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Director decision making during the Covid-19 lockdown

Posted by James Butler on 7th May 2020

Social distancing and the ‘new normal’ that COVID-19 has ushered in has meant that companies may face challenges in making decisions necessary where these were typically made in a face to face meeting. Below we answer a few questions about how a board of directors can pass resolutions they need to without the need for a typical board meeting.

Does the board have to physically meet to make decisions?

In short, probably not. Company articles of association usually (but don’t always) give the directors discretion as to how to run their meetings or expressly allow meetings to be conducted remotely.  So long as the directors can actually communicate with each other properly in the meeting and hear what the others are saying then it doesn’t matter which method is used – so telephone or video conferencing would be fine.

However, not all companies have standard articles of association, so it’s worth double-checking them before proceeding just to make sure there aren’t any particular provisions or restrictions that apply.

What if the board aren’t allowed to hold meetings remotely?

If the articles of association prohibit remote board meetings then the directors should ask themselves why, whose interests those provisions are there to protect, and what can be best done to continuing that protection in the circumstances.

If it is a real stumbling block and there is no practical way around the restrictions, the articles of association can be changed provided that 75% of the voting shareholders agree. A shareholder resolution will need to be passed to do that and filed at Companies House – see our next note on how to do that.

Even if the directors proceed with a remote meeting in breach of the articles of association, it may be possible for that action to be ratified by the shareholders after the event – however, the directors should proceed carefully here and ensure that the shareholders are happy with this as any ratification will, of course, be subject to the shareholders actually approving how things have been done.

What about other formalities?

The usual procedural requirements of a board meeting, such as giving notice, the directors declaring any interest in any matter to be discussed, and having a sufficient quorum, will still apply to a remote board meeting so these should continue to be followed.

Do directors actually have to meet – in person or remotely – to make a decision?

Not necessarily. Directors may not need to meet to make a decision if all those entitled to vote on the matter approve. Whilst that approval may not need to be in writing it would certainly be preferable for it to be, such as by a written resolution of the directors. These decisions are just as valid as if they had been taken at a board meeting.

Like with remote meetings, the articles of association of the company govern the ability of the directors to take decisions like this and set out any requirements of the process so they should be checked carefully beforehand. If they don’t allow it, the articles can be changed or the action subsequently ratified (provided the shareholders approve) as above.

Keep an eye out for our next note dealing with some practical issues for shareholder meetings and decision making.

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