In Option B, companies will hold the AGM in June to resolve on agenda items that need to be decided in June, for example, elect or re-elect directors or payment of year-end dividend (with the intention of paying the year-end dividend without changing the record date. However, we think that companies may decide payment of dividend in September without changing the record date of March 31 as mentioned in Option C), and adjourn the June meeting, and hold an adjourned meeting in September on the rest of agenda items including approval of financial statements.
If a company choose to pay dividend in June before the general meeting approves the financial statements for 2019 year end, the total amount of dividend to be decided in June is required to be within the distributable amount which is determined by calculation using the amount of retained earnings stated in the financial statements for 2018 financial year that have been already approved by the AGM last year.
For clarification, in Japan, an annual general meeting of shareholders is defined as a general meeting of shareholders approving the financial statements for the last financial year, and the term of office of a director usually expires at the time of conclusion of an annual general meeting of shareholders as provided in law or the company’s articles of incorporation. In short, if the term of office of a director expires at this coming AGM and if the AGM is postponed to September, the term of office of the director will be extended to September. From a legal perspective, in the cases where companies cannot hold the AGM within 3 months of the year end due to an event beyond their control, there is no legal requirement for re-electing the incumbent directors and renewing their terms of office within 3 months of the year end.
Article 317 of the Companies Act provides that in cases where a resolution for postponement or adjournment is passed at a general meeting of shareholders, the provisions of Article 298 and Article 299 do not apply. Article 298 provides, among other things, that when calling a general meeting of shareholders, companies are required to decide, by resolution of the board of directors, on date, time, and place of the meeting and the matters for which the meeting is held. Article 299 provides, among other things, that in the case of a company in which all or part of its shares can be traded without approval of the company, directors must dispatch notice of general meeting to shareholders no later than two weeks prior to the date of meeting. In short, Article 317 provides that if a company decides to postpone or adjourn a general meeting of shareholders by resolution of the meeting, the company is not required to take convening procedures for convening the postponed or adjourned general meeting. It is generally accepted that under Article 317 convening procedures are not required only in the cases where the postponed or adjourned meeting is held in a short time after the first meeting and the company does not have much time to take convening procedure. If a company cannot hold the postponed or adjourned meeting in a short time and the company has much time to take convening procedure, it is required to do so.
Article 317 is not the sole legal restriction on postponement or adjournment of a general meeting of shareholder. Article 831 of the Companies Act provides that in the cases where the procedure for convening or the method of a resolution at a general meeting of shareholders violate laws, regulations, or the company’s articles of incorporation, or are grossly improper, a shareholder may, within 3 months of the day when the resolution is made, request the court to revoke the resolution. Generally speaking, shareholders need information on the financial statements for the last financial year before exercising their voting rights on agenda items for year-end dividend and re-election of directors. In Option B, there is a possibility that a shareholder thinks that the resolution of the general meeting is voidable because it is made without disclosing the financial statements to shareholders and therefore the method of resolution is grossly improper, and brings a lawsuit against the company requesting the court to revoke the resolution of the general meeting. For companies choosing Option B, it is essential that shareholders are well informed of the financial situation of the company for 2019 financial year in exercising their voting rights on agenda items for year-end dividend and re-election of directors. Necessity of choosing Option B is not sufficient.
We think that a company can consider choosing Option B only in the case where it is necessary and all the shareholders are likely to agree to the company’s choosing Option B.
If a company choosing Option B has much time to take convening procedure for the adjourned general meeting after the first general meeting, it is required to do so in order to ensure shareholders rights to participate in and vote at the adjourned general meeting. In the notice of the adjourned meeting, agenda items may not be added to the ones stated in the first notice because the second meeting is a part of the same meeting as the first meeting. Since both meetings constitute an annual general meeting, the second notice should be sent to the shareholders of the same record date as the first notice. We think it is legally possible because the record date prescribed in the company’s articles does not lose validity even if 3 months passes since the record date before the date for exercising shareholders’ rights is set within 3 months of the record date.
(This information is for informative purposes only and should not be relied upon as legal advice. Please seek legal advice from professional advisers on a specific case. We always welcome your questions and comments.)
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