeting), and the following points should be kept in mind:
    • The requirement for members to be at a meeting indicates that they are required to be present in person in one place, and that is confirmed by the online version of the Oxford English Dictionary which defines “present” as “(of a person) being in a particular place” and gives examples pertinent to the issue being discussed; “present at something” and “there were 200 people present at the meeting” (see Oxford Learner Dictionary).” This definition was not referred to in a New Zealand High Court decision dealing with whether or not a quorum was at a meeting, Body Corporate 199883 v Clarke Family Associates Ltd ((2005) 5 NZ ConvC 194,087), but the judgment adopted a similar approach:

[29] I am also satisfied that although not specifically a requirement of Rule 18 it is clear by the surrounding Rules that a quorum is here counted on the basis of those actually present and their votes as registered proprietors and not how many proxy votes a member present has. … Rule 20 provides as follows: 

If within half an hour from the time appointed for a general meeting of the Body Corporate a quorum is not present, the meeting shall stand adjourned to the same day in the next week at the same place and time, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting the number of persons present and entitled to vote at the expiration of that half hour shall constitute a quorum. (Emphasis added)

 

[30] Both Rules specifically mention the presence of persons entitled to vote as constituting the quorum.  The context clearly shows actual presence.  Although no argument from counsel was addressed to the issue I am satisfied that the “voting power” referred to in Rule 18 is the voting power held by virtue of the person’s status as a registered proprietor and not as a proxy holder.  The purpose of the quorum provisions is to ensure a minimum number of registered proprietors are personally present at any such meeting.  If “voting power” in this context included proxy votes then all such meetings would require only one person, not necessarily a registered proprietor, holding seven proxy votes to constitute a quorum.  This seems to fly in the face of Rules 19 and 20 which clearly anticipate actual presence of a number of persons. 

 

    • While the Body Corporate 199883 decision referred to above did not relate specifically to voting rights, the same logic would almost certainly be applied to the phrase “present and voting,” unless the specific provisions of an entity’s Rules pointed to a different conclusion.
    • Unless expressly permitted by an organisation’s constitution, members must be personally present at a meeting (i.e. in person) to form part of the required quorum for the meeting and to speak and exercise their votes, and they are not accepted as being “present” if they are represented by a proxy (see Harben v Phillips (1883) 23 Ch D 14 (CA), McArthur v Manawatu Knitting Mills Ltd [1943] NZLR 375 (SC), Woodford v Smith [1970] 1 WLR 806 (Ch) at 810, and Maori Development Corporation Ltd v Power Beat International Ltd [1995] 2 NZLR 568 (HC) at 574). Two points need to be noted about proxies:
      • A proxy is a person who is a lawfully constituted agent of another person (see Re English, Scottish & Australian Chartered Bank [1893] 3 Ch 385 (CA)), and in most society constitutions the appointment is normally required to be in writing.
      • There is no general right to appoint another person to vote by proxy (see Harben v Phillips (1883) 23 Ch D 14 (CA)). However, the rules of an entity or a relevant statute may contain an express provision that gives members the right to appoint proxies to act for them at meetings and vote on their behalf, and commonly set out specific requirements regarding proxies.

In summary, the Wall and Body Corporate 199883 decisions make it clear that, subject to any express contrary provisions in an entity’s constitution, under general common law rules a member is not present at a meeting when represented by the holder of a proxy.  In addition, the machinery provisions within any constitution for the appointment of proxies must be followed meticulously (see McArthur v Manawatu Knitting Mills Ltd [1943] NZLR 375 (SC)).

  • Depending on the wording of the requirements relating to the required quorum for a meeting, the wording (if any) relating to proxies at a meeting, and how the required meeting venue is specified, there may be lawful ways to hold a required meeting:
    • If the entity’s constitution does not specify the need for a particular place or venue for a meeting, it could be held at a physical venue for those able to attend in person, with others attending by telephone with provision to ensure that those present can hear what people telephoning in are saying and vice versa. If that option is available potential attendees should be advised in the notice of meeting of the reasons for adopting that process, and urged to attend or to participate by telephone.  In such a case it is still important to have the necessary quorum of attendees physically present at the physical venue, if possible.
    • Where the entity’s constitution permits the appointment of proxies, those unable to attend should be urged to appoint a proxy to ensure that sufficient members are present in person or by proxy to constitute the required quorum, noting that:
      • If the entity’s constitution provides that people present by proxy are included in assessing whether the required quorum is present this will enhance the possibility of achieving the required quorum, and
      • If the quorum required by the entity’s constitution is not present in person, but the numbers actually present plus those represented by proxy would constitute a quorum, it is possible that, in exceptional circumstances (such as when large public gatherings are restricted by law), a regulator or Court would exercise any discretion it has to overlook the invalidity (for instance, a Court normally has a residual discretion about whether or not to grant a remedy).
  • Few, if any, constitutions would allow for the circulation of notices of motion to the members of an entity and the holding of a postal poll to approve or reject those motions. However, if holding a meeting is impracticable because of the difficulties in obtaining a quorum then, even if it is not authorised by an entity’s constitution, a regulator (such as the Registrar of Incorporated Societies or Charity Services) may well prefer to have, at least, the annual financial statements of an entity confirmed by way of postal vote, then to have unconfirmed annual financial statements filed.  If such a postal vote was held it is probable that a regulator or Court would prefer to receive such documents than to have an entity fail entirely to file its annual return.

 

Prevention (for the future) is better than a cure

Looking to the future, any organisation with a constitution should ensure that its constitution enables the organisation to adapt its normal processes to deal with foreseeable but uncommon emergency situations brought about by bad weather, natural disasters, pandemics, and the like.  Specifically, such provisions should enable an entity’s committee in appropriate circumstances to authorise general meetings to be held at two or more venues using any audio, audio and visual, or electronic communication technology that gives each member attending in person or by proxy a reasonable opportunity to participate, and consideration might also be given to reducing the required quorum in such circumstances.