Iain Young: How can the COVID-19 pandemic affect a company’s ability to make key decisions?

Iain Young comments on the importance for companies of reviewing their articles of association at this time.

Iain Young: How can the COVID-19 pandemic affect a company’s ability to make key decisions?

Iain Young

The social distancing restrictions imposed by the UK government has meant that all businesses have moved to remote working arrangements where it is possible for them to do so. The effect of this is that a company’s key decision makers will often be located in different places. Although we now live in a world with an array of options for keeping in touch by virtual means from conference calls to video calling facilities, being unable to hold a meeting with all attendees in one place may present a challenge for companies trying to arrange a board meeting. This is particularly significant during these difficult times when effective communication between management is important to ensure that business decisions can be taken efficiently.

A company’s articles of association will set out how directors can make decisions. This can be by way of a board meeting or by passing a written resolution signed by all of the company’s directors. The Model Articles of Association, which are set out in the Companies Act 2006, are a standard set of articles of association. These provide that for the purpose of holding a board meeting it is irrelevant how the directors are communicating with each other or whether they are in the same place, however they must be able to communicate any information or opinions that they have on an item of business to each other. This means if a company has Model Articles of Association, it can hold board meetings using electronic means of communication where the directors are in different locations.

If a company has articles of association which are entirely bespoke, or if they are based on an older set of articles of association set out in previous Companies Acts, they may provide that board meetings can only take place where the required number of directors are present in person. It is important that you check your company’s articles of association to ensure that board meetings can be held using electronic means of communication before proceeding to do so.

Another factor to bear in mind is whether your company’s board meeting is quorate. A company’s articles of association will set out the minimum number of directors that need to be present at a board meeting before decisions can be validly made. The default position under the Model Articles of Association is that a quorum for directors’ meetings is two (unless the company only has one director in which case it shall be one). However, the quorum requirements will vary between companies depending on what is stated in their articles of association. It is important to check that you have a sufficient number of directors available to make decisions in accordance with your articles of association, particularly in light of Coronavirus if directors fall ill. If not, steps will need to be taken to amend the quorum requirements in the articles of association.

A company’s articles of association may provide for the appointment of alternate directors so that the required number of directors can be maintained when one or more directors are absent, for example due to illness. This can be a useful tool as rather than having to adjourn the meeting because it is inquorate, the alternate director can take the place of the absent director at a board meeting. This could be particularly beneficial for a company where a board meeting is urgently required to make important decisions. The Model Articles of Association do not provide for the appointment of alternate directors and so a company will need to amend its articles of association to expressly allow for this.

With more and more corporate meetings taking place via video conferencing, it is imperative that firms do not forget to review its articles of association, otherwise they may not contain the necessary provisions to these meetings to go ahead.

Read all of our articles relating to COVID-19 here.

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