Annual shareholder meetings and board elections may have been disrupted during the coronavirus pandemic, but co-op boards need to remember that the meetings must still be held. No excuses. Boards that try to dodge this obligation should be aware that shareholders have a powerful recourse.
“If your board is actively preventing meetings or hasn’t called one in more than 13 months, shareholders with 10% of the shares can get together and demand an annual meeting to be called to elect directors,” Steve Wagner, a partner at the law firm Wagner Berkow & Brandt, tells Brick Underground.
Virtual meetings, which became the norm when COVID-19 shut New York City down at the beginning of the pandemic, are allowed through December 2021, subject to any extensions. But if a sitting co-op board does not convene a meeting – either virtual or in-person – shareholders holding just 10% of the corporation’s shares can call a special meeting, the sole purpose of which is to elect a new board.
In such a situation, disgruntled shareholders will join together to hire an attorney to advise them on the process of calling a special meeting. First, a written notice demanding a meeting must be sent to the board. The meeting needs to be scheduled for between 60 and 90 days from the date of the written demand. If the board doesn’t call the meeting within five days of the notice, any shareholder can sign the demand and call the meeting.
Getting a shareholders meeting doesn’t necessarily mean there’s going to be a shake-up of the board. “The shareholders who are demanding the meeting need to organize so that when the meeting is actually held, the election is fair and they will prevail,” Wagner says.
One way to ensure a fair election is to bring in a company with experience conducting virtual elections. The companies also offer balloting and oversight services. These companies have to take extra steps to verify shareholders, proxies and ballots. For example, shareholders might be given a unique QR code so when proxies or ballots are submitted, the code is used to confirm the vote. “These issues are readily resolved at a physical meeting,” Wagner says, “but with a virtual meeting it involves technical expertise to confirm the validity of proxies and ballots.”
It’s more efficient – and cheaper – to win an election than it is to take someone to court to throw him off the board. Another consideration arguing against a lawsuit is that the pandemic has slowed court cases to a trickle. “It’s expensive to begin a lawsuit just to challenge an election,” Wagner says, adding that disgruntled shareholders’ goal should be to get to the desired result as quickly as possible, without waiting for the gears of the courts to turn.