Are there any options under the Japanese Companies Act to postpone or adjourn an AGM scheduled in June 2020 to sometime after the pandemic situation is resolved?

Many Japanese companies are required under their articles of incorporation to hold an AGM and approve the financial statements and resolve the payment of year-end dividends, if any, by the end of June. However, accounts closing and year-end auditing for 2019 financial year end are unlikely to be completed before the AGM scheduled in June 2020 due to the restriction on movement to curb the spread of COVID-19.

In Japan, many companies have provisions in their articles of incorporation to the effect that;

The financial year of the Company shall commence on April 1st of each year and end on March 31st of the following year;

AGMs shall be convened within three months of the year end of each financial year;

The record date for determining shareholders who are entitled to exercise their voting rights at an AGM shall be the year end of each financial year; and

The record date for determining shareholders who are entitled to receive payment of year-end dividends, if resolved by a general meeting, shall be the year end of each financial year.

Article 124 of the Japanese Companies Act provides that a record date is required to be a date not more than 3 months prior to the date on which shareholders may exercise certain shareholders’ rights for which the record date is fixed. To comply with Article 124, many Japanese companies provide in their articles that the record date for voting rights at an AGM should be the year end and that AGMs shall be convened within 3 months of the year end.

Under the Japanese Companies Act, a dividend of surplus is required to be approved by the general meeting of shareholders, except that it may be decided by the board of directors in the case of companies in which terms of office of directors are limited to one year and with a board of statutory auditors and an accounting auditor.

Therefore, many Japanese companies, except for the case of companies in which the board of directors may decide payment of dividends, need to approve payment of year-end dividends by an AGM within 3 months of the year end. Even in the case of companies in which the board of directors may decide payment of dividends, if the payment of dividends should be decided based on the financial statements which are required to be approved by the AGM, the board of directors need to decide the payment after the AGM approved the financial statements within 3 months of the year end. In short, if an AGM is postponed, payment of year-end dividends is also postponed.

Under these rules, if a Japanese company with a March 31 financial year end postpone an AGM to sometime after June 30, it is required to change the record dates for voting rights at AGMs and rights to receive year-end dividends to a date after March 31. If the record date is changed, those shareholders as of March 31 who sold their stock after April 1 will lose their rights to receive the year-end dividends.

This is the issue specific to Japan on the postponement of an AGM.

We think that there are three options as stated below, if the accounts closing and year-end auditing are unlikely to be completed before the AGM scheduled in June.

Option A:

Postpone the AGM to September by changing the record date from March 31 to July 1.

Option B:

Hold the AGM in June and adjourn it and hold the adjourned meeting in September.

Option C:

Postpone the AGM to September without changing the March 31 record date.

We think that the health of persons in charge of accounts closing and year-end auditing should be given highest priority, while shareholders’ rights to vote at an AGM and receive payment of year-end dividends should be protected. With the unprecedented situation, we think that these three options should all be regarded as legal under the Japanese Companies Act. However, each option probably has both advantages and disadvantages, and therefore, we should consider a better way for accounting and auditing persons’ health and shareholders’ rights.

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.