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Option to hold virtual annual general meetings extended until the end of 2021

  • Germany
  • Coronavirus - Country overview
  • Corporate

07-10-2020

1. Eased requirements for the holding of general meetings

The German Federal Ministry of Justice submitted a draft bill by which various relaxations under corporate and transformation law, which were introduced at the beginning of the COVID-19 pandemic in early 2020, are to be extended until the end of 2021. The most important element of this draft bill is the extension of the possibility to hold general meetings of stock corporations as purely virtual general meetings without the physical presence of any shareholders. It can be seen from the current 2020 general meeting season that the vast majority of German public companies has made use of this option.

1.1. Virtual general meeting continues to be the exception from the rule

In the government draft, it is clearly pointed out that the relaxations continue to be a temporary solution exceptional in character. According to the draft bill, the companies shall only make use of this instrument in the future in the individual case and if it appears to be necessary taking into consideration the specific pandemic situation. The extension is offered to create planning certainty in particular for those companies which intend to hold their ordinary or extraordinary general meetings in the first months of the calendar year 2021. With respect to the ordinary annual general meeting, this applies specifically to companies where the financial year does not correspond to the calendar year. Examples are Siemens AG or Infineon Technologies AG whose ordinary general meetings usually take place already in February, i.e. before the start of the usual general meeting season in May, June and July for companies whose financial year corresponds to the calendar year. In practice, this means that large public companies which hold "early" general meetings can now enjoy planning certainty since they usually enter into the hot phase for preparing their ordinary general meetings for 2021 already in autumn of 2020.

In addition, the government draft points out that companies are not at all forced to hold a virtual general meeting should large gatherings of people be admissible again. In this case, the draft bill stipulates that companies may return to holding general meetings with the shareholders attending in person or choose "hybrid dual-track formats". This is supplemented by the note that companies should also take the opportunity to adjust their by-laws accordingly in this context. This presumably means in particular the opportunity set forth in Sec. 118 of the German Stock Corporation Act (Aktiengesetz, AktG) that companies may stipulate in the by-laws that their shareholders may participate and cast their votes by means of electronic communication either generally or by way of granting the executive board the authority to take a respective decision. In practice, a respective adjustment of the by-laws is in any case recommended for such public companies which have so far not permitted their shareholders to participate and cast their votes by means of electronic communication in their by-laws; in doing so, they can ensure the highest possible degree of flexibility with respect to the holding of future general meetings.

1.2. Limitation of the shareholders' right to ask questions continues to exist

As it is obviously not possible that shareholders physically attend a purely virtual general meeting, the individual shareholder's right to ask questions has been limited as follows: The shareholders must be granted an "opportunity to ask questions by means of electronic communication", however, the executive board has been given the authority to clearly limit this opportunity to ask questions. This rule will now also be extended so that the executive board will continue to be able to decide, at its reasonable and free discretion, to which extent shareholders’ questions are being answered and, in particular, to request that questions must be submitted at the latest two days prior to the meeting by means of electronic communication. This limitation of the right to ask questions was partly criticised by activist shareholders. In practice, however, the regulation led to the fact that general meetings could take place in a significantly more organised manner in the 2020 season as it was not possible for certain groups of shareholders to use the speaker's desk of the general meeting as a means to gain a moment in the spotlight.

However, the draft bill now warns companies not to misuse the option to limit the right to ask questions. If a company decides to hold the general meeting as a virtual general meeting, the handling of the shareholders' opportunity to ask questions constitutes a central element of organising the meeting, as underlined in the draft bill. With respect to this opportunity to ask questions, the companies should continue to act in the shareholders' interests, in particular regarding the prior submission of the questions. In this context, the executive board in the first place has the possibility not to make use of the requirement to submit the questions at the latest two days prior to the meeting. In addition, the company should enable the shareholders to raise questions also during the general meeting if this is technically possible and feasible in the individual case. In addition, the executive board should exercise its reasonable and free discretion by replying to as many of the submitted questions as possible. According to the draft bill, it can be expected that the companies – after the holding of the first virtual general meeting and the experience collected therefrom in 2020 – now have enough time to prepare "even better" for the questions raised by the shareholders for 2021.

1.3. Shortened convening period

Additional relaxations for the convening and holding of general meetings shall also continue to apply. For example, general meetings can be convened with a shorter notice period of 21 days. Other deadlines are also to be shortened, i.e. in connection with the registration for a general meeting.

1.4. Later date for the general meeting

The option to hold the general meeting at a later date also continues to exist. In principle, the general meeting must take place within the first eight months of a financial year. In view of the upcoming general meeting season 2020 at the time of the "first wave" of the spread of the coronavirus, many public companies, in light of coronavirus lockdown, thought about how to postpone general meetings already scheduled without having to risk a possible liability of the members of the executive board. The legislator provided relief in early 2020: In the calendar year 2020, general meetings may take place "within the financial year" which means, in practice, that the period in which the general meeting has to be held is extended by four months. Companies clearly make use of this possibility in practice, however, to a much lower extent than originally expected. This regulation now also remains applicable until 31 December 2021.

1.5. Advance on the net profit

The payment of an advance on the net profit to the shareholders also continues to be admissible, even if the by-laws of the respective company do not contain such an authorisation.

1.6. Applicability to ordinary and extraordinary general meetings

As was previously the case, the possibility to hold a purely virtual general meeting will continue to exist both for ordinary and for extraordinary general meetings in the future. This may be of particular interest in practice if structuring measures must be decided upon within the framework of the agenda. In a virtual general meeting, the shareholders' rights to challenge adopted resolutions are significantly limited so that structuring measures cannot be blocked by legal challenges. A prominent example from summer 2020 is Siemens AG whose extraordinary general meeting in July decided upon the spin-off of the energy business to Siemens Energy AG. Hence, also in the coming year, it remains possible for companies to implement comparable structuring measures with a higher degree of planning certainty than would usually be the case in light of possible legal challenges.

2. Eased regulations for the passing of resolutions at German limited liability companies (GmbH) continue to exist

The regulation regarding a relaxation for the passing of resolutions in German limited liability companies (GmbH) in text form will also be extended. This means that the passing of shareholders' resolutions in text form continues to be possible without all of the shareholders having to agree to this procedure.

3. Eased requirements for mergers and other transformation measures continues to exist

The easements regarding mergers and divisions with respect to the required closing balance sheet of the transferring entity also continue to apply. Pursuant to the provisions of the German Law Regulating the Transformation of Companies (Umwandlungsgesetz, UWG), it is normally only possible to use a balance sheet which is dated a maximum of eight months prior to the point in time of the filing with the commercial register. In practice, this has meant, for example, that it has been possible to use a closing balance with a balance sheet date of 31 December for transformation processes until the end of August of the following year, provided that the financial year corresponds to the calendar year.

This deadline was extended by the package of measures adopted in early 2020: The balance sheet date may now date back a maximum of twelve months, so that the balance sheet for 2019 may be used as a basis for transformation processes until the end of December 2020, provided that the financial year corresponds to the calendar year.

In practice, this means a period extended by four months to implement structuring measures for which a closing balance of the transferring entity is required. This possibility is regularly made use of in practice. This is shown by the considerable number of mergers which are currently still notarised for companies whose financial year corresponds to the calendar year on the basis of the last balance sheet or which are still being prepared for an implementation in 2020. In these cases, the balance sheet for 2019 normally could no longer be used as closing balance after expiry of 31 August 2020. According to the draft bill, this relaxation will still be applicable in 2021 so that the balance sheet for 2020 can be used as closing balance of the transferring entity until 31 December 2021.

4. Effectiveness of new law

The proposed extension of the relaxations under corporate and transformation law has so far merely been submitted as a draft bill. However, the German Act regarding Measures under the Law of Corporations, Cooperatives, Associations, Foundations and Residential Property to Combat the Effects of the COVID-19 Pandemic (Gesetz über Maßnahmen im Gesellschafts-, Genossenschafts-, Vereins-, Stiftungs- und Wohnungseigentumsrecht zur Bekämpfung der Auswirkungen der COVID-19-Pandemie, GesRuaCOVBekG) passed in early 2020 already provided for the adoption of the now envisaged extension by way of an order by the German Federal Ministry of Justice. This order does not require approval by the German second parliamentary chamber, Bundesrat. Hence, it is to be expected that the regulations will most likely enter into force shortly as provided for in the draft bill.