State seeks to anchor virtual AGMs in law

Public firms will get the option to hold virtual annual general meetings (AGMs) if MPs approve changes in a new Bill that will save companies from the stalemate they faced last year when Covid-19 pandemic scuttled physical gatherings.

The State wants MPs to amend the Companies Act 2015 to allow companies to choose for virtual, physical or a hybrid meeting when holding AGMs.

“Section 3 of the Companies Act is amended—in the definition of the term "general meeting" by inserting the words "which may be a physical, virtual or hybrid meeting” immediately after the words "general meeting",” the proposed law states.

The bill defines virtual meeting as a gathering where members join and participate through electronic means including video conference, audio conference and web conference. A hybrid will be where some attend physically and others virtually.

This will be an improvement from the current law that only allows for physical AGMs, with companies required to look for an adequate venue for its members.

However, this proved difficult on the back of Covid-19 pandemic which forced the state to ban large social gatherings such as AGMs.

Firms had to seek special window from the High Court to hold virtual meetings and received approval in April last year, rescuing shareholders from delayed dividend payout approval and election of directors and shareholders.

Section 310 of the Companies Act 2015 provides that a public company is obliged to hold an AGM within six months from its financial year-end and puts a fine of up to Sh1 million for those who fail to do so.

The proposed changes come at a time many companies have already changed their internal regulations—called articles of association— to allow for virtual AGM.

Virtual AGMs present a win for many companies since the spending is less than for usual physical meetings and the management will also avoid direct confrontation from agitated shareholders.

Firms have been spending heavily on hotel bookings, travel, lunch, printing voluminous copies of annual reports and buying goodies such as branded umbrellas to gift shareholders.

Inquiries over the AGM gifts was among the popular questions, alongside dividends, that management of companies has had to address through written responses to shareholders’ questions.

Real estate investment trust, Ilam Fahari I-Reit, last year gave a sneak preview into AGM saving by saying its half year operating expenses fell by 13 percent to Sh53.42 million mainly in the absence of AGM.

Several shareholders have however not been comfortable with virtual AGMs, citing lost freebies and resultant costs such as internet bundles for attending digital meetings.