Corporate law perspective on corona

What effects does the current situation have on planned shareholders’ meetings? Can shareholders’ meetings be held? And are there any delays in registrations with the commercial register?

When should we hold our annual shareholders’ meeting this year?

The shareholders’ meeting of a stock corporation must be held each year within eight months as of the end of the financial year. Therefore, if the financial year corresponds to the calendar year, there is time until the end of August. If possible, we would therefore recommend holding the annual shareholders’ meeting a bit later this year in order to be better prepared.

We would like to hold the annual shareholders’ meeting in the coming weeks. What options are there to make it easier to hold an annual shareholders’ meeting?

In general, the following points should be taken into consideration when preparing for shareholders’ meetings to be held this year:

• Check an alternative date.
• Plan precautions to protect the participants, such as hygiene measures.
• Prepare Q&A’s on current issues relating to COVID-19 that you will publish on your website in advance, such as precautions you have taken to protect the shareholders.
• Check the legal, technical and personnel requirements for (extended) online participation in the annual shareholders’ meeting.
• Prepare a plan to be able to react to unexpected situations spontaneously. This may concern a short-term absence of the board members or the notary public at the shareholders’ meeting or the occurrence of symptoms of illness of any of the participants during the shareholders’ meeting.

Can a shareholders’ meeting be postponed?

A shareholders’ meeting of a stock corporation or a limited liability company can be postponed or cancelled. In principle, the corporate body who has convened the respective shareholders’ meeting is authorized to do so. In the case of a shareholders’ meeting of a stock corporation, this will be the management board, or alternatively the supervisory board; in the case of a shareholders’ meeting of a limited liability company, this will be usually the managing director(s).

The postponement of the annual shareholders’ meeting of a stock corporation may not be arbitrary, but must be objectively justified. The protection of the shareholders and employees of the company against infection with the coronavirus (COVID-19) constitutes undoubtedly an objective reason. Nor is it in the interest of the company if a large number of shareholders cannot attend the annual shareholders’ meeting due to e.g. travel restrictions.

The reasons leading to the decision to cancel or postpone the shareholders’ meeting should be documented according to general rules. If the cancellation or postponement is due to an official order of an authority, a reference to such order will suffice.

What should be considered if a shareholders’ meeting is postponed?

There are no special formal requirements for the mere cancellation of a shareholders’ meeting which have to be observed. It is advisable to use the same communication channels as those chosen for convening the shareholders’ meeting. Finally, it is important that communication channels are chosen that reach the largest possible number of shareholders (e.g. via the company’s website).

If the shareholders’ meeting is not only cancelled but also postponed, the postponement constitutes the convening of a new shareholders’ meeting, which is why the postponement must be made within time to ensure that it meets the requirements for convening a new meeting. In this case, the formal requirements, which generally apply to stock corporations or limited liability companies, must also be observed.

What alternative dates are available for shareholders’ meetings?

With respect to limited liability companies, known obstacles of the shareholders must be taken into account when setting a date for shareholders’ meetings. Thus, travel restrictions or other measures that make it difficult or impossible for shareholders to attend the general meeting must be taken into account when determining a (substitute) date for shareholders’ meetings.

When determining a substitute date for a shareholders’ meeting, it must be taken into account that there is no unreasonably long period of time between convening of the meeting and the shareholders’ meeting. Anything over two months should be treated critically.

For the duration of measures relating to coronavirus (COVID-19), which significantly restrict the freedom of movement of shareholders or their representatives, it appears justified to postpone the annual shareholders’ or general meeting even beyond the 8-month period provided for by law (for stock corporations or limited liability companies) or the 6-month period provided for by law (for SEs).

Do shareholders’ meetings of limited liability companies have to be held physically or is a video conference also possible?

The following distinction must be made: there are shareholders’ meetings, which must be recorded by a notary public, e.g. if a change of the articles of association, a capital increase or a merger is to be decided upon. Shareholders’ meetings that can be held without the involvement of a notary public can also be held e.g. via video conference, provided that all shareholders agree. However, it may be necessary to document certain resolutions by way of circular (see below). If the involvement of a notary is required, shareholders’ meetings can also be held on the basis of (written) powers of attorney. This can, for example, make it possible to carry out a project in the case of planned restructurings of a group.

Can we also pass a circular resolution instead of a shareholders’ meeting of a limited liability company?

Also here applies the following: there are certain resolutions that must be passed in the course of a shareholders’ meeting recorded by a notary public, e.g. amendment of the articles of association, capital increase or merger. Other resolutions can be passed by circular. In some cases, however, the notarization of the signatures of the shareholders is required, especially for resolutions that must be filed for registration with the commercial register, such as the appointment of managing directors. Other resolutions may also be passed informally by way of a circular resolution. For example, resolutions on the approval of transactions or instructions to the managing directors can also be passed by e-mail.

What happens if one of the shareholders of a limited liability company refuses to agree to a resolution by circular?

In principle, a prerequisite for resolutions to be passed by circular is that all shareholders agree to this form of resolution. If a shareholder does not agree, a shareholders’ meeting must be convened. From the duty of loyalty, it can be assumed that shareholders are increasingly required to agree to resolutions by circular. However, this is not enforceable in the short term. The question may arise, however, whether a claim for damages exists against such a shareholder if damage is caused by a refusal without good reason to consent to a resolution by circular, for example because a business transaction that is advantageous for the company is not approved.

Are there any delays in registrations with the commercial register?

Yes, delays are to be expected for registrations with the commercial register, because the courts are also currently only very limited staffed.

Is it a problem that there are delays with the commercial register?

A distinction must be made as to the consequences of this:

• There are registrations with the commercial register, which are constitutive, i.e. their registration is a prerequisite for their effectiveness, such as changes to the articles of association, capital increase or merger.
• However, there are also registrations with the commercial register, which are merely declarative, i.e. their registration is not a prerequisite for their effectiveness, such as submission of annual financial statements, change of managing director or change of shareholder. With respect to limited liability companies, the shareholder registered as shareholder with the commercial register is considered as shareholder of such company. However, the company can admit the new shareholder, e.g. to shareholders’ meetings, even before such date. However, this may be relevant in the case of a dispute between shareholders. Delayed registration can also be an issue in the case of a change of managing director, in particular in the context of a dispute. Facts which are subject to registration (such as the deletion of a managing director) and which are not registered cannot be invoked against a third party; i.e. if a managing director has been dismissed but his dismissal has not yet been registered with the commercial register, he could still conclude contracts for the limited liability company – assuming the good faith of the contractual partner. However, in doing so he makes himself liable for damages.