General Meetings of Stock Corporations during the COVID-19 Pandemic
General Meetings of Stock Corporations during the COVID-19 Pandemic
In order to combat the COVID-19 pandemic, there are restrictions on assembly possibilities throughout Germany. As a result, many German stock corporations are faced with the question of how they can fulfil their obligation to hold annual general meetings. Possible answers are provided by the recently promulgated “Act on Mitigation of the Consequences of the COVID-19 Pandemic in Civil, Insolvency and Criminal Proceedings Law” of 27 March 2020 (Gesetz zur Abmilderung der Folgen der COVID-19-Pandemie im Zivil-, Insolvenz- und Strafverfahrensrecht, hereinafter referred to as the “Corona Mitigation Act”). Limited in time to the (ordinary or extraordinary) general meetings held in 2020, it provides for a number of simplifications to the current legal situation, which will be of particular help to those German stock corporations whose articles of association do not contain any provisions on the use of electronic means of communication. In this context, the right to challenge resolutions of general meetings is also considerably restricted in order that the opportunities created are not left unused out of concern about actions for avoidance (Anfechtungsklagen).
Electronic means of remote communication within the framework of classical general meetings
Subject to the approval of the Supervisory Board (Aufsichtsrat), the Management Board (Vorstand) is now permitted – even without a corresponding provision in the articles of association – to provide for stockholders to attend the classical general meeting without being physically present and to exercise their stockholder rights by means of electronic communication. The Management Board may also provide that stockholders may cast their votes in writing or by electronic means prior to the general meeting. The participation of the members of the Supervisory Board, who in addition to the members of the Management Board are in principle obliged to physically attend the general meeting, can now also take place by means of video and audio transmission if the Management Board and the Supervisory Board decide to do so. Preliminary, no provision in the articles of association is required for this either.
Virtual General Meeting
The Corona Mitigation Act now also allows for a real virtual general meeting, i.e. a general meeting without any physical presence of the stockholders. Only the chairman of the meeting and the notary public should be at the same location for the purpose of preparing the minutes, according to the explanatory memorandum. The Management Board can decide to hold a virtual general meeting if the following conditions are met:
- The entire general meeting – including the general debate and voting – is broadcast in sound and vision.
- It must be possible for stockholders to exercise their voting rights by means of electronic absentee voting (to be carried out in advance) or by participating in the virtual general meeting by electronic means. The same applies to the granting of a power of attorney.
- Stockholders must be able to ask questions by means of electronic communication. However, the Management Board may stipulate that questions must be submitted electronically at least two days before the meeting. In deviation from the right to information in accordance with section 131 of the German Stock Corporation Act (Aktiengesetz), the Management Board may also decide at its own dutiful discretion which questions it answers and in what manner. Questions or answers may be summarised, and meaningful questions may be selected in the interest of the other stockholders.
- If stockholders cast their votes in advance by electronic absentee voting or exercise their voting rights by means of electronic participation in the virtual general meeting, they must also be able to object to resolutions of the general meeting electronically to the notary public.
Further Limitation of the Right to Challenge Resolutions
According to the already existing regulation in the German Stock Corporation Act, a resolution may not be challenged on the grounds that stockholder rights exercised electronically have been violated by a technical malfunction, unless the company can be accused of intent or gross negligence. The Corona Mitigation Act extends the restrictions on the right to challenge resolutions to other provisions of the German Stock Corporation Act that relate to participation and voting via electronic communication. Furthermore, the action for avoidance cannot be directed against the fundamental decision of the Management Board to hold a virtual general Meeting, nor against a restricted provision of information in the virtual general meeting. In this respect, only the challenge on the grounds of intentional or wilful violations remains; grossly negligent (as well as simply negligent) violations are harmless.
Adjustments of Statutory Time Limits
The Corona Mitigation Act provides for temporary adjustments to certain statutory time limits. In particular, the following should be mentioned:
- With the consent of the Supervisory Board, the general meeting may be convened up to 21 days (instead of 30 days) before the date of the meeting.
- With the consent of the Supervisory Board, the annual general meeting (ordentliche Hauptversammlung) in 2020 may also be postponed beyond the eight-month period stipulated by the German Stock Corporation Act. However, this does not apply to a Societas Europaea (SE), where the annual general meeting must be held within six months in accordance with the SE Regulation.
- The record date for the proof of stockholdings in listed German stock corporations is now the 12th day (instead of the 21st day) before the general meeting. Irrespective of deviating provisions of the articles of association, the proof must be received at the latest on the fourth day (instead of the sixth day) prior to the general meeting, unless the Management Board has provided for a shorter period in the convening notice.
Facilitated Interim Payments towards the Net Income
Also without authorisation in the articles of association, the Management Board can now make an interim payment towards the net income in accordance with section 59 of the German Stock Corporation Act with the approval of the Supervisory Board alone.
The necessary infrastructure for holding general meetings using electronic means of communication can be obtained from specialised technical service providers, which is why such kind of general meetings are already commonplace at many German stock corporations with a comparatively small group of stockholders. For German stock corporations whose articles of association do not contain any provisions on the use of electronic means of communication and which have not made use of these possibilities in the past, the legal framework for holding such general meetings has now been created. Especially because of the far-reaching restrictions of the rights of challenging resolutions, the present exceptional situation can be an occasion to use the given technical possibilities for the first time and, if necessary, to create the framework conditions in the articles of association for their use after the COVID-19 pandemic.
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