Postponing/Adjourning Annual Meetings Following COVID-19

In light of the growing concern about COVID-19 (“coronavirus”) in the United States and globally, the U.S. Centers for Disease Control and Prevention (“CDC”) and other public health officials have recommended cancelling large, in-person gatherings for the next several weeks. [1] As a result, some companies may be considering, or may in the coming weeks need to consider, postponing the date of their shareholder meeting. While moving to a virtual or hybrid meeting, as discussed in our Forum post, Virtual Annual Meetings and Coronavirus, may be a good solution for certain companies, other companies may determine (or due to a lack of vendor capacity may be forced to determine) that the better course of action for them is to postpone or adjourn their annual meetings.

Key Considerations

In determining whether to postpone/adjourn an annual meeting in response to the coronavirus threat, a company should carefully consider each of the following questions:

1. If the annual meeting is to be postponed/adjourned, what are the legal restrictions, if any, for the length of time by which it may be postponed/adjourned?
2. When and how should a company notify its shareholders of the postponement/adjournment?
3. What is the impact of the postponement/adjournment on the company’s record date?

In the U.S., state law generally governs the postponement/adjournment of annual meetings, including in respect of the timing for the new meeting date, what notice is required to be provided to shareholders (if any) and the impact (if any) on the company’s record date. Company bylaws may also limit flexibility in postponing or adjourning annual meetings and, in light of the rapid pace of change and uncertainty related to coronavirus, some companies may also consider an emergency amendment to their bylaws to provide for more flexibility. Finally, companies determining whether to postpone/adjourn an annual meeting will need to consider compliance with applicable SEC and stock exchange requirements.

Timing for New Meeting Date

Both Delaware and New York law generally provide for shareholders to bring action against a company in the event the company fails to hold a postponed annual shareholder meeting within thirty (30) days from the date of its originally scheduled meeting, or if no meeting was scheduled, within thirteen (13) months following the date of its last annual meeting. Under Delaware law, the Court of Chancery, upon the request of a shareholder or director, may require that such meeting be held, as well as prescribe the time and place and notice requirements for such meeting. [2] Under New York law, the board of directors is required to call a special meeting for the election of directors, and, if it fails to do so, holders of ten (10%) percent of the shares entitled to vote may demand a special meeting for the election of directors to be held no less than sixty (60) and no more than ninety (90) days from such demand being received. [3] While there has been no official statement from the Delaware Chancery Court, absent a hostile situation, we believe it would be unlikely for the Court to compel a company to hold a meeting if the company is acting in good faith to hold the meeting as soon as reasonably practicable in the circumstances. We also believe that, again outside of an active hostile situation, it would be unlikely for shareholders to make such demands given the poor public reaction they would likely receive.

Notice & Filing Requirements

Delaware and New York laws generally require that shareholders be notified, either by physical mail or electronically (typically by email if a shareholder has consented to delivery by electronic means), [4] of the timing of a company’s annual meeting no more than sixty (60) and no less than ten (10) days prior to the occurrence of such meeting. [5] These notice requirements should not require remailing the company’s full proxy materials (in a situation where the company has already mailed and filed its materials) provided the company (i) issues a press release announcing such change, (ii) files the announcement as definitive additional soliciting materials on EDGAR and (iii) takes all reasonable action to inform other intermediaries in the proxy process and relevant market participants (e.g. proxy solicitors and stock exchanges). [6]

It is worth noting that under many state laws, there is a difference between “postponement” (done in advance of the meeting) and “adjournment” (done at the meeting itself), which, as a technical matter, could impact the requirement to provide notice. Generally speaking, in order to adjourn a shareholder meeting, the company must generally open the annual meeting in the physical location scheduled for such meeting and meet certain quorum requirements prior to adjourning. This may be challenging given potential shelter in place recommendations or requirements, and given the constantly evolving environment, it will be difficult for companies to know in advance to what extent they will even be able to open or convene a physical meeting. Under Delaware law, when an annual meeting is adjourned to another time or place, or a different format, as may be the case when moving from an in-person to a virtual or hybrid meeting, rather than being postponed, and information about the new date and time is provided at the original meeting, the company does not have a technical obligation to notify shareholders of the new time or place if the new meeting is to be held within thirty (30) days of the originally scheduled meeting. [7] This technical difference may eliminate the need to send a formal notice to shareholders under state law; however, given the current circumstances, notwithstanding legal technical requirements, we would strongly recommend publicly informing shareholders of the change through a press release or other means.

Record Date

If a company postpones its annual meeting, there is a possibility that it will also need to change its record date, i.e., the date on which a shareholder needs to be a record holder of the company’s securities in order to vote its shares at the annual meeting. [8] Under Delaware and New York law, the record date for an annual meeting must not be more than sixty (60) days or less than ten (10) days prior to the annual meeting. Accordingly, if a company incorporated in Delaware or New York postpones its annual meeting to a date that would result in its record date being more than sixty (60) days before the annual meeting, the board must change the record date. A change in record date would generally require the company to provide notice of the new record date to shareholders. [9] In the event that a company adjourns, rather than postpones, its annual meeting under Delaware law, it may not be required to change its record date, even if such date is beyond thirty (30) days from the date of the original annual meeting; [10] however, the longer the time period between the original annual meeting date and the adjourned meeting, the more a board may wish to consider changing its record date so that the voters at the meeting accurately reflect the shareholder body at the time. Companies should similarly be mindful of stock exchange rules with respect to record date: NYSE requires that a company submit notice to NYSE of its record date within ten (10) calendar days of such date. If such date changes, then another notice must be submitted, also within ten (10) calendar days of the new record date. [11] NASDAQ has no similar rules for notice of record date related to an annual meeting.

Endnotes

1CDC, Interim Guidance for Coronavirus Disease 2019 (COVID-19), available at https://www.cdc.gov/coronavirus/2019-ncov/community/large-events/mass-gatherings-ready-for-covid-19.html.(go back)

2Delaware General Corporation Law (“DGCL”) §211(c).(go back)

3New York Business Corporations Law (“NY BCL”) §603(a).(go back)

4Note that some states and/or company bylaws may have different notice delivery requirements.(go back)

5DGCL §222(b); NY BCL §605(a)(go back)

6SEC Release 2020-62, SEC Staff Provides Guidance to Promote Continued Shareholder Engagement, Including at Virtual Annual Meetings, for Companies and Funds Affected by the Coronavirus Disease 2019 (COVID-19) (March 13, 2020), available at https://www.sec.gov/news/press-release/2020-62(go back)

7DGCL §222(c).(go back)

8We also note that, pursuant to SEC Rule 14a-13, broker search cards must be sent at least twenty (20) business days prior to the record date for an annual meeting, or later if permitted by the stock exchange on which the securities in question are listed. Companies should ensure, to the extent possible, that they work with any vendors, such as Broadridge or transfer agents, involved in this process and provide them with as much advanced notice as is practicable of any change in record date.(go back)

9DGCL §213(a); NY BCL §604(a).(go back)

10DGCL §213(a).(go back)

11NYSE, Listed Company Compliance Guidance for NYSE Issuers (Jan. 9, 2020), available at https://bit.ly/2QpZDzG(go back)