COVID-19 and charity AGMs – Corporate Insolvency and Governance Bill published
These FAQs update the version first published on 2 April 2020.
On 20 May 2020, the Corporate Insolvency and Governance Bill had its first reading in parliament. We have updated our FAQs below to explain how proposed temporary changes on members’ meetings are likely to affect charities.
These and other FAQs and insights can be found on our COVID-19 Hub. Please check the Hub when you can, as this will be frequently updated with new developments. Please also refer to the FAQs section where you are able to send us your own questions, or get in touch with your usual BDB Pitmans contact.
Please note these FAQs are updated as at 21 May 2020. You may also wish to refer to the updated Q&A produced by BEIS and the Financial Reporting Council (which pre-date publication of the Corporate Insolvency and Governance Bill).
1 We think we will need to rearrange our AGM. Can we do this?
The Charity Commission has put some guidance out on this question in its Coronavirus (Covid-19) guidance for the charity sector, noting that the government’s health advice ‘may lead to some charities having no choice but to decide to cancel or postpone their AGMs and other critical meetings‘.
On 28 March, the Business Secretary Alok Sharma announced that ‘the government will introduce legislation to ensure those companies required by law to hold Annual General Meetings (AGMs) will be able to do so safely, consistent with the restrictions on movement and gatherings introduced to address the spread of coronavirus’. He added that ‘Companies will temporarily be extended greater flexibilities, including holding AGMs online or postponing the meetings’.
The resulting Corporate Insolvency and Governance Bill was introduced on 20 May and is being fast-tracked through parliament. The details may change as it goes through parliament but, as introduced, it would enable any charity which is a:
- SCIO; or
- a mutual society (such as a Community Benefit Society);
as well as trading subsidiary companies of charities, to take advantage of various relaxations of the rules which would normally apply to their members’ meetings and AGMs.
One such relaxation in the Bill is to allow any such body to postpone their AGM until 30 September 2020 (unless extended) where the period during which they would otherwise have been bound to hold it expires some time between 26 March 2020 and 30 September 2020 inclusive.
As noted, the legislation has yet to become law, but if your organisation falls into one of the categories above, then it is likely you would be able to postpone it until 30 September (potentially later if the government determined that the deadline should be extended further). As noted in the responses below, there are also other relaxations in the Bill to enable holding AGMs and other members’ meetings remotely (even if your constitution does not allow it).
For charities not covered by the Bill, the usual rule would be to start by looking at your constitution. However, as the Commission notes, under current government restrictions charities (as others) will have no choice but to cancel or rearrange such face to face meetings.
2 What if rearranging our AGM puts us in breach of our constitution?
A decision to postpone your AGM may put you in breach of your constitution, eg if it requires an AGM to be held every year.
There may be ways to avoid this, eg if you are able to amend your constitution (eg if a written resolution is possible) to alleviate any potential breaches and facilitate the ongoing governance of the charity, which will depend upon your constitution and practicalities such as membership numbers. There may also be an alternative way of holding the meeting (see below).
For charities (and their trading companies) covered by the new Corporate Insolvency and Governance Bill (essentially charitable companies, CIOs, SCIOs and certain mutual societies), as noted in the response to question 1 above, the Bill proposes to read any duty of such bodies to hold an AGM in a period expiring between 26 March and 30 September 2020 (inclusive) as a duty to hold the AGM during a period expiring on 30 September 2020, ie such bodies will not breach such a requirement in their constitution if they rearrange the AGM to be held any time up to and including 30 September.
In addition, for such bodies, there are further provisions in the Bill (see further below) which, assuming they are enacted, would enable more flexibility on holding members’ meetings, which could enable them to amend their constitutions so as to alleviate the risk of a potential breach here.
If there is no realistic option but to be in breach, the trustees should take some reassurance from the fact that it is hard to see how they can be criticised where their action is the result of complying with the government restrictions.
In any event, as the Commission notes in its guidance, the trustees will need to record their decision so that they can demonstrate good governance of the charity. The Charity Commission’s guidance, It’s your decision, has sensible guidance for trustees here.
It will also be important to communicate with members, so that they know what is happening. As we are finding out, it is often the uncertainty that causes greater anxiety – once people know what is happening, they can start to adjust.
3 Timing - when will it be safe to hold our AGM?
Good question – at present, we do not know. For that reason, if rearranging to a new date, you will want to be sure that you have adequate flexibility and protection should you need to cancel or rearrange again.
4 What about key decisions which we make at our AGM, such as trustee appointments? Do the current trustees remain in post?
Often the AGM plays a key part in milestones in the charity year, such as approving the annual report and accounts and making appointments to the trustee board. If you cannot hold the AGM, what happens in the absence of those decisions?
As so often, it will depend upon the terms of the constitution in each case – what does it say about a trustee’s term of office? Or, what is the precise decision required of the members?
If the absence of an AGM decision does affect a material aspect of the charity’s operations, such as the constitution of the trustee board or finalising the annual report and accounts – and if it is not possible to hold a meeting by other means (see below) or to pass a members’ written resolution, it may be necessary to approach the Charity Commission. This may be to ask for a delay in submission of accounts (referenced in the Commission’s guidance) or for an appropriate order or advice.
5 Is there a way can still hold our members’ meeting, if not face to face?
It will depend on the form of charity (such as company, CIO, Royal Charter corporation or unincorporated association) and its constitution. Some possibilities are set out below, but whatever approach is taken, as noted above (question 2), the trustees should be careful to record their decision, so they can demonstrate proper governance of the charity. As noted above, the Charity Commission’s guidance, It’s your decision, has sensible guidance for trustees here.
Where the charity is a company, CIO, SCIO or a mutual (such as a Community Benefit Society) the Corporate Insolvency and Governance Bill (introduced to parliament on 20 May 2020) proposes to allow, on a temporary basis, greater flexibility for holding members’ meetings, overriding the terms of the body’s constitution to that extent.
For bodies covered by the Bill, where a general meeting (or a meeting of any class of members or of delegates appointed by members) is held between 26 March and 30 September 2020 inclusive, the meeting:
- need not be held at a particular place;
- may be held and votes may be cast by electronic or other means;
- may be held without a quorum of participants having to be together in one place.
In addition, members’ rights in relation to such meetings are due to be limited so that, while members will continue to have a right to vote by some means, they would not have the right to:
- attend in person;
- participate other than by voting; or
- to vote by particular means.
It should be noted too that the legislation is due to be back-dated to cover meetings held from 26 March.
Assuming they are enacted, these proposals would provide significant flexibility for these types of incorporated charities to hold members’ meetings, which may provide a useful opportunity to make any changes to the charity’s constitution to facilitate operations while the pandemic continues.
For charities not covered by the Bill, there may be other options:
- the constitution may already provide for participation in a meeting by remote means. (eg wording used in the default model articles allows for very wide means of holding a general meeting). If so, then holding the meeting electronically is an option;
- if you have not used this before, you might want to consider what means are available to your members and to communicate your plans well in advance, to give members time to prepare. As it happens, many members are likely to be expanding their digital capabilities at present, so you may find the membership fully on board with such a move.
- if the constitution is neutral on the point, then there will be a question of interpretation whether a meeting held remotely will be a valid ‘meeting’;
- in some cases, a meeting may be valid if it takes place by suitable video conference or internet video facilities (unless the constitution forbids this) – see also the Charity Commission guidance CC48 Charities and Meetings; and
- other means to hold a meeting may be available – it will a question to be considered in the particular circumstances of your case.
- if the constitution expressly prohibits holding the meeting other than face to face, then, subject to any change in the law or other authority, the starting-point would be that you could not validly hold a meeting by such means. Again, there may be alternatives, eg if the constitution is amended or otherwise would permit an exception (eg on a vote by a certain percentage of members).
There may be an alternative temporary fix if the charity has provision for proxy votes (which it must if it is a company), by holding a meeting through the appointment of proxies (eg appointing the Chair as proxy). Such an approach would need to be checked carefully and would need the cooperation and trust of the membership.
It is important to remember that, whatever challenges you are facing, there will be many other charities facing similar challenges and the regulators and your supporters will understand that you are making decisions in the most difficult of situations. Our normal routines have been thrown out of the window but there are some routines we can hold on to and which can help – in particular, the essentials of trustee decision-making and recording your decisions.
We hope you find these Q&As helpful. As noted above, more will be coming, with further updates, as (as you will be only too well aware) matters are developing very quickly in a number of areas. Please do feel free to let us know any particular questions you have.