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Online Annual General Meetings and more flexibility for corporate reorganisations – how the German legislator reacts with new corporate law measures to the Corovid-19 crisis

  • Germany
  • Corporate

25-03-2020

1. Upcoming German Annual General Meetings season 2020

A lot of German corporates have traditionally lined up their annual general meetings (AGM) for May, June and July. In the wake of the co-rona virus crisis, the boards of a large number of companies are now considering to postpone the 2020 AGM and some companies have already announced that they will in fact do so, e.g. Adidas, E.ON and Deutsche Telekom.

This is due to the fact that in order to prevent a further uncontrolled spreading out of the corona virus, the German authorities have prohibited any physical meetings over the next two weeks and some federal states have even enacted a general lockdown for such period. Currently, there is no visibility if these restrictions might be ended or rather be extended and even if no extension comes into force, it is nevertheless be regarded as sensible to avoid large gatherings of people for the time being.

1.1. Introduction of online meetings

Against that background, the German legislator has initiated a fast track legislation process which will enable companies for the first time to hold their AGMs as pure online meetings with no shareholders physically present. This shall prevent gatherings of hundreds or even thousands of shareholders at the same time and place, which is very typical for most German listed stock corporations.

Such pure online meetings were not allowed in the past as the German Stock Corporation Act has provided for mandatory physical meetings. The new law, which still needs to be adopted by German parliament, will be applicable to all German stock corporations, European Stock Corporations (SE) and similar company forms (KGaA), all with their seat in Germany.

1.2. Legal requirements

To protect shareholders’ rights, the following requirements need to be met to hold AGMs on an "online only" basis:

  • The whole meeting needs to be broadcast (usually via the internet), including general debate and casting of votes;
  • The shareholders need to have access to an online voting tool and must be able to vote via traditional proxy voting;
  • The shareholders must have the possibility to ask questions to the board via an online tool, with the board having a wide discretion to limit the answers thereto.

The last point is of particular interest for German companies with a large shareholder base: In connection with the general right to ask questions, which still needs to be complied with, the board will be empowered with a wide discretion to what extent questions will be answered. Traditionally, there have been many battles between certain activist shareholder groups and boards of listed companies whether the shareholder right to ask questions has been restricted in a way which was not in line with legal requirements under German law. The board will now have the discretion, e.g. to limit answers to large numbers of questions answered via social media or to make preferred answers to questions asked by shareholder groups with large shareholdings.

1.3. Shortened convening periods

To give boards more flexibility, the convening period for AGMs will be shortened from 30 days to 21 days.

1.4. Possibility of later dates for annual general meetings

Under current mandatory German law, the AGM has to take place within the first eight months following the end of a financial year, i.e. at the latest until the end of August if financial year and calendar year are identical. This is to be extended so that the AGM has to take place at the latest until the end of the following financial year, i.e. until 31 December 2020 in case the financial year of a company ended on 31 December 2019. This will give the companies four additional months to hold their AGMs, which shall enable them to cope with disruptions within the respective organisations as a consequence of corovid-19.

2. Planned measures for German limited liability companies (GmbH)

Even though there is a sizable group of stock corporations in Germany, still the largest number of companies are organized as limited liability companies (GmbH). The German legislator has already announced that it will also introduce more flexible resolution making rules for this company type; however, the details are still to be announced by the German government.

3. More flexibility for corporate reorganisations like mergers and spin-offs

The German legislator also intends to soften the rules for corporate reorganisations like mergers and spin-offs.

In connection with such measures, the transferring entity usually has to submit a closing balance sheet to the commercial register in order to have the respective measure registered and thereby come into effect. Currently, the closing balance sheet can have a reference date which may date back eight months at the maximum. Usually the annual financial statements of a company are used as closing balance sheet for the reorganisation measure in order to save time and costs.

This eight-months period is now to be extended to twelve months, which in practice means that the annual financial statements as of 31 December 2019 can be used as closing balance sheet for any reorganisation measures to be executed until 31 December 2020.

This will most likely cause a further push for corporate reorganisations in Q4 this year as it gives companies four more months to get the projects lined up amid the corona virus crisis.

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