THE VIRTUAL ANNUAL GENERAL MEETING – FIRST EXPERIENCES AND TRENDS
With the law to mitigate the consequences of the COVID-19 pandemic in civil, insolvency and criminal procedure law of 27 March 2020, the legislator reacted to the corona crisis and temporarily suspended or modified a number of substantial regulations in insolvency and company law.
The regulations for company law enacted as Art. 2 under the bulky title “Act on Measures in Corporate, Cooperative, Association, Foundation, and Home Ownership Law to Combat the Effects of the COVID-19 Pandemic” (“COVID-19 Act”) are aimed in particular at keeping companies with a larger circle of shareholders capable of acting irrespective of existing restrictions on the possibilities of assembly. Section 1 of the COVID-19 Act therefore provides for substantial simplifications for the holding of general meetings in stock corporations (AG), partnerships limited by shares (KGaA) and European companies (SE).
By far the most relevant innovation in practice is found in section 1 para. 2 of the COVID-19 Act, which temporarily abolishes the presence principle for general meetings as laid down in section 118 para. 1 German Stock Corporation Act (AktG): General meetings held up to 31 December 2020 can thereafter be held without any physical presence of shareholders or their proxies as a purely “virtual general meeting”. The prerequisites for this are that the video and audio transmission of the entire meeting is provided, that shareholders can exercise their voting rights via electronic communication, that shareholders are given the opportunity to ask questions via electronic communication and that shareholders who have exercised their voting rights have the opportunity to object to the minutes against a resolution of the general meeting.
As can be seen from the convening notices published in the Federal Gazette, almost all companies listed in Germany in the legal forms of AG, KGaA and SE have made use of the possibility of holding a virtual general meeting in the first two months after the law came into force, with the result that the first “standards and trends” can be identified for a number of issues which are important in practice and on which the COVID-19 Act does not provide any, or at least no clear specifications.
II. Shortened notice period for convening
Pursuant to section 1 para. 3 of the COVID-19 Act, a general meeting may be convened with a shortened notice period. According to the German Stock Corporation Act (AktG), the notice must be convened “at least 30 days before the date of the meeting”. This minimum period is usually extended by the six-day registration period. Since the day of convocation is not to be included in the calculation of the period of notice pursuant to section 123 para. 1 sentence 2 AktG, the regular period of notice pursuant to the AktG is thus generally 37 days. For general meetings taking place in 2020, on the other hand, according to section 1 para. 3 COVID-19 Act, it is sufficient to convene the general meeting “on the 21st day before the day of the meeting”. As a result, the 30-day period of section 123 para. 1 sentence 1 AktG is suspended and legally converted into a date, with the consequence that section 123 para. 1 sentence 2 AktG is not applicable and therefore the day of convening the meeting is not counted when calculating the period.
Pursuant to the COVID-19 Act, it is therefore sufficient if the notice of a meeting is actually published in the Federal Gazette on the 21st day before the meeting. It can be observed that, in practice, many companies nevertheless take the precaution of convening the meeting on the 22nd day before the meeting. In the event that a meeting is convened with a shortened notice period, the record date for providing evidence of share ownership (record date) must also refer to the 12th day prior to the general meeting instead of the 21st day as provided for in the AktG, and the registration of shareholders must be received by the Company no later than the fourth day prior to the meeting instead of at least six days as provided for in the AktG.
This shortened notice period regime also reduces the time available to the general meeting service providers for sending the general meeting documents and to the shareholders for registering for the general meeting. Not least for this reason, the number of companies which make use of the shortened notice period has so far been in balance with the number of companies which convene in accordance with the regular time limit regime of the German Stock Corporation Act.
III. Participants of the virtual general meeting
The COVID-19 Act only regulates that the general meeting can take place without the physical presence of shareholders and their proxies. However, there is no explicit regulation as to which persons must be present in the meeting. It is agreed that at least the chairman of the meeting (usually the chairman of the supervisory board) and, in the case of listed companies, the notary public who records the minutes (section 130 para. 1 AktG) must be present. Furthermore, the presence of a member of the management board, usually the chairman of the management board, is unanimously considered necessary to explain the annual financial statements and answer shareholders’ questions. In contrast, section 118 para. 3 AktG, which in principle stipulates the obligation of all members of the management board and the supervisory board to participate in the general meeting, is interpreted in the context of the COVID-19 Act according to the predominant view that the other members of the executive bodies may be connected by means of video and audio transmission.
IV. Counter-motions and election proposals
The COVID-19 Act does not contain a suspension of sections 126 and 127 AktG, according to which shareholders may submit counter-motions and election proposals to the management’s resolution proposals. If such counter-motions are sent at least 14 days before the meeting, they must be made available to shareholders on the company’s website. In accordance with the general principles of stock corporation law, however, a counter-motion is merely announced with the submission. Such an announced counter-motion or election proposal is only to be voted on if it is actually made “at the meeting”. As the virtual general meeting takes place without the participation of the shareholders, the rights of shareholders to make motions at the meeting are consequently also lost. This means that counter-motions and election proposals can be sent in accordance with the legal requirements and must also be made accessible. However, these proposals do not need to be dealt with in the virtual general meeting, nor do they need to be put to the vote. This obviously represents a considerable reduction in shareholder rights.
Even if this is laid out in the concept of the COVID-19 Act, it can be observed in practice that a number of companies do not simply ignore such counter-motions at the general meeting, but announce in the notice convening the meeting for the benefit of the shareholders that properly submitted counter-motions and election proposals will be deemed submitted “at the meeting”. This is usually combined with a deadline for the submission of motions and election proposals, according to which only those motions and election proposals will be considered and dealt with in the meeting that have been submitted to the Company within the 14-day period stipulated in section 126 AktG or, in accordance with the time limit for the submission of questions pursuant to section 1 para. 2 of the COVID-19 Act, at the latest two days before the meeting.
V. Possibility for shareholders to ask questions
Section 1 para. 2 of the COVID-19 Act limits the otherwise applicable general right of information under section 131 AktG for the virtual general meeting to a pure right to ask questions and leaves the answering of questions largely to the discretion of the management board. In particular, the law entitles the management board to provide that questions must be submitted to the company at least two days before the date of the meeting. Furthermore, thematically related questions can be summarized and the management board may determine the order in which questions are answered. Finally, frequently asked questions can already be answered in advance of the general meeting as FAQs on the company’s website. They do then not have to be discussed again at the general meeting.
Even though the COVID-19 Act explicitly allows not to answer all questions of the shareholders, it is agreed that this possibility may only be used under special circumstances, for example if the usual time frame of four to six hours for holding the general meeting cannot otherwise be observed. As far as can be seen, no company has therefore left questions from its shareholders unanswered, especially as the flood of questions in the context of the virtual general meeting feared by the legislator has not yet occurred. Even the advance answering of questions by publishing FAQs on the company’s website has so far not played a role in the current general meeting season.
VI. Exercising voting rights via electronic communication
GM service providers have also reacted quickly to the legal changes and offer software that meets all requirements of the COVID-19 Act. The corresponding online portals provide shareholders with access to the live stream of the general meeting and to the uncomplicated electronic exercise of their voting rights, to ask questions, to grant proxies and to lodge an objection to resolutions of the general meeting. Although section 1 para. 2 sentence 1 no. 2 of the COVID-19 Act only appears to permit electronic postal voting in the context of a virtual general meeting, almost all companies also permit “analogous” written postal voting. It is clear from the explanatory memorandum to the Act that the restriction to electronic absentee voting is an editorial error on the part of the legislature and that written absentee voting should not be excluded by section 1 para. 2 sentence 1 no. 2 of the COVID-19 Act.
The COVID-19 law has so far proved its worth in practice. The vast majority of companies use the opportunity to hold a virtual general meeting. Despite some open questions regarding the interaction with the general regulations of the German Stock Corporation Act, the instruments offered by the legislator for the virtual general meeting have quickly produced a functioning standard for this year’s general meeting season that has been accepted by the shareholders to date. It is true that the management board was allowed to hold the general meeting at the AG and the KGaA until the end of the year instead of the previous eight-month period (in the case of the SE, however, the existing six-month period continues to apply). However, not least because of the dividend interest of the shareholders, the general meeting should not be postponed to an unknown date in the hope of better times for a meeting in person, but a virtual meeting should be held this year. The technical and legal problems are manageable.
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