Understanding Extraordinary General Meetings (EGM): When, Why, and How They Impact Your Investments

What is an Extraordinary General Meeting (EGM)?

An Extraordinary General Meeting (EGM) is a special meeting of shareholders that is convened outside the regular schedule of annual meetings. Unlike an Annual General Meeting (AGM), which is held annually to discuss routine business matters such as financial reports and director elections, an EGM is called to address urgent or extraordinary issues that require immediate attention.

EGMs are also known by other names like “special general meeting” or “emergency general meeting”, reflecting their nature of being extraordinary and necessitated by unforeseen circumstances. These meetings are essential because they allow the company to seek shareholder approval on critical decisions that cannot be delayed.

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Why and When to Organise an EGM

The reasons for calling an EGM are varied but always pressing. Here are some common scenarios:

• Urgent Business Matters: Decisions such as mergers, acquisitions, or the removal of a director require immediate shareholder approval and cannot wait until the next AGM.

• Crisis Situations: Financial crises, legal disputes, or other emergency situations may necessitate an EGM to make swift decisions.

• Internal Disputes: Internal conflicts within the company that need resolution through shareholder intervention.

• Legal or Regulatory Issues: Compliance with new regulations or addressing legal challenges that demand immediate action.

For instance, in real-world scenarios like the merger between PKN Orlen and Lotos Group, an EGM was crucial for obtaining shareholder approval on the deal.

Who Can Call for an EGM?

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An EGM can be initiated by either the board of directors or by shareholders under specific conditions. The board of directors may call an EGM when they deem it necessary to address urgent matters. Shareholders also have the right to call an EGM if they hold a minimum percentage of the company’s paid-up capital or voting power, as specified in the company’s bylaws or relevant laws.

Process of Conducting an EGM

Conducting an EGM involves several key steps:

• Notice Period: A formal notice must be sent to all shareholders well in advance, typically within a specified timeframe (e.g., 21 days).

• Explanatory Statement: An explanatory statement detailing the purpose and agenda of the meeting must be provided along with the notice.

• Meeting Options: EGMs can be held in various formats including fully virtual, hybrid (a mix of virtual and in-person), or traditional in-person meetings. Each format has its benefits; for example, virtual meetings can increase participation from geographically dispersed shareholders.

• Role of the Chairman: The chairman plays a crucial role in ensuring the meeting is conducted smoothly and fairly.

• Presentation of Resolutions: The agenda items are presented and discussed during the meeting.

• Voting Process: Shareholders vote on resolutions either in person or through proxy voting.

EGM vs AGM: Key Differences

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While both EGMs and AGMs are important corporate events, they serve different purposes and have distinct characteristics:

• Timing and Frequency: AGMs are scheduled annually as part of routine corporate governance, whereas EGMs are called as needed to address urgent matters.

• Purpose: AGMs focus on routine business such as reviewing financial statements and electing directors, while EGMs deal with extraordinary issues that require immediate attention.

• Convening Authority: AGMs are typically convened by the board of directors as part of their regular duties, whereas EGMs can be called by either the board or shareholders under certain conditions.

Impact of EGMs on Investments

EGMs can significantly impact investor decisions and the overall value of their investments. Here’s how:

• Urgent Decisions: The decisions made at an EGM can shape the company’s future trajectory. For example, mergers or changes in executive leadership can have profound effects on the company’s performance.

• Crisis Management: How a company handles crises through an EGM can influence investor confidence and stock prices.

• Investor Participation: Investors should prepare for and participate in EGMs to protect their interests. This includes understanding the agenda items, exercising their voting rights, and engaging with management.

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