Change company law to allow virtual AGMs, Uganda high court urges

4 September 2020 · Carmel Rickard

The high court in Uganda has urged that the government change the law to make it easier for businesses to hold their annual general meetings online, or via a mixture of a physical and electronic meeting. This is to take account of the restrictions on gatherings, due to Covid-19, imposed by the government on the one hand, and, on the other, the legal requirement that companies must hold AGMs. For the last few months in Uganda, individual companies have been coming to court asking for judicial authorisation to hold electronic meetings. Now, says the court, the time has come to change the law and make electronic meetings the new normal.

Read judgment

It is not often that a judge’s obiter remarks are the most significant part of a decision – after all, the whole point of flagging remarks as ‘obiter’ is to indicate that they are made merely in passing. But the case of Uganda Clays, heard by Judge Ssekaana Musa and with judgment delivered on August 17, might just be the exception that proves the rule.

This is the umpteenth similar matter heard by the judiciary in Uganda, in relation to companies that are legally obliged to hold Annual General Meetings, but find they can’t do so because of the precautionary regulations surrounding Covid-19 and the requirement of social distancing.

Typically, companies have been coming to court to explain the problem: their company rules require that a ‘physical’ AGM is held. They add that there is no provision for an electronic meeting in the rules.

Credentials

The companies then explain their credentials, their date of listing on the Uganda Securities Exchange and the number of shareholders.

In the case of Uganda Clays, the company told the court that its articles of association required that any AGM be physically convened with a quorum consisting of members holding at least 45% of the issued shares of the company present in person or by proxy.

Given the large number of shareholders entitled to attend the AGM, the meeting would be affected by the government’s ban on public meetings.

Stalemate

At this point, having indicated the stalemate between the requirements for the AGM and the government’s prohibitions, Uganda Clay, like the companies that litigated in the weeks and months before it, point to the Companies Act and ask for the court to step in.

That law provides that where it is ‘impracticable’ to call a meeting of a company in the normal way, the court ‘may of its own motion or on application of any director … or any member of the company who would be entitled to vote at the meeting, order a meeting of the company be called, held and conducted in the manner the court thinks fit.’

The purpose of this provision, as Judge Musa points out, is to enable the court to give directions ‘to overcome practical difficulties so that the company’s affairs can be conducted where they might otherwise be stymied.’

'Crippled'

Company officials had said, via affidavit, that the company ‘does not oppose or object to this application to convene a meeting electronically’. Given the pandemic, free movement and meetings have been ‘crippled’, the judge noted. Since it was ‘impracticable’ to call a meeting in the traditional way, the court granted Uganda Clays ‘leave to convene and conduct the AGM by electronic means’. The company would first have to obtain permission from Uganda Securities Exchange and comply with any other relevant law.

And then, at the end of the formal judgment, comes the heading ‘obiter dictum’:

Virtual AGMs were gaining wider acceptance in Uganda, the judge began. They were also being accepted in the rest of the world, where companies had to ask for a court order to hold virtual meetings.

'Alternative mode'

However, in the view of Judge Musa, companies should now amend their articles of association to allow the flexibility of virtual meetings when this was necessary. There ought to be ‘an express permissive provision for such alternative mode of convening and conducting meetings,’ he said.

‘The law should allow the holding of a general meeting or board meetings through he use of modern electronic communications, providing that nothing is to be taken as precluding the holdings of meetings “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.”

‘The law should allow contemporaneous participation in meetings (via telephone or video conferencing) rather than sequential communication (e.g. service of emails).

Contingency

‘Companies should consider contingency measures and whether a hybrid AGM, being a combination of a physical meeting (with limited attendees) and virtual meeting, is possible as an alternative to complete virtual AGM.

‘No one knows how long the pandemic will last, its after-effects and social distancing guidelines will last, hindering physical meetings. It is therefore imperative for Ugandan listed companies and private companies to look into and embrace a fully virtual general meeting or a hybrid in these difficult times in order to avoid potential delay in their business transactions and operations.

‘The government of Uganda should make necessary amendments to the law to allow virtual meetings or a hybrid and virtual and physical meeting in order to stop companies from making applications to court which is costly and time consuming.’

Carmel Rickard

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