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06.17.2020 | Legal Update

The Massachusetts Division of Banks has issued guidance to Massachusetts-chartered mutual savings banks, mutual co‑operative banks, and mutual holding companies on postponement of their annual meetings and alternative approaches including virtual or hybrid meetings by means of remote communication during the COVID-19 pandemic state of emergency declared by Governor Baker on March 10.

Postponement

The Division’s guidance issued on June 12 confirms that any mutual institution that has not yet held its 2020 annual meeting may postpone the annual meeting until after the state of emergency has ended. According to the Division, any mutual institution that postpones its annual meeting during the COVID-19 state of emergency will not be subject to any adverse supervisory finding by the Division even if the postponed annual meeting is held on a date after the time period for conducting the annual meeting established by the institution’s organizational documents – i.e., its charter or by-laws. The Division expects any mutual institution that has postponed its annual meeting either (i) to conduct an in-person annual meeting within 60 days after the end of the state of emergency or (ii) at a minimum issue the notice of its annual meeting within that 60-day period even though the meeting may not occur until after the 60-day period expires. The guidance advises mutual institutions to communicate the postponement of the annual meeting to corporators or depositors, as applicable, and to explain the reason for the postponement. The decision to postpone an annual meeting during the state of emergency should also be recorded in the institution’s board minutes.

Virtual or Hybrid Meeting Option

The guidance states that the Division has determined that a mutual institution may, subject to certain conditions, conduct the annual meeting this year as a virtual meeting (i.e., completely by means of remote communication) or as a hybrid meeting (i.e., a meeting in which some participants attend in-person and some participate through means of remote communication). According to the guidance, any annual meeting conducted as a virtual or hybrid meeting must allow any participant to join the meeting by telephone, including virtual and hybrid meetings conducted by videoconference. The guidance advises that the notice of a virtual or hybrid annual meeting must include clear instructions on how to access the meeting by means of remote communication and how participants will be able to communicate during the meeting, such as how they will be able to present questions. Appropriate technical support must be available. A virtual or hybrid meeting must be conducted in a way that will allow the mutual institution to verify the identity of the participants, and must in any event be conducted in compliance with the provisions of Section 7.08 of Massachusetts General Laws Chapter 156D (“Chapter 156D”) which is the provision of the Massachusetts Business Corporation Act that allows Massachusetts business corporations in stock form to conduct meetings of shareholders by means of remote communication – for these purposes treating the institution’s corporators or depositors, as applicable, as if they were “shareholders” under that statute. The Division’s guidance suggests that mutual institutions consider holding virtual or hybrid meetings open for an extended time period to allow corporators or depositors, as applicable, sufficient time to submit written ballots on any matter presented for a vote at the meeting. The guidance states that the Division would not object to a mutual institution accepting completed ballots by mail for the limited purpose of conducting annual meetings this year. A mutual institution also may allow participants to deliver completed ballots in-person at one of the institution’s office locations this year, according to the guidance. However, the guidance emphasizes that, if a mutual institution’s organizational documents specifically require that the annual meeting be conducted in-person, then the institution would not be permitted to conduct its annual meeting by means of remote communication – either as a virtual meeting or a hybrid meeting. In such circumstances, a virtual or hybrid meeting would only be permissible if the institution’s charter or by-laws were first amended to remove the requirement that the annual meeting must be conducted in-person. Click here for a copy of the Division’s new guidance.

Nutter Notes:  A mutual institution that has already modified its by-laws to incorporate authority first offered to Massachusetts mutual institutions in the 2014 bank modernization legislation to follow the corporate governance procedures of Chapter 156D is already permitted to conduct the organization’s annual meeting either as a virtual meeting or a hybrid meeting, subject to the requirements of the modernization legislation and the conditions of Chapter 156D, Section 7.08. Under Massachusetts General Laws Chapter 167J, Section 21, which was added by the modernization legislation, a Massachusetts mutual bank’s “corporate governance procedures shall comply with banking laws and regulations and safe and sound banking practices.” If not inconsistent with those laws, a mutual bank may “elect to follow the corporate governance procedures of [Massachusetts General Laws] Chapter 156D or the law of the state in which its holding company is organized.” A bank must “designate in its by-laws the body of law selected for its corporate governance procedures.” Massachusetts General Laws Chapter 167H, Section 6, also amended by the bank modernization legislation, includes similar authority for a mutual holding company. That statute provides that, on the reorganization of a mutual bank into a mutual holding company, the mutual holding company “shall (i) continue to possess and exercise all the rights, powers and privileges, except deposit-taking powers, of a mutual banking institution and (ii) . . . be subject to the limitations and restrictions imposed on bank holding companies by chapter 167A and by applicable federal law and regulations.” If not inconsistent with the above, “a mutual holding company may elect to follow the corporate governance procedures of the General Laws and shall designate in its by-laws the body of law selected for its corporate governance procedures.” Put another way, Massachusetts law requires that any mutual institution seeking to conduct an annual meeting wholly or partially by means of remote communication must first have complied with the requirements set forth above including designating Chapter 156D in the institution’s by-laws as a source of authority on governance procedures. While the Division’s guidance provides comfort that the Division will not object on supervisory grounds to a mutual institution that conducts its annual meeting by means of remote communication even if the institution has not previously amended its by-laws to designate Chapter 156D as a source of authority on governance procedures, legal questions could remain with respect to the efficacy of actions taken at such a meeting under those circumstances. A mutual institution that conducts a virtual or hybrid meeting without first designating in its by-laws that the institution may follow the corporate governance procedures of Chapter 156D risks exposure to claims that the meeting was conducted ultra vires—without legal power or authority—and that any action taken at the meeting is therefore invalid, including the elections of corporators, trustees, or directors, as applicable, which could in turn call into question the validity of actions taken by those persons on behalf of the institution.

Nutter Bank Report
Nutter Bank Report is a monthly electronic publication of the Banking and Financial Services Group of the law firm of Nutter McClennen & Fish LLP. Chambers and Partners, the international law firm rating service, after interviewing our clients and our peers in the profession, has ranked Nutter’s Banking and Financial Services practice among the top banking practices in the nation. Visit the U.S. rankings at Chambers.com. The Nutter Bank Report is edited by Matthew D. Hanaghan. Assistance in the preparation of this issue was provided by Kenneth F. Ehrlich and Heather F. Merton. The information in this publication is not legal advice. For further information, contact:

Thomas J. Curry tcurry@nutter.com Tel: (617) 439-2087

Kenneth F. Ehrlich kehrlich@nutter.com Tel: (617) 439-2989

Michael K. Krebs mkrebs@nutter.com Tel: (617) 439-2288

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.