People Who Can Call for an EGM
The Ordinance specifies the identities of the people who can call for an EGM. Under normal circumstances, the directors of a company have the power to call an EGM. Should a shareholder have a pertinent issue that warrants the attention of other shareholders, the shareholder may communicate such an issue to the directors of the company who will then be required to issue the notice of an EGM detailing the date, venue, and agenda of the EGM. The EGM is to be attended by the shareholders with at least 5% of the total voting rights. Company employees, with the exception of the company secretary, are exempted from attending EGMs as well as AGMs. An executive committee appointed by shareholders is to oversee the running of the EGM.
In the event that the shareholders are not in a capacity to call for an EGM, shareholders with more than half of the voting rights are allowed to convene an EGM. Alternatively, if the directors of the company do not yield to shareholders’ demand for an EGM within three months of a notification, then shareholders with more than half of the voting rights are allowed to call for an EGM.
Reasons Why An EGM May Be Conducted
As has been mentioned, EGMs are conducted for various reasons as long as those reasons affect the business continuity of the company. The following are some of the more common reasons why EGMs may be conducted by companies in Hong Kong:
Changing of directors – sometimes, shareholders may want to impeach or remove directors. However, this can only be done by way of voting. As such, it is necessary to convene an EGM as a means of seeking approval on whether it is prudent to remove a director. In the event that a director is removed, a consequent EGM must be held in which a new director is appointed by the shareholders.
Withdrawal of a major shareholder – when a major shareholder withdraws from the board of a company, it may make it difficult for the company to run its operations smoothly. As a result, an EGM is needed to discuss the next steps to be taken by the company. Withdrawal of a major shareholder also affects voting rights. An EGM is therefore needed to redistribute the voting rights in a manner that is deemed fair by shareholders.
Changing of company name – companies may need to change their name during the course of their operations. This may be due to mergers or acquisitions or for the purposes of rebranding. Such a resolution requires the approval of shareholders to pass.
Other reasons – The board of directors may not have the exclusive rights to make certain decisions on behalf of shareholders. Therefore, an EGM is needed to approve such board decisions prior to their implementation.
The preceding reasons provide an overview of the critical issues that could warrant the need to convene an EGM. They highlight some of the key agendas that constitute an EGM.
An EGM does not substitute an AGM. Although an EGM may be smaller than an AGM, the resolutions passed in both meetings bear the same weight. Canceling an EGM under Hong Kong’s company laws is difficult as the laws allow the shareholders to convene a second meeting without a quorum. EGMs serve as special meetings to discuss matters that cannot await AGMs. As long as there is the required shareholder attendance, EGMs may be convened within four days’ notice. The Ordinance allows for the extension of the notice period to allow for a larger quorum.
Ultimately, every company in Hong Kong must exercise proper judgment in deciding when to hold an EGM, or even whether to hold one at all. Companies which choose an appropriate time and reason to hold an EGM will soon discover that whatever the problem may have been, it will not be long before a solution to the problem arrives.