It is generally understood that Option A does not violate the provision of a company’s articles providing that the AGM shall be convened within 3 months of the year end, based on the interpretation of the provision that it does not intend to always require the company to hold an AGM within 3 months of the year end even when it is difficult to do so due to an event beyond its control such as natural disaster.
In Option A, companies will change the record date to sometime after the year end in compliance with Article 124 of the Companies Act, and will postpone the AGM to sometime beyond 3 months of the year end. Article 124 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. Article 124 is based on the principle that it is preferable that shareholders as of the date of exercising shareholders’ rights exercise the shareholders’ rights, and the smaller the difference between shareholders as of the record date and shareholders as of the date of exercising shareholders’ rights is, the better.
If a company sets a record date in its articles for certain shareholders’ rights on a certain date not more than 3 months prior to the date on which the shareholders’ rights are exercised, and if 3 months passes since the record date before the company sets a date for exercising the shareholders’ rights, what should we do? The Companies Act does not address the issue. We do not think the record date prescribed in a company’s articles loses validity upon 3 months passes since the record date. We think that in the event that a company cannot set a date for shareholders to exercise their rights for which a record date is set within 3 months of the record date due to an event beyond its control, it may change the record date prescribed in their articles and that it is lawful under the Companies Act.
If a company chooses Option A, we think that it should notify all the shareholders as of the record date of the change of the record date, in addition to publishing a public notice of the new record date as required by Article 124. We think that the process of notifying all shareholders as of the record date is required because the public notice of the new record date is for the purpose of encouraging the shareholders who have not yet registered their names in the register of shareholders to register and such public notice does not work as an alert to the shareholders who believe that they are the shareholders as of the record date and are entitled to exercise their rights for which the record date is set even when they transfers their stock after the record date.
In Option A, shareholders as of March 31 who transferred and lost their stock after March 31 (and registered the transfer in the register of shareholders) may lose their rights to receive payment of year-end dividend and may suffer unforeseeable damage. There is a possibility that the company might be claimed for damages by former shareholders who transferred and lost their stock after the original record date thinking that they would be granted payment of year-end dividend.
To minimize the company’s liability to pay such damages, we would advise those companies who choose Option A to notify all the shareholders as of the original record date of the change of the record date as soon as the company becomes aware of the possibility that it will have to postpone the AGM to sometime beyond 3 months of the year end.
(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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