ANALYSING THE CONCEPT OF VIRTUAL GENERAL MEETINGS AND ITS LEGAL IMPLICATION IN NIGERIA

‍Virtual General Meetings: An analysis of the Evolution, Legal Implications & Outlook in Nigeria

The traditional concept of an Annual General Meeting (AGM) has long been associated with physical gatherings where relevant stakeholders of a company in law deliberate on key corporate decisions. However, with advancements in technology and the impact of the COVID-19 pandemic, Virtual AGMs (also known as electronic meetings) have become a viable alternative, offering flexibility, cost savings, and enhanced participation.

A virtual general meeting of a company is a meeting convened using an online video conferencing platform that allows attendees irrespective of their location to join and participate in the business of the meeting online. A virtual general meeting may be held in real-time allowing participants to record their attendance, vote, declare dividends, and engage with stakeholders effectively.

In Nigeria, the shift towards Virtual AGMs has been driven by regulatory changes, particularly in the Companies and Allied Matters Act (CAMA) 2020 and the Business Facilitation Act 2023. This article explores the evolution of AGMs in Nigeria, their legal framework, arguments for and against, and their impact on corporate governance best practices.

‍The Evolution of Virtual General Meetings in Nigeria

The evolving standard for convening general meetings in Nigeria has undergone different transition eras. For the purpose of this article, those eras are categorized into pre-COVID-19, theCOVID-19, and the post-COVID-19 eras respectively.

The pre-COVID-19 era which connects to the Companies and Matters Act, 1990 (“CAMA” or the “Act”) regime did not accommodate electronic meetings, voting, or notices. Thus, the general meeting of a company had to be convened physically in Nigeria.[1] with all the stakeholders duly notified by physical service as emphasized in a plethora of decided cases[2].Also, in considering the system of voting, Section 224 (1) of the CAMA, 1990[3] Provides that at any general meeting, a resolution put to vote shall be decided by a “show of hands” unless a poll is demanded by the Chairman. This show of hands can only be carried out by members with voting rights who are present or by duly appointed proxies.

The realities of the COVID-19 pandemic coincided with the enactment of the CAMA 2020⁴. The Act, however, had given room for private companies to hold their general meetings electronically provided that such meetings were conducted in accordance with the Company’s Articles of Association. This positive development, although welcomed by many, put private companies whose articles were silent and public companies in a tight position [GS1] [SU2].

The remedy for public companies was to convene AGMs by Proxy in line with CAC’s Guidelines⁵. [GS3] [SU4] To guide the operations of AGMs for companies, the Corporate Affairs Commission (CAC) issued its guidelines⁶on holding of AGMs for companies using proxies. This guideline introduced the concept of ‘AGM by Proxy’. The directive followed the restriction on movement and physical gatherings and directed that Companies could convene AGM by selection of proxies by the Company so the shareholders could choose a proxy to represent. While the provisions of the CAMA 2020 on quorum and notice were still applicable, the CAC mandated that companies provide a comprehensive report of the meeting to the Commission afterward, which infers the Commission’s desire to safeguard the interest of the shareholders.

Additionally, various regulators including the Nigerian Exchange Group (NGX)⁷, Lagos State Internal Revenue Service (LIRS), Federal Inland Revenue Service (FIRS), and the Securities and Exchange Commission (SEC) responded to the global pandemic by extending deadlines for the regulatory submission of its annual returns to give allowance to companies to conclude their general meetings and file adequately. As part of an innovative strategy similar to the option of AGM by Proxy, the electronic filing of regulatory returns was introduced to alleviate the lockdown situation.

Post-COVID-19 and after the lockdown situation, the CAC announced a timeline for public companies to cease the utilization of their license to hold AGM by Proxies effective December 31, 2022^. Some Companies were affected by this timeline thus setting back the pace enjoyed, although for a short while. Asa lifeline, the Federal Government of Nigeria (‘FGN’), in a bid to foster economic growth and development, signed the Business Facilitation (Miscellaneous Provisions) Bill 2022 into law on February 8, 2023, and the highlight of the Act in terms of general meeting proceedings was that public companies could hold their general meetings electronically, provided that it is in line with the company's Articles of Association⁹.

Furthermore, resolutions that were put to vote at any general meeting could now also be decided through electronic voting, substituting the need for a physical voting pad. ¹⁰This development revolutionized corporate governance operations for companies in Nigeria considering the challenges that each era was posed with leading up to the deployment of these regulatory solutions.

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The Considerations for Virtual General Meeting

Virtual general meetings offer a huge financial consideration for companies and this approach has not only reduced costs and time but has also enhanced corporate sustainability by eliminating the constraints associated with delayed AGM planning schedules.

Similar to the requisite pre-meeting considerations for any general meeting, the Company is obligated to set up the required meeting infrastructure to hold a general meeting virtually. The meeting infrastructure involves the issuance of statutory notice, securing a virtual meeting platform that allows for a reliable voting system, as well as circulating the Annual General Report.

However, in convening a virtual general Meeting, the following points must be noted:

a. Compliance with regulations – The provisions of the Companies and Allied Matters Act, 2020 (“CAMA”) and the Business Facilitation Act, (Miscellaneous Provisions) Act 2023, also known as the “BFA” outline the guidelines for convening a general meeting. ¹¹Both regulations highlight the requirements for validating a general meeting; however, emphasis was placed on the Company's Memorandum and Articles of Association, as a compliance measure to have a virtual general meeting.

b. Logistics – Part of the requirements fora valid notice is the provision of the venue of the meeting which applies to both virtual and physical meetings. Thus, the venue of the meeting must be specified in the Notice of Meeting to all stakeholders, which may be a meeting link or a description of the physical location. ‍

c. Virtual Meeting Platform – A reliable videoconferencing platform must be used to convene a virtual AGM. The company has the onus of ensuring that whichever meeting platform it chooses is reliable and easy to interface, allowing attendees to engage maximally. Also, clear instructions on how to engage on the meeting platform must be communicated to the stakeholders way ahead of the meeting to ensure a seamless proceeding and participation. Companies can go the extra mile to ensure a team of technical officers is on standby to provide technical support.

Arguments on the Suitability of Virtual General Meetings

The prevalence of virtual AGMs today is shaped by two contrasting perspectives, those in support and those against. While those in support argue in terms of innovation and sustainability, those against raise the major concerns of marginalization of shareholders’ rights and privacy.

Some of the arguments that have been advanced in support of virtual AGMs include:

1. It enhances increased participation since shareholders are not restricted by distance as a limitation to partake in the general meeting.

2. Virtual meetings can save time for all participants involved especially in commuting to meeting venues which translates into enhanced productivity and allows professionals to focus more on essential tasks and responsibilities.

3. It saves planning costs for the company.

4. It ensures a streamlined meeting process and makes it easier to follow through with the agenda. This ensures that the distractions prevalent at a physical meeting can be controlled.

5. It reduces the carbon footprint in gathering a large number of people, especially for public companies in terms of environmental concerns.

6. Virtual meetings promote inclusivity and diversity by breaking down barriers to physical accessibility and allowing people from different backgrounds to collaborate efficiently. Also, participants with disabilities or limited mobility can easily attend virtual meetings without facing the challenges of accessing physical meeting spaces.

The major arguments against virtual AGMs include:

1. There may be a loss of interest in participation by the less technology-savvy shareholders.

2. Internet access and connectivity issues may interrupt the meeting proceedings. Connectivity in Nigeria has not shown itself to be 100% reliable.

3. A major criticism of virtual AGMs is that it may afford the management of companies the opportunity to evade contentious issues that are nonetheless, of significance to shareholders. This reservation is premised on the fact that since the management controls the process of the meeting backend, it may be easier to restrict shareholders from voicing their opinions on the company’s affairs, thus constituting a threat to shareholders’ rights.

4. It is difficult to guarantee the transparency of the voting process during a virtual AGM.

5. Seeing as CAMA 2020 or Companies Regulation 2021does not highlight the steps to convene a Virtual AGM, the process might be susceptible to abuse by companies.

Potential Legal Challenges of Virtual General Meetings

The possible legal challenges are highlighted below as follows:

Shareholder Disenfranchisement

The core of shareholder disenfranchisement in virtual general meetings is hinged on ‘accessibility’. The Act¹²restricts the place of statutory and general meetings to Nigeria to ensure the location set for any meeting has to be accessible to all participants. Thus, where a virtual meeting platform does not give access to or restrict the access of shareholders in participating in a general meeting, it contravenes the provisions of the law and impedes the rights of the shareholder¹³. Further to the shareholders' right to accessibility, virtual meetings may present the opportunity for companies to restrict shareholders' participation in terms of asking questions on management decisions.

The law does not leave the shareholders without a remedy in this instance. Shareholders can call the attention of other regulatory stakeholders when a shareholder disenfranchisement occurs. Also, shareholders can petition the Company for impeding on the rights of shareholders during a general meeting. ¹⁴

Restriction on Company’s Articles

The caveat for holding virtual general meetings is that it must be conducted in accordance with the Articles of Association of the company. This is as provided in Section 240(2), of CAMA,2020 and the Business Facilitation (Miscellaneous Provisions) Act of 2023.However, some have argued that private companies can hold their general meeting electronically without needing to amend their articles where such Articles do not provide a clear medium for holding general meetings. The validity of this position is still a matter of legal discourse.

The underlying implication is that companies whose articles did not permit electronic meetings faced the choice of amending same or running the risk of being exposed to legal challenges.

Data Protection Concerns

Companies have the responsibility of ensuring data protection and cybersecurity in the conduct of their electronic meetings. Whilst this responsibility does not arise solely during meeting preparations, the risk is higher in this instance because of third parties and other stakeholders' involvement.

Communicating the meeting links to shareholders must be via secured communication channels to avoid any interference. The Nigerian Data Protection Act¹⁵ (“NDPA”) places the onus on the company as data collectors to ensure the data security of its members are guaranteed. This involves protecting the personal information of shareholders from being compromised.

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What does the future portend for virtual AGMs?

While arguably, technological advancements may have contributed, the major push for virtual general meetings rose out of the COVID-19 pandemic. It was borne out of the realization that the operations of companies could not be put on hold because of the lockdowns and restrictions imposed by governments at that time.

Despite the reservations that some schools of thought may have about virtual general meetings, it is important to highlight that the integration of virtual general meetings into the processes of a company is in line with the Environmental, Social, and Governance (“ESG”) obligations of companies. On the environmental front, the adoption of virtual general meetings obviates the need to convene large physical meetings that often involve the usage of sizable meetings and other logistics arrangements that increase the company’s carbon footprint.

The major negative consequences of in-person events are centered on carbon emissions and other fossil fuel generation. By adopting virtual general meetings, a company would significantly reduce the impact of its operations on the environment. With regard to the social considerations, a virtual general meeting affords shareholders (particularly minority shareholders) who otherwise may not be able to afford the logistical costs of attending a virtual general meeting, the opportunity to attend the general meeting from the comfort of their locations whilst ensuring that their interests are adequately protected.

What is more? The company would not be deprived of the benefits of the invaluable contributions from shareholders who may not be able to attend a physical general meeting. As it relates to governance obligations, conducting a virtual general meeting affords a company the opportunity to derive the benefits of a virtual general meeting while still aligning its operations with the provisions of the law.¹⁶

It is to be noted that resistance to virtual general meetings is more prevalent among public companies¹⁷and this may largely be attributable to their stakeholder size and the provisions of applicable laws (as discussed below). Private companies on the other hand face less opposition in this regard. To address the major concerns around marginalization and privacy, it will be essential for companies to put policies, practices, and monitoring mechanisms in place to ensure that shareholders are not only afforded the opportunity to air their opinions during virtual general meetings, while also safeguarding the privacy and data protection rights of shareholders are protected notwithstanding the medium adopted for the general meeting. A typical mechanism will be to request that shareholders send their questions, and Poll demands ahead to ensure their concerns are all addressed adequately.

Also, the Nigerian Code of Corporate Governance 2018 (“NCCG”)¹⁸directs that the venue of a General Meeting should be accessible to shareholders, to ensure that shareholders are not disenfranchised on account of the choice of venue. Thus, in considering the venue to convene a general meeting both physically and electronically, accessibility is key.

Conclusion

It is worth noting that general meetings are the pillars of shareholder democracy serving as vital platforms where shareholders can exercise their rights, voice their concerns, and influence key corporate decisions. The effective conduct of these general meetings not only ensures the protection of shareholders’ interests but also reflects on the corporate image of the company. In a well-conducted general meeting, shareholders are given the opportunity to engage meaningfully with company policies, question management decisions, and contribute to the overall direction of the business, thus fostering a sense of ownership and accountability.

While some critics continue to oppose the widespread adoption of virtual general meetings, it is important to acknowledge their undeniable advantages. Virtual meetings provide a pragmatic solution to maintaining the continuity of the corporate calendar, particularly in an increasingly digital world. They offer companies the ability to conduct meetings efficiently without the logistical burdens and costs associated with in-person gatherings. This article has sought to explore and address many of the concerns related to virtual meetings, including accessibility, technical issues, and shareholder engagement. However, it is equally crucial to emphasize that the tenets of good governance principles demand that companies remain attentive to the evolving needs and preferences of their shareholders.

In light of this, companies must adopt a proactive approach to address shareholder concerns, ensuring that their voices are heard, and their issues are resolved in a timely and transparent manner. Companies must not only react to shareholders’ needs but also anticipate potential challenges and create avenues for meaningful engagement—whether through virtual, or physical, meetings. A robust, inclusive governance process is key to ensuring that shareholders feel valued, heard, and respected, which in turn strengthens the company’s reputation and promotes long-term shareholder loyalty.

Once companies address shareholder reservations effectively and ensure that their concerns are taken seriously, they will be better positioned to benefit from the advantages offered by both physical and virtual meetings. In doing so, they can eliminate the cost and logistical challenges associated with physical meetings, all while creating an environment that encourages continuous dialogue and long-term shareholder satisfaction. Companies have a critical role to play in fostering an inclusive and transparent governance process, one that consistently demonstrates a commitment to the interests of their shareholders, thus contributing to the overall health and sustainability of the company.

[1] See Section 216 of CAMA 1990 (CAP C20, LFN 2004)

[2] Longe v. FBN Plc (2010, 6 NWLR pt 1197)

[3] Ibid

[4] Although enacted on August 7, 2020, CAC begun its implementation in January2021.

[5] Ibid, No. 6 above

[6] https://www.cac.gov.ng/3956-2/

[7] https://doclib.ngxgroup.com/Listings-site/corporate-disclosuresite/Documents/Circular%20on%20the%20Extension%20of%20Time%20to%20File%20Financial%20Statements%20and%20Waiver%20on%20Enforcement%20of%20the%20Provisions%20of%20Rules%2020.8.pdf,Accessed, November 25, 2024