This is the first article in a series that will focus on issues that are commonly encountered by Cayman Island companies listed in Hong Kong.  This article looks at some common issues that come up at extraordinary general meetings (EGMs).

Extraordinary General Meetings

Electronic communications

One of the reoccurring issues that has arisen over the past 2 years is whether listed companies can hold virtual meetings, or hybrid meetings, to address social distancing restrictions.

The Cayman Islands Companies Act (2022 Revision) (Act) is silent on the question of whether an electronic/virtual meeting of members is permissible.  In other words, there is (as yet) no provision equivalent to s.360A(1) of the English Companies Act, 2006 which makes clear that “nothing … is to be taken to preclude the holding and conducting of a meeting in such a way that persons who are not present together at the same place may by electronic means attend and speak and vote at it”. It may be that the amendment tabled (but not yet enacted) in the Cayman Islands will have a similar effect.

Equally, however, there is no provision in the Act which prohibits electronic/virtual meetings of members, or prohibits companies from making provision for such meetings in their Articles.  For example, section 57 of the Act provides that “Subject to the … articles …, a meeting of (a) members … may be validly convened and business conducted, as provided by the articles …, with only one such member … being present in person or otherwise as may be provided by the articles …”. This might be interpreted as contemplating that a meeting might be validly held “otherwise”, i.e. even if members are not present/together in person.

As Cayman statute does not permit electronic meetings, it is unsurprising that most articles contain no express provision for an electronic meeting to be held.  In fact articles typically require the “place of the meeting” to be specified in the notice convening the meeting, that a “show of hands” is required for voting, each clearly implying the meeting is to be in person.  

In the current climate, these are arguably rather technical arguments.  For example, articles will spell out quorum requirements such as a meeting will be quorate if there are two members “present in person or by proxy”, suggesting that physical presence of the members in one place is not a requirement of a valid meeting.  Given that quorum requirements usually cater for both options (in person or by proxy), the converse argument is easily made out.

The Court observed in the English decision of Re Castle Trust Direct Plc [2020] EWHC 969 (Ch), in the context of schemes of arrangement, that the purpose of “meeting” (including a shareholders' meeting) is as “a mechanism by which…shareholders are able to come together and consult with each other, should they choose to do so, in order to make a collective decision”: see Re Castle Trust Direct Plc [2020] EWHC 969 (Ch), at [37]-[38], and the citation from Byng v London Life Association Ltd [1990] Ch 170, at [41]-[42] (referring specifically to electronic/virtual meetings, and to members being “electronically in each other's presence so as to hear and be heard and to see and be seen”). Byng v London Life Association Ltd was an early example of an attempted “hybrid” meeting, not a case that involved a fully remote meeting.

Where holding a meeting electronically is expressly not contemplated in the articles, or for that matter a hybrid meeting (that is in person but attendees have the option to dial in), such arrangements could be ratified by the majority at the meeting.  If the majority however refused to ratify the arrangements, it could be argued that the meeting has not been properly convened.  This brings us onto the next issue.

Adjournment or postponement of meetings

A situation may arise, or it may be apprehended in advance of the commencement of a meeting that it will become necessary, after the meeting has been opened, for it to be adjourned. The power to adjourn a meeting typically rests with the chairman of the meeting.

The effect of an adjournment is to suspend the transaction of business and delay it until the adjourned meeting is convened (Company Meetings and Resolutions (3rd edn, 2020, 12.33). It follows, then, that if a meeting stands adjourned, having been validly adjourned by the chairman, there is no meeting in progress at which members could purport to continue business of the company, appoint their own chairman, or pass resolutions.

At common law, an adjourned meeting once resumed is treated as a continuation of the original meeting and the business can be completed at the resumed meeting (Scadding v Lorant (1851) 3 HL Cas 418; Neuschild v British Equitorial Oil Company, Limited [1925] Ch 346; Company Meetings and Resolutions, at 12.33). Thus, if a meeting is adjourned, the resumed meeting can only conduct the business not dealt with at the original meeting, and no new resolutions may be tabled or voted on.

However, this only applies where the chairman has validly exercised the common law power to adjourn. Where the adjournment is not valid, the meeting remains in being and competent to transact business (John v Rees [1970] Ch 345 at page 384). Accordingly, in that situation, it would theoretically be open to members at the meeting to continue and pass resolutions; in other words the meeting can continue where the chairman adjourns outside the scope of the common law power.

In John v Rees [1970] Ch 345, 379; Megarry J had to consider an adjournment of a meeting due to  “unruly conduct” of shareholders during the meeting.  He held that “it seems generally accepted that one of [the chairman's'] functions is to preserve order; if despite his efforts serious disorder persists, and he is denied any power of adjournment, what is he to do? The disorder will almost by necessity make it impossible for the meeting to pass a resolution for adjournment. One must remember that serious disorder may put in a dilemma many of those who are peacefully attending the meeting” (at 382-3). Therefore, it is open to the chairman to adjourn where there is unruly conduct. However, in that case, the decision to adjourn was held to be invalid because (a) the adjournment was indefinite and (b) there was nothing to suggest that the chairman attempted to restore order or that “this was a meeting where people were put in fear”.

It is only in exceptional cases that the unilateral adjournment by the chairman is possible; the power is restricted to adjourning to give all persons entitled a reasonable opportunity of speaking at the meeting and of voting (though this can manifest in various ways). In several cases the chairman's purported adjournment has been found invalid: in Byng v London Life Association the finding was after the event; whilst in the case of John v Rees certain members decided an indefinite adjournment was invalid in ‘real time', and continued with the business of the meeting.

An analogous situation is where a meeting is purportedly concluded by the chairman. In National Dwellings Society v Sykes [1894] 3 Ch 159 a chairman's purported halting of the meeting “at his own will and pleasure” was deemed invalid; the meeting could therefore resolve to continue with the business for which it had been convened and appoint another chairman. A more recent example is Kaye v Oxford House (Wimbledon) Management Co Ltd [2019] EWHC 2181 (Ch); [2020] BCC 117. Though again concerned with the purported conclusion of a meeting, it nevertheless considered adjournment cases including Byng v London Life Association. There, the chairman asserted that the meeting had concluded, but members continued the meeting on the basis that the chairman's attempt to close the meeting was invalid. The court held that the chairman's attempt to close the meeting was indeed invalid (the chairman having relied on section 303 of the Companies Act, 2006 that permits directors to refuse to call a general meeting requested by members on certain grounds), and accordingly members were entitled to continue the meeting after the chairman had invalidly purported to close it, appoint a new chairman, and address the business of the meeting.

There are two further cases that warrant close attention.  In Byng v London Life Association, the English Court of Appeal was asked to consider the validity of the chairman's decision to adjourn the meeting to a different venue at a later time on the same day and the sufficiency of the adjournment notice, notwithstanding indications from some of the members and proxy holders that they would not be able to attend the meeting at the proposed resumption time and the proposed new venue was inadequate. The decision of Browne-Wilkinson LJ at 187A-D and 193E-H established that:

  1. The starting point is the articles of association. Where there is an article regulating the powers of adjournment, the application of that article will be the default. In this case, Article 18 allowed for adjournment by consent.

  2. However, the chairman will have a residual discretion to adjourn at common law. This is an exceptional power, and only exercisable “when the machinery provided for by the articles has broken down” (page 188G). It applies in extreme situations such as where there is a disturbance in a meeting which prevents a vote being taken (at page 188A) or where members are excluded from otherwise voting at the meeting (at page 188B). The guiding principle/question is this: are the circumstances such that the wishes of the general meeting cannot be validly ascertained (page 187G)? 

  3. The judgment of the chairman must be undertaken reasonably and the test is the same as on a judicial review (i.e. Wednesbury reasonableness, see at page 189C).

  4. On the facts, the Court of Appeal held that the chairman's decision to adjourn had not been reasonable. That is because the chairman knew that the adjourned meeting would not be attended by members who had attended the original meeting and could not even lodge a proxy vote (page 190H). There were no compelling time factors which prevented a longer adjournment; and this point was not taken into account (page 191D).

  5. As a result of this case, many public companies in the UK have now adopted articles which bestow an express discretionary power on the chairman to adjourn a meeting where there are practical issues with conducting a meeting (e.g. because of lack of capacity at the venue).

In Findmyclaims.com Limited v Howe [2018] EWHC 1833 (Ch) Zacaroli J had to determine an application to restrain the respondents from acting as directors.

  1. The applicant contended that the chairman had a common law discretion not to continue with the shareholders' meeting “where the sense of the meeting cannot be obtained” – on the basis that the entitlement of first respondent as a shareholder had not yet been ascertained. The applicant compared the position with the facts of Byng, where the equipment to enable the original meeting to be relayed between different rooms in the Barbican was not working – so that “there was accordingly no way of actually getting the sense of the meeting in that case” (see at [13]). The respondents argued that the residual power to adjourn only arose “in very limited circumstances” (at [17]).

  2. Zacaroli J held that the case was not on “all fours” with Byng, and that whilst it was “at least arguable” that the it did not fall within the exceptional residual power, it was “sufficiently arguable” that the “power extends to circumstances where there is no practical utility in continuing with the meeting because the views of the meeting could not be obtained without the prior question as to who was entitled to exercise votes being resolved” (at [22]). As a result of the deadlock, there was no point in putting the resolutions to the general meeting (at [22]).

  3. Accordingly, Zacaroli J concluded that there was a serious issue to be tried on this issue (at [24]).

Summary

It is common for there to be an express provision in the company's articles for adjournment of general meetings. Subject to the terms of the articles, this usually allows the chairman to adjourn a general meeting where there is consent (usually by a simple majority, but subject to the threshold in the articles). For this to happen, a resolution to adjourn would need to be put either by the chairman or by a member and if the resolution to adjourn is defeated, the meeting must go ahead (Company Meetings and Resolutions, 12.24-12-27). An adjournment can be sought for any reason whatsoever (ibid., at 12.32).

In the absence of express authority conferred by a company's articles, the board does not have a power to postpone a duly convened general meeting of shareholders (Smith v Paringa Mines [1906] 2 Ch 193).  In cases where the chairman exercises the common law power to adjourn in a way that renders that adjournment invalid, it would be open to members to continue the meeting in any event. However, it seems likely that their decision to do so, the subsequent business of the meeting and the original decision of the chairman to adjourn would all themselves be the subject to challenge after the event.

In the event that the directors purport to postpone a meeting in advance, it is open to the shareholders to hold a general meeting as envisaged by the notice convening the meeting and to seek to transact business specified in the notice (Company Meetings and Resolutions, 12.40).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.