Amendments to the Stock Corporation Act on the General Meeting by the Act to Mitigate the Consequences of the COVID-19 Pandemic in Civil, Insolvency and Criminal Proceedings Law ("Act on Mitigating Measures")
In addition to amendments, particularly in insolvency law, the German Act on Mitigating Measures has temporarily created substantial facilitations for the holding of general meetings.
The amendments primarily relate to the options for electronic participation in the General Meeting (online General Meeting), the convening of the General Meeting, the time frame for the date of the General Meeting, advance payments on the balance sheet profit and restrictions on the right of contestation. Major legal amendments are briefly summarised below.
In light of the restrictions on freedom of assembly, companies should be able to make decisions and thus maintain their ability to act.
2. General Meeting of Shareholders in Online and Attendance Mode
2.1 Facilitation of the general meeting with shareholders attending
The executive board can now initially decide on (i) the participation of shareholders in the general meeting by means of electronic communication, (ii) the casting of votes by means of electronic communication (postal vote), (iii) the participation of supervisory board members by means of video and audio transmission and (iv) the video and audio transmission even without authorisation by the articles of association or rules of procedure.
The practical relevance of these amendments is per se likely to remain manageable, especially since they are initially based on a general meeting attended by shareholders and since many companies have already provided for the possibility of virtual components in their articles of association since the amendment of the German Stock Corporation Act by the First Shareholder Rights Directive Implementation Act (ARUG I), as described above under (i) to (iv). However, this regulation can also be seen as a module for the modification described below.
2.2 Online General Meeting
The groundbreaking feature is the first possibility of performing real general meetings online or virtually.
The executive board may decide that the general meeting be held as a virtual general meeting without the physical presence of shareholders or their authorised representatives.
The prerequisites for this are: (i) a video and audio transmission of the entire meeting, (ii) the exercising of voting rights and the granting of authorisation via electronic communication, (iii) the granting of an opportunity to ask questions via electronic communication and (iv) the granting of an opportunity to object to a resolution of the general meeting for shareholders who have exercised their voting rights electronically.
This means that the entire general meeting - including the general debate and votes - must be broadcast; a broadcast of only the speech of the executive board and, if applicable, the report of the supervisory board is not sufficient. The electronic exercise of voting rights will, in practice, be carried out via an online form or by postal vote in advance. The granting of authorisation according to the meaning and purpose of the law - putting the online general meeting on a par with the general meeting of shareholders attending - will be possible until the end of the general debate, and online voting until the end of the virtual voting.
In this context, the right to information pursuant to section 131 German Stock Corporation Act (AktG)will also be modified: The executive board can also stipulate that questions must be submitted by electronic communication at least two days before the meeting and decides which questions to answer at its own discretion.
The physical presence at the venue of the meeting is only legally compulsory for the chairman of the general meeting. The notary should also be present at the location of the chairman of the meeting. Due to the necessity of explaining the annual financial statements and answering questions from shareholders, it is advisable that the chairman of the executive board is also present in the meeting room. All other members of the executive board as well as the supervisory board can participate online.
3. Convening of the general meeting, in particular deadlines
According to the Act on Mitigating Measures, the general meeting must be convened no later than the 21st day before the meeting. Moreover, in deviation from section 123 (2) sentence 5 AktG, this minimum period is not extended by the registration period. In the case of listed companies, proof of the shareholding must refer to the beginning of the twelfth day prior to the meeting (modified record date) and, in the case of bearer shares, must be received by the company at the address specified for this purpose in the invitation to the meeting no later than the fourth day prior to the meeting; a shorter deadline for receipt of the proof is possible. Deviating provisions of the articles of association are irrelevant.
If a meeting is convened with a shortened notice period, the notification pursuant to section 125 (1) sentence 1 AktG (notification of the convening of the meeting including the agenda) must be made at the latest twelve days - instead of 24 or 30 days - before the meeting and the corresponding notification pursuant to section 125 (2) AktG to those recorded in the share register at the beginning of the twelfth day before the general meeting. Requests to add items to the agenda (section 122 (2) AktG) must be received by the Company at least 14 days prior to the meeting in the aforementioned case.
It should also be noted that an already convened general meeting must first be "de-invited" again and re-invited to the virtual general meeting with corresponding adjustment of the conditions of participation. A mere transfer from one form of meeting to another is not permitted.
4. Time frame for the holding of an ordinary general meeting
According to the previous regulation, the ordinary general meeting of shareholders must take place in the first eight months of the financial year (section 175 (1) sentence 2 AktG). This period was extended to one year. This provision does not apply to the legal form of a Societas Europaea (SE).
A provision which can be considered in this context - although it also applies to companies of other legal forms - is the modification of section 17 (2) sentence 4 German Transformation Act (UmwG). For the final balance sheet under transformation law, there was previously an eight-month period for the notification of the transformation measure to the commercial register. This deadline was also extended to twelve months by Art. 2 section 4 of the Act on Mitigating Measures.
5. Advance payments of balance sheet profit
Contrary to section 59 (1) AktG, the executive board may decide to pay a deduction from the net profit for the year in accordance with section 59 (2) AktG even without authorisation in the articles of association; however, the limitation to half of the previous year's dividend remains in place.
6. Supervisory board approval
The decisions of the executive board according to the Act on Mitigating Measures - i.e., in abridged form, the facilitation of participation, in particular the online general meeting, the abridged convocation, the advance payments on the balance sheet profit and the convocation in the extended convocation period - require the approval of the supervisory board. According to the wording of the Act, the restriction of the right to ask questions also requires the approval of the supervisory board.
7. Restrictions on the right of contestation
The right of contestation is restricted by the German Act on Mitigating Measures. Accordingly, the contestation cannot be based on violations of section 118 (1) sentences 3 to 5 and (2) sentence 2 of the AktG (in particular electronic confirmation of electronically exercised voting rights with regard to the corresponding provision for postal voting). The same applies to the violation of the provision pursuant to section 118 (4) AktG in the case of video and audio transmission. Furthermore, the same applies to a violation of the formal requirements for notifications pursuant to section 125 and a violation of section 125 (2) AktG (extended notification obligations).
The exclusion of contestation does not apply if the company can be proven to have acted with intent. It should be noted here that the general criteria will apply to the concept of intent. If the company acts in such a careless manner that the threshold for implied acceptance is exceeded - which will suffice - conditional intent will be affirmed. The high standards of due diligence, including appropriate documentation which have already been widely observed in the past, should therefore be maintained in order to keep a "distance" to contingent intent. This restriction may become particularly relevant with regard to the selection and scope of the questions answered or not answered. In this respect, too, certain uncertainties remain.
8. Scope of application
The regulations apply accordingly not only to the stock corporation but basically also to the partnership limited by shares (KGaA) and the SE.
The provisions, contained in Art. 2 section 1 Act on Mitigating Measures, came into force on the day after the announcement, i.e. on 28 March 2020. According to the Act on Mitigating Measures, they will cease to apply upon expiry of 31 December 2021, i.e. they will apply for the entire remaining year 2020 and also in 2021. Whether there will be an extension of the period of validity remains to be seen.
Dr Winfried Richardt