The Covid-19 pandemic has necessitated the acceleration of the digital transformation for many businesses and governments across the world. Employees have been forced to work from home using remote-working technologies which, for many industries, has seen broad success. The impact of digital transformation has been widespread, as a variety of board and shareholder meetings are now being conducted virtually, or in a hybrid manner where the attendees have the choice of attending either virtually or in person.
One issue, however, has remained that the annual general meeting (AGM) of a company has required physical attendance to meet the requirements of the Commercial Companies Law promulgated by Decree No. 21 of 2001 (as amended) (the CCL).
The AGM is a particularly important meeting and a requirement of Bahrain companies law. The company is required to hold its AGM within six months of the end of its financial year and the CCL clearly sets out the process for holding this meeting, and sending invitations to shareholders. The AGM is subject to strict quorum requirements, with shareholders representing 50% of capital required to be in attendance. In the event that the 50% threshold is not met, a second meeting may be convened within 7 to 15 days of the first meeting where the quorum threshold is reduced to 30%. If this second meeting does not meet the threshold test, a third meeting may be convened where there is no threshold to attain quorum.
Despite the provisions which make it possible to attain quorum, reduced or minimal attendance at AGMs is not an ideal situation and one most companies try to avoid. The option to attend meetings virtually has been shown to encourage and facilitates attendance at meetings, particularly during the pandemic where travel has been restricted. Being able to attend the AGM virtually is therefore ideal for shareholders who wish to participate but are unable due to travel, or government regulations.
In Bahrain, the Ministry of Industry, Commerce and Tourism (MOICT) issued Resolution No. 63 of 2021 (the Resolution) related to virtual meetings, and regulating electronic voting at the AGM of joint stock companies. The Resolution was issued on 27 April 2021, and came into force on the 28 April 2021.
The Invitation & Eligibility
Article 2 of the Resolution sets out the requirements for the invitation, methods of attendance, voting instructions, appointing a representative and provides a framework for selecting an alternative time for the meeting in the event of technical issues with the virtual platform. An interesting point to note within this article is that the Resolution states that where a digital voting system is used, all matters on the agenda need to use the system.
Article 3 of the Resolution states that in order for a company to use virtual voting, its articles of association need to permit the same. This may require companies to amend their articles to comply with this provision by way of a special or written shareholder resolution, to the extent that virtual voting is not already permitted.
The Platform
Article 4 of the Resolution governs the requirements of the platform which is used for electronic voting. These requirements of the platform are:
- to be operated by an entity with appropriate expertise independent from the company;
- to have advanced security and encryption to prevent data alteration and unauthorized access;
- to allow the shareholders to vote in accordance with the number of shares they hold;
- to display audio and video, allowing meeting attendees to participate in real-time;
- to not allow the voter to change their vote;
- to keep voting confidential;
- to have a mechanism which allows votes which were held in person to be audited in the instance of a dispute related to the votes; and
- to have a mechanism to determine if there is quorum for both attendance, and voting.
There are a number of electronic voting platforms available in the market, including Nasdaq Boardvantage, BoardEffect and Boardpro, but it remains to be seen which platforms the MOICT approves for use in Bahrain. Platforms which are not yet approved can be submitted to the MOICT with evidence that they comply with the requirements above for approval.
Voting & Auditing
The resolution makes clear that votes which are cast cannot be changed. This condition is required to be stated in the invitation to the relevant meeting.
The Resolution further requires that the board of directors appoint an auditing firm or share registration company to be tasked with collecting the votes and ensuring compliance with the requirements of the Resolution. The firm appointed must not be the same firm that conduct's the company's accounting audit.
CBB Encouragement
In addition to the Resolution, it is worth noting the Central Bank of Bahrain's (CBB) letter (“OG/50/2021”), dated 14 February 2021 which states that the CBB encourages all CBB licensees and listed companies to conduct their AGMs virtually, and requires listed companies who wish to hold their AGMs physically to arrange for a virtual option for those who do not wish to physically attend the meeting.
Conclusion
Covid-19 has been a catalyst for digital transformation in the workplace and it is inevitable that AGMs and other meetings will continue to be held virtually after the pandemic. The Resolution is a positive regulatory step towards ensuring fairness and transparency of voting at meetings by requiring that the platforms used by companies in Bahrain are regulated so that they meet strict requirements in relation to security, voting and auditing. The overriding intention of the Resolution is that shareholders have the same rights and protections, regardless of whether they attend virtually or in-person.
