Update: Virtual general meetings 2021

Legislator amends COVID-19 law to strengthen shareholder rights - immediate questions and rights of appeal remain limited

In spring 2020, the legislator significantly simplified the implementation of virtual general meetings (VHV) with the provisions in Art. 2 of the Act to Mitigate the Consequences of the Covid 19 Pandemic in Civil, Insolvency and Criminal Procedure Law (Covid 19 Act). The facilitations, which were originally limited until the end of 2020, have been extended until December 31, 2021 – due to the ongoing pandemic. We already reported on this here.

Shortly before the end of 2020, the legislator has now reacted to the - in some cases not insignificant - criticism from the general meeting practice and, compared to the previous unchanged extension of the 2020 regulation, has for the first time enacted some important new regulations for the AGM season 2021. In doing so, they took the non-related law on the further shortening of the residual debt discharge procedure as an opportunity for implementation, which can be easily overlooked.

What's new compared to the 2020 general meeting season?

The new regulations now promulgated in the Federal Law Gazette on December 22, 2020 strengthen shareholder rights and at the same time create more legal certainty for companies.

Right to ask instead of just “option to ask”

Under the VHVs 2021, shareholders are now entitled to a mandatory “right to ask questions” instead of the - last year still mere - “option to ask questions” (Section 1 (2) sentence 2 COVID-19-G old version). Previously, the Executive Board was allowed to decide “whether” and “how” to answer which questions at its own dutiful discretion. This provision met with considerable criticism, particularly from shareholder representatives. Although it was observed in VHV's 2020 practice that many companies had decided to answer all shareholder questions received anyway, the legislator took up this criticism and readjusted the law. The management board now only has the choice of “how” it answers questions and no longer “which” questions it answers (Section 1 (2) Sentence 2 HS. 1 COVID-19-G n.F.). However, the Executive Board still has the right to group together questions with the same or similar content and to answer them uniformly if this appears reasonable.

The deadline for submitting questions to the Executive Board has also been extended in favor of shareholders. In future, the Executive Board may limit the receipt of questions to a maximum of one day - instead of the previous two days - before the general meeting (Sec. 1 (2) Sentence 2 HS. 2 COVID-19-G n.F.). Whether this provision actually adds value for shareholders is probably questionable. After all, the questions still have to be submitted. There is no obligation to allow unannounced verbal questions during the VHV as part of the video conference.

Amendments to substantive motions and election proposals

Under the conditions of § 126 and § 127 of the German Stock Corporation Act (AktG), motions or election proposals by shareholders in the VHV are henceforth to be treated as if they were submitted (again) in the VHV (so-called fiction solution; § 1 para. 2 sentence 3 COVID-19-G n.F.). This amendment to the law takes up an approach already practiced by many companies in the 2020 VHVs. In doing so, the legislator is taking account of the fact that, as a rule, it is not possible to submit a motion (again) “in” the meeting anyway if shareholders participating electronically (Section 118 (1) sentence 2 AktG) are not granted a right to submit a motion or if shareholders are only enabled to exercise their voting rights by means of electronic postal voting. However, the prerequisite for the right to submit a motion pursuant to Section 1 (2) sentence 3 COVID-19-G n.F. is that the shareholder concerned has proven his legitimacy and has duly registered for the meeting.

Rights of appeal still severely restricted

Shareholders' rights of appeal remain severely restricted for the 2021 VHVs. In principle, no action for defective resolutions can be based on a violation of the provisions on virtual general meetings in Section 1 (2) COVID-19-G (Section 1 (7) COVID-19-G).

Period of validity

The aforementioned regulations now apply by operation of law (and no longer by operation of regulation, as was previously the case) until December 31, 2021; a further extension for 2022 could only be made by law.

Conclusion

The amendments are to be welcomed above all because - in addition to extending the shareholder's rights to ask questions - they also provide companies with greater legal certainty in their dealings with VHV.