The Hong Kong government issued bans last week to enforce social distancing with limited economic disruption but extraordinary general meetings – an increasingly ordinary matter nowadays – may face roadblocks.

Last Friday, Hong Kong authorities issued the ban after the city was hit by a second coronavirus wave that has intensified what was originally a stabilizing infection rate. Whilst it added that no limited would be placed on congregations in private settings to workplaces, one report by global law firm Mayor Brown suggests that general meetings might be hit. 

«In our view, [annual general meetings] fall within the Paragraph 11 Exemption and may proceed,» the report said, referring to a key clause for exemptions. «As [extraordinary general meetings] are different, in our view, they do not fall squarely within the Paragraph 11 Exemption.»

Paragraph 11 Exemption

Within the clause, it specifies that «group gathering at a meeting of a body that must be held within a specified period» in order to qualify for the exemption. For firms hoping to pursue absolute compliance, this may not apply for the technical definition of extraordinary general meetings (EGM). 

«It is debatable whether [EGMs] must be held within a specified period,» said Jeckle Chiu, a partner at Mayor Brown. 

The ban also includes another exemption defined as a «reasonable excuse» for a gathering, but Chiu underlines the subjective nature of this and called for boards of listed companies to «exercise restraint and set a high threshold for themselves in case they really need to proceed with their EGMs».

Possible Options

Chiu suggests that possible options include postponement, usage of electrical facilities – akin to that of DBS’s recent AGM – and issuance of guidance to shareholders for proxy submissions and avoidance of physical attendance. Though perhaps hard to enforce, non-compliance could result in a fine for every single participant of around $3,200 alongside $2,000 for discharging liabilities.

«In other words, the company and its directors would be subject to criminal liability and may face indemnity claims from shareholders and other participants in the EGM and owners and operators of the EGM venue, not to mention the adverse publicity and reputational damage,» Chiu warned.