All content on this page is correct as of July 1, 2020
Despite some tentative steps back towards normality, most offices remain closed, and ‘virtual’ meetings dominate our working lives. But charities, mutuals and others still need to take valid decisions, even where their constitutional rules could never have anticipated this ‘new normal’. On 26 June, the new Corporate Insolvency and Governance Act 2020 came into force, a new statute focusing on providing breathing space to organisations in financial difficulty during the crisis, but also including relaxed governance provisions for charitable companies, charitable incorporated organisations (“CIOs”) and mutuals that need or want to hold members’ meetings in the midst of social distancing practices.
The measures include a more flexible framework for the holding of members’ meetings, such as an ability to hold meetings electronically even if not currently authorised under an organisation’s governing document. Whilst these measures will be particularly helpful for organisations with upcoming AGMs or which need to pass members’ resolutions in the coming months, they also provide a helpful opportunity for other organisations to amend their governing documents so that members’ meetings can be held more flexibly in the future, particularly as the flexibility offered by the Act will only last until 30 September 2020 (unless extended).
This guide highlights how charities can benefit from these new measures.
Check your governing document
Charities must comply with their governing documents – however, those governing documents will be read as subject to the measures set out in the Act. So the first step is to review your governing document for any provisions about members’ meetings and how these could be held:
1. Does your governing document require an AGM to be held? By when does your next AGM need to be held? Does your AGM need to be held in a physical location?
Many charitable company’s and CIOs have a requirement in their governing document to hold an AGM each year. The governing document will typically set out a timescale within which an AGM is required to be held each year (often with no more than 15 months elapsing between each AGM, or within six months following the charity’s financial year end).
2. Does your governing document contain powers of postponement or permit flexible approaches such as virtual meetings (e.g. using video conferencing facilities)?
If an AGM or general meeting has been scheduled and circumstances change before the date it is to be held, the trustees do not have an inherent power to postpone the meeting, unless permitted under their governing document.
3. What are your quorum requirements? Is there a requirement for only physical attendees to be counted towards the quorum?
4. Does your governing document permit electronic circulation of notices, or electronic acceptance of a resolution, e.g. a member signifying their acceptance to a resolution over email, rather than physically signing a document?
5. Does your governing document permit you to change the location of your general meeting, once notice of the meeting has been sent to members?
Check your corporate authorisations
What if my governing document does not permit some or all of these flexibilities?
After much uncertainty for charities which need to hold a members’ meeting during the lockdown period, the Act creates a more flexible framework in which meetings can be held, notwithstanding the requirements of their governing document. These measures allow AGMs and other general meetings to be validly held, while the current restrictions on public gatherings remain in place and in the context of the potential for social distancing measures to continue indefinitely (in some form) in the future.
These flexibilities are available to companies (including charitable companies) and CIOs, and also a range of mutual organisations – including building societies, credit unions, friendly societies, co-operative societies, community benefit societies and other registered societies. The provisions do not apply to unincorporated charities, or to organisations established by an Act of Parliament or Royal Charter.
However, in its updated guidance to the charity sector, the Charity Commission noted that although AGMs for unincorporated charities are not covered by the new law, an alternative for trustees of these charities is to change the requirements in the governing document about their timing (provided it is possible to satisfy the existing constitutional requirements to do so).
What flexibilities are introduced by the Act?
The Act includes the following flexibilities:
a) Extended period to hold AGMs: where an organisation is currently required to hold an AGM (under statute or under its governing rules) on a date falling between 26 March 2020 and 30 September 2020 (the “Relevant Period”), it will be able to hold that AGM validly at any point in that extended period.
This means that companies (including charitable companies), CIOs and mutuals which have postponed their AGMs since 26 March 2020, or would like to postpone an upcoming AGM, will be given until the end of September 2020 to validly hold those meetings and, in doing so, they can take advantage of the additional flexibilities provided by the Act as to the manner in which meetings can be held.
b) Virtual meetings: where a members’ meeting is held during the Relevant Period (either because it has to be held or simply because an organisation chooses to hold a members’ meeting in that period), companies (including charitable companies), CIOs and mutuals are afforded the following flexibilities, even if their governing document does not currently permit them:
These measures suggest that charities’ quorum requirements may be able to be met with an entirely virtual meeting and there is full flexibility as to the virtual means chosen, e.g. video conferencing facilities.
Organisations will be afforded the flexibility they need to decide how best to run these general meetings, in line with the measures noted above. However, the Government can expand on the detail of these flexibilities and make further provision in relation to notice requirements and transmission of documents ahead of meetings in secondary legislation.
The Charity Commission advises: “You can use these provisions if you feel it is in your charity’s best interests to hold the members’ meeting virtually rather than to defer it at this current time. If you rely on these provisions, you must ensure that this decision is recorded in the minutes and that all other meeting requirements are met. You should ensure that you have a robust system to ensure only those eligible to vote can do so and that you record who has voted and the percentages of votes cast.”
Given the present uncertainties, the Government is making the flexibilities available throughout “AGM season” – the period within which the majority of companies and other bodies plan to hold their AGMs. The framework for both postponement of AGMs and the flexible holding of members’ meetings could also be extended through secondary legislation so that it could continue to be available for any period up to 5 April 2021.
What are the implications of the new Act for your charity?
The new flexibilities in relation to members meetings could be helpful whether or not you still need to hold an AGM this year:
Holding your general meeting – guidance
The measures will not prevent a member from exercising their right to vote on resolutions or other matters brought before the meeting and organisations are expected to make reasonable efforts to provide the usual degree of engagement and challenge.
The Government has noted in a Q&A, issued in early June (before the Act was published or came into effect), some guidance on what it would consider to be best practice here. For example, Government advice is that:
“As a minimum, organisations should consider exemplary member communication as the key element of good practice: This should include:
You may wish to dedicate a page on your website for members to obtain general information and updates on the AGM or other general meeting. A Q&A section for members to ask questions might also be a helpful way to answer any frequently asked questions. These questions and responses to them at the meeting could be included in the minutes.
If your AGM needs to be held by a date falling outside of the Relevant Period, check your governing document to see if it allows for postponement of the meeting. If a meeting needs to be held by a certain date, the governing document may allow the charity to adjourn the meeting to another date. If the organisation intends to postpone the AGM in this manner, it could let members know through its website or via email if the charity has authority to do so. Note that the Act includes power for further measures to be made dealing with how notice and other documents relating to meetings may be given, which could include further flexibility around notice periods or sending documents electronically.
Additionally, other practical issues will need considering including, for example, the cancellation policy of the venue at which the AGM was to be held. This may require re-negotiation based on how the Government’s advice changes over time.
What if the Act does not contain all of the flexibilities my charity needs?
The Charity Commission has said that:
Whilst charities may well be in a position where they need to hold a meeting or make decisions without being able to fully comply with their governing documents, and therefore be in breach, there are a range of options available to organisations in this position and affected charities should seek bespoke advice.
For example, charities may be able to amend their governing documents to enable greater flexibility now. Your organisation may also be able to make members’ decisions by written resolution, without the need for a meeting.
It is particularly important to consider whether authorisations granted at your last AGM remain valid if this year’s is postponed.
However your charity moves forward in this difficult time, always ensure that you minute your decisions with great care when taking the most difficult decisions. Set out the matters taken into account, other options considered, and the reasons for taking your decision. Circulate the draft minutes as quickly as possible.
This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.
All content on this page is correct as of July 1, 2020.