COVID-19: Virtual bondholder meetings
The COVID-19 outbreak is affecting the way in which business is conducted, and bondholder meetings are no exception. The UK Government has prohibited, among other things, public gatherings of more than two people, subject to only limited exceptions. These measures will make it all but impossible to hold physical bondholder meetings in the usual way, so we are seeing increased focus on the possibility of convening virtual bondholder meetings. Eurobond market standard trust deeds contain provisions for convening physical bondholder meetings, and many contain written and electronic consent mechanics as an alternative to physical meetings. However, few, if any, such trust deeds provide expressly for virtual meetings. A virtual bondholder meeting would be one that is held without a physical place of meeting. In this briefing, we consider some of the key issues and practicalities of conducting a virtual bondholder meeting as well as the option of holding a partly virtual or hybrid meeting.
An English law trust deed may confer powers on the trustee, without bondholder consent, to prescribe regulations regarding the holding of meetings and attendance and voting at them, including the documentation to satisfy itself that those attending or voting may do so. Where a trustee is minded to exercise this power to facilitate a virtual bondholder meeting, whether convened by the issuer or the trustee, there will, in our view, be a number of considerations based on the precise wording of the trust deed and the common law of meetings, including:
- How will the meeting be conducted? Will this be via audio and/or video conference? What technology is needed to enable voting at the meeting? The notice convening the meeting should contain details of the technology (including the electronic platform(s)) that will be used for the meeting as well as logistical details, including the date and time of the conference and how bondholders can access the meeting and any important points about how the meeting will be run. The arrangements should ensure that bondholders who wish to attend the bondholder meeting can do so, and can exercise all the rights afforded to them under the trust deed.
- Attendance/quorum: It will be necessary to determine and explain to bondholders how they will be able to attend the meeting, as opposed to just listening in or watching a transmission. For example, this may involve dialling in to a telephone conference, as well as logging in to a secure site. It is important that the entity convening the meeting and the trustee (unless it convened the meeting) identify who is “present” at the meeting, for example, to work out the quorum, decide who is entitled to speak and count votes. Most trust deeds contemplate a quorum comprised of one or more or two or more bondholders or agents present in person at the meeting. This minimum quorum can be satisfied under the COVID-19 restrictions on public gatherings currently in force, as people are permitted to travel for the purposes of work (where that cannot be done from home) and to gather in numbers of no more than two. The gathering of more than two people is, however, prohibited, unless it is essential for work purposes. This presents two potential approaches: (i) holding a quorate meeting of two persons being proxies or representatives appointed by bondholders in accordance with the trust deed. To comply with the COVID-19 restrictions, the notice of meeting should make it clear that bondholders are not allowed to attend in person and should vote and/or appoint a proxy or representative to do so on their behalf electronically through the clearing systems. This hybrid approach combines the use of electronic means with a physical meeting or (ii) conduct a virtual meeting using solely electronic means. Here, the trustee, in exercising its power to prescribe regulations regarding the meeting, would be permitting the requirement for attendance and voting in person to be satisfied by enabling the participation by bondholders or their duly appointed representative or proxy by electronic means through the clearing systems and communication at a virtual meeting. We suggest that for one to be present at a virtual meeting, bondholders or their duly appointed proxies or representatives must be able to hear the business of the meeting and must be able to speak and be heard, if they wish.
For the purposes of this briefing, we focus on virtual only bondholder meetings.
- Verification: Measures will need to be put in place to enable the verification of those entitled to join and participate in the meeting which should be explained in the notice of meeting. This would operate in tandem with voting instructions and proxy nominations being given and processed electronically through the clearing systems in the normal way. Arrangements will also need to be made to allow for the completion, execution and delivery of block voting instructions, voting certificates or forms of proxy electronically in accordance with the trust deed, and for the proxies or representatives thereby appointed to receive secure access details to the meeting.
- Who will host the meeting? It should be established who will be responsible for setting up and hosting the audio/video conference and ensuring that the COVID-19 related compulsory measures in place at the time are observed.
- Voting: As the overwhelming majority of votes are measured on a poll basis given the nature of holdings in the clearing systems, it is likely to be convenient for all votes to be taken on a poll as the systems used should be able to match up the bondholders present or represented at the meeting with their holdings. It may be possible to allow for votes to be taken in an equivalent way as for a show of hands, e.g. where all participants indicate how they wish to vote by pressing a button, but this may prove cumbersome. In any case, the meeting should clearly explain to bondholders present or represented at the meeting how votes may be cast.
In the context of a physical meeting, those entitled to vote would complete a voting card at the meeting and submit this to the teller who would record all votes cast in this way in a voting record which s/he then passes to the chairperson to announce the result of the vote. For the purposes of a virtual meeting, arrangements will need to be established to enable this process to be effected electronically during the meeting.
- Meeting protocol - chairperson’s script: This will need to be considered carefully in advance and adapted to reflect the electronic means used for the particular meeting and how the meeting is intended to be run in practice. The chairperson will also need to explain any particular procedures to participants at the start of the meeting and the explanation will probably need to be more detailed than would be necessary for a physical meeting.
This is not intended to be an exhaustive list of all the issues for consideration when convening and conducting virtual bondholder meetings. It may be that these arrangements are appropriate in limited circumstances only, for example where the bonds are narrowly held or held by institutional investors only, rather than by retail investors. With increasing experience of virtual meetings, more guidance will begin to emerge that will undoubtedly inform best practice in this area.
This briefing does not cover bondholder meetings under a fiscal agency structure. If you have any queries regarding the possibility of conducting a hybrid or virtual meeting under a fiscal agency structure, please do contact us.