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Online general meetings: Federal Ministry of Justice already planning extension until the end of 2021
What are the rules for online general meetings according to the COVID-19 ACT?
In the spring, the German government passed a law (COVID-19 Act) in view of the corona crisis, which allows (ordinary and extraordinary) general meetings to be held as online events instead of meetings with in-person attendance. According to the COVID-19 Act, shareholders only have to be granted limited question and challenge options for such online general meetings. The minimum period for convening the general meeting has been reduced to 21 days. In addition, the executive board may make advance payments on the balance sheet profit even without a corresponding provision in the Articles of Association. Similar facilitations apply to foundations, associations, and cooperatives.
What rules should be applicable in the future?
While these special provisions are currently limited until the end of the year, the Federal Ministry of Justice now intends to extend them until the end of 2021 and published a draft of a legal ordinance on September 18, 2020
The draft still needs to be coordinated within the federal government, however, and German states and associations will have the opportunity to comment on it until September 25, 2020.
Criticism and support for an extension of the rules for virtual general meetings
At the beginning of September, 60 executive board members of listed companies, jointly with Deutsches Aktieninstitut (DAI), which represents the interests of German publicly traded companies, had already written a letter to the Federal Minister of Justice asking for the special provisions to be extended. The companies demanded security in their planning for the coming year and pointed out the effort required to make preparations for both a physical and a virtual general meeting. The intended extension of the rules for the online general meeting also met with fierce criticism, however. Investor and shareholder representatives in particular have been up in arms for weeks about the intended extension of virtual general meetings and requested improvements to the existing law be made. In particular, shareholders should also be allowed to ask questions during the event in the future. The chairpersons of the meetings would have too much leeway at the virtual general meetings to avoid unpleasant questions.
The grounds for the draft bill address the handling of the options of the questions to which the shareholders are entitled, emphasizing that executive boards should exercise their dutiful and free discretion to respond to as many of the submitted questions as possible. The draft bill goes on to point out that it can be expected that after holding the first virtual general meetings and gaining experience, companies had had sufficient time to adjust even better to handling virtual shareholder questions. In addition, companies should generally only use the instrument of the virtual general meeting in individual cases if this appears necessary in view of the specific pandemic situation.
Will the rules for online general meetings be extended?
The extension of the COVID-19 rules for online general meetings until the end of 2021 is very likely. Companies should be aware, however, that from the legislator’s point of view, when deciding for or against (additional) virtual general meetings, they should first weigh interests comprehensively and should document this as a matter of precaution.
In addition, the Act Implementing the Second Shareholders' Rights Directive, which entered into force at the beginning of 2020, entailed new information rights for shareholders as regards general meetings, which in individual cases may lead to not inconsiderable additional workload when conducting virtual general meetings. For example, in the case of electronic voting, as is regularly the case in virtual general meetings, the receipt of votes must be confirmed electronically by the company. In addition, since January 1, 2020, shareholders may request confirmation from the company within one month of the general meeting whether and how their votes have been counted. This has not yet been addressed widely, but will certainly become a focal point of discussions when virtual general meetings are extended to the end of 2021.