Holding an EGM in Hong Kong

Companies in Hong Kong are governed by the Companies Ordinance (to be referred to as “the Ordinance”). The Ordinance dictates the laws of setting, operating, and holding meetings among the shareholders of a company. When holding meetings, the Ordinance dictates the quorum, time frame for notice and the possible agenda of meetings held among shareholders. The Ordinance specifies two types of meetings that can be held by the shareholders of a company. These are annual general meetings (AGMs) and extraordinary general meetings (EGMs). This article will discuss EGMs and their details.

Definition of an EGM

An extraordinary general meeting or EGM is a special type of meeting that is held to discuss crucial issues in a company. Usually, such issues are treated as urgent and are given priority. An EGM brings together shareholders and company directors in a bid to discuss pertinent issues affecting a company. The scope of the agenda is varied as the Ordinance only specifies the conditions for convening an EGM without limits on the agenda. Unlike other countries, the Ordinance fails to give an overview of the possible areas of interest that could prompt the convening of an EGM.

Nevertheless, an EGM’s agenda always consists of specific areas of interest which are raised by the shareholders of a company. An EGM can be held at any time within the financial year, as long as the shareholders adhere to the procedures specified by the Ordinance. For public and limited liability companies, the fiscal year starts on April 1 and ends on March 31 of every year.

Extraordinary general meetings provide the shareholders with an opportunity to voice their complaints before the next AGM which may take place in the distant future. The Ordinance specifies that the meeting should bring together either at least 5% of shareholders with voting rights or half of all shareholders, depending on the circumstances. These shareholders are needed to vote on decisions on behalf of other shareholders who might not be present at the EGM. An EGM differs from annual general meetings or AGMs. AGMs are mandatory meetings which the Ordinance specifies are to be convened within three months after the end of a financial year if a company is a public company. Private and limited liability companies are allowed six months after the end of every fiscal year to convene an AGM. There are many pertinent differences between an AGM and EGM as they apply to Hong Kong’s corporate environment.

Differences between an AGM and EGM

The most striking difference between an AGM and EGM lies in their timing. While an AGM is held at the end of every financial year, an EGM may be convened at any time within a financial year. EGMs can be considered to be miniature meetings that are aimed at amending, passing, and approving existing internal company business matters. For instance, an EGM may be convened when a company makes plans to rebrand its products. This decision may affect profits and therefore requires the collective decision of shareholders. Waiting for an AGM might be disadvantageous; thus, an EGM is required in such a situation.

An EGM also differs from an AGM in the sense that an AGM has a full agenda while an EGM does not. An AGM’s agenda may consist of the following: review of the company audited accounts, election of the executive committee, discussion of annual strategies, analysis of company reports, and other similar matters. An EGM’s agenda, on the other hand, may be comprised a variety of topics. An EGM’s agenda mostly affects business continuity, which can be defined as the likelihood of a business to operate within the foreseeable future. When disagreements threaten the continuity of the company, it is necessary to convene an EGM to correct those issues after the approval of shareholders.

The Ordinance specifies that the notice of an AGM must be issued at least 21 days before the day of the meeting. In contrast to this, an EGM’s notice must be issued within at least four days before the meeting is convened. Notices are crucial as they provide shareholders with adequate time to prepare for these AGMs or EGMs. As such, the agenda must be communicated to allow the shareholders adequate time to deliberate over the issues raised. The resolutions passed at the end of an EGM will have the same weight or impact as those reached during an AGM.

The quorum for an EGM and AGM is either 15 voting members or 5% of total voting rights, whichever yields the greater quorum. However, in the event that the quorum is not reached within half an hour from the start of the meeting, the chairperson shall adjourn the meeting and reconvene it within seven days of the last meeting. The number of shareholders who are in attendance during the next meeting will become the quorum for the meeting to start. The decisions of both the AGM and EGM shall be subject to voting by way of a secret ballot as specified by the Ordinance.

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.

Conclusion

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.