Quorum during quarantine

Undeniably, the effects of the COVID-19 outbreak have spread globally. In the Philippines, Luzon has been placed under Enhanced Community Quarantine, along with other areas across the nation. People were advised to stay home, most businesses are closed except for those serving the public, and social distancing is imperative where possible.

To respond to the crisis, immediate action is required. Since holding physical meetings is discouraged, remote meetings have become a must, if not the best option available.

In the case of corporations, which act through a board of directors, board meetings are necessary to approve emergency measures. A corporation intending to utilize remote communication for its meetings should refer to the relevant provisions of the Revised Corporation Code (RCC) and Securities and Exchange Commission (SEC) Memorandum Circular 6-2020 (MC 6-2020).

Section 52 of the RCC allows directors or trustees who cannot physically attend or vote at board meetings to participate and vote through remote communication such as videoconferencing, teleconferencing or other alternative modes of communication that will allow them to participate. Since being a director is a fiduciary duty, attendance by proxy is still not allowed for board meetings.

When so authorized in the by-laws, Section 50 of the same Code allows stockholders or members to exercise the right to vote, whether directly or through a proxy, via remote communication or in absentia.

Just before the quarantine, the SEC issued MC 6-2020 on March 12 to guide corporations in formulating their internal procedures and bylaws which will allow their directors/trustees, stockholders/members and other persons to participate and vote in meetings in absentia or through remote modes of communication.

Remote communication is defined as the transfer of data between two or more devices not located at the same site. Teleconferencing refers to holding of a conference among people using telecommunication devices such as telephones or computers. Videoconferencing is the holding of a conference among people in remote locations by means of transmitted audio and video signals. Computer and audio conferencing mean teleconferencing supported by one or more computers and telephone/internet connections, respectively.

Below are the guidelines that must be observed in case a director/trustee or stockholder/member, will participate remotely:

• The Corporate Secretary must send the notice of the meeting. It is now allowed to be sent by electronic mail, messaging services or such other manner allowed under the by-laws or board resolution. The notice should indicate that remote participation is allowed, including instructions for its conduct.

• The director/trustee or stockholder/member should notify the Presiding Officer and the Corporate Secretary that he or she will attend remotely.

• Attendees via remote communication are counted as present in determining quorum.

• In terms of votes, the following rules should be followed:

a. Director/Trustee: vote can be cast through electronic mail, messaging service or such other manner as may be provided in the internal procedures, to be sent to the Presiding Officer and Corporate Secretary.

b. Stockholder/Member: votes may be exercised by a) remote communication or b) in absentia, when authorized by a resolution of the majority of the board of directors, provided that the resolution shall only be valid for a particular meeting.

For corporations vested with public interest, votes during elections of directors, trustees and officers may be by remote communication or in absentia, even if it is not provided for in the bylaws.

• The Corporate Secretary has the duty to ensure that during remote meetings, there are suitable equipment and facilities available such as a stable Internet connection, that attendees can hear and see each other clearly, that audio and visual recordings are secure, and that the meetings are continuous and interruptions will be managed. Upon conclusion of the meeting, the Corporate Secretary should safe-keep and perpetuate the visual and audio recordings in an updated data storage equipment or facility, and facilitate the signing of the minutes whenever practicable within a reasonable time after the meeting.

• As to the place of meetings, directors or trustees’ meetings can be held anywhere within or outside the Philippines; but as for stockholders, pursuant to Section 50 of the RCC, as a general rule, it should be called by the presiding officer at the principal office of the corporation as provided in the articles of incorporation, or, if not practicable, in the city or municipality where the principal office of the corporation is located.

Corporations are allowed to issue their own internal procedures taking into consideration the number and location of stockholders/members, the importance of the matters to be discussed and voted upon in the meeting, promotion of minority rights and other factors consistent with the protection and promotion of stockholders’/member’s rights.

With the objective of immediately putting these guidelines into use, the MC 6-2020’s transitory provision allows the conduct of remote meetings for the board/trustees and stockholders/members for the limited purpose of approving the provisions in their bylaws or internal procedures which will govern participation in meetings by means of remote communication or other alternative modes of communication.

In coming up with their internal protocols, one area that corporations may need further clarification on would be the venue of the stockholders’/members’ meeting. If it’s a purely remote meeting, how will the SEC view where it is actually held? Is it dictated by the location of the presiding officer, or perhaps the server which hosts the meeting? Does this mean that even if remote attendance is allowed for others, the presiding officer still has to be physically present at the principal place of business, or be in the same city? If physical presence is still necessary, this may be complicated by the quarantine if the office is located in a city that is currently under lockdown, and the presiding officer’s residence is not in the same city.

These complications aside, the guidance in the MC is definitely a good place to start. Moreover, perhaps it is not too much to hope that the SEC will grant corporations even more flexibility in case certain conditions under the guidelines cannot be complied with during this time of quarantine.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

Aimee Rose DG dela Cruz is a senior manager with the Tax Services Group of Isla Lipana & Co., the Philippine member firm of the PwC network.

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