Fund Boards Allowed to Continue Main Agreements without In-Person Meetings
The staff of the SEC’s Division of Investment Management will allow registered fund boards to meet telephonically, rather than in-person, to approve the continuation of advisory and distribution agreements. The no-action letter allows Boards to meet by telephone or video conference (or by other simultaneous meeting venue) to continue a previously-approved agreement so long as the in-person meeting is impossible due to “unforeseen or emergency circumstances” (e.g. illness, death, weather, or other force majeure), the approval does not request material changes, and the Board ratifies the approval at the next in-person Board meeting. Also, a Board could use a telephonic approval if the Board discusses and considers all material information concerning approval but delays a final vote until the directors receive additional information or a contingent event occurs. The no-action relief also applies to approvals of auditor engagements and 12b-1 distribution plans.
The in-person meeting requirement is so archaic that it feels like it was adopted in 1940, although it was actually adopted in 1970. As a statutory requirement, the SEC cannot completely strike the in-person requirement without an act of Congress (which is not a bad idea). The SEC deserves some credit for adapting the rules to modern realities, and we would urge them to further liberalize the rules to the extent legally permissible.