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New risks for unlisted stock corporations with virtual general meetings in 2021
Reduction of the Record Date only for listed companies?
In its ruling of March 4, 2021 (Case No. 91 O 12/20), the Regional Court of Cologne decided that Section 1 (3) Sentence 2 of the COVID 19 Act - which provides for the record date to be shortened to the 12th day before the meeting when convening an Annual General Meeting - is only applicable to listed stock corporations. In the case of unlisted stock corporations - according to the Cologne Regional Court - only the Articles of Association of the company are relevant for determining the record date. By contrast, an analogous application of Section 1 (3) sentence 2 of the COVID 19 Act is just as inadmissible as a supplementary interpretation of the Articles of Association.
The circumstances of the case
The defendant stock corporation was a company listed on the Regulated Unofficial Market of the Düsseldorf Stock Exchange. On July 31, 2020, the Company had issued an invitation to the virtual Annual General Meeting on August 25, 2020, with a shortened notice period pursuant to Section 1 (3) sentence 1 of the COVID-19 Act. The Company's Articles of Association provide for a notice period of 36 days (not taking into account the day of the invitation and the day of the Annual General Meeting) and the beginning of the 21st day prior to the meeting as the record date for the proof of shareholding, whereby registration and proof must be received by the Company at least 6 days prior to the Annual General Meeting. However, the invitation to the Annual General Meeting stipulated that the registration and proof of shareholding must be received by the Company by the end of the 5th day before the Annual General Meeting. The record date was specified as the beginning of the 12th day before the Annual General Meeting.
Some shareholders considered the above-mentioned information in the Company's invitation letter to be incorrect and brought an action for annulment of the resolutions adopted at the Annual General Meeting. The Cologne Regional Court ruled in favor of the plaintiffs and declared the contested resolutions null and void.
The reasons for the decision of the Cologne Regional Court
The Regional Court ruled that the Defendant had incorrectly stated the record date for the shareholder position when convening the meeting. The provision of Section 1 (3) sentence 2 of the COVID 19 Act only applies to listed companies. For non-listed companies, the Articles of Association continue to be decisive.
However, as the defendant stock corporation was not a listed company within the meaning of Section 3 (2) of the German Stock Corporation Act (AktG), a postponement of the record date pursuant to Section 1 (3) Sentence 2 of the COVID-19 Act to the 12th day before the Annual General Meeting was impermissible, according to the Cologne Regional Court in the above-mentioned decision. The provision of Sec. 1 (3) Sentence 2 of the COVID 19 Act cannot be applied by analogy to unlisted stock corporations, nor can the Articles of Association be interpreted in such a way that the record date is shortened to the 12th day before the Annual General Meeting. There is no gap in the law that would allow an analogy. The Articles of Association continue to be the only authoritative reference date for the record date for unlisted stock corporations.
If the decision of the Cologne Regional Court is followed, the practical effect will be that unlisted companies will be subject to stricter regulations than listed companies. The decision of the Regional Court of Cologne will therefore primarily affect many small and medium-sized companies in the legal form of an AG, irrespective of whether they use bearer shares with a real record date or registered shares with a purely technical record date (date of entry of the registered shares in the share register) as the basis for calculating the deadlines. In any case, use of the shortened time limit regime made possible by the COVID-19 Act has been significantly impeded since the decision described here. Companies should therefore, at least if they cannot exclude challenges, stick to the deadlines in their Articles of Association and prepare the meeting earlier than 2020 again. Whether this was the legislator's intention is doubtful.