The federal government has introduced legislation for a law entitled “Act to Mitigate the Consequences of the COVID-19 Pandemic in Civil Law, Insolvency Law, and Criminal Procedure Law” (Gesetz zur Abmilderung der Folgen der COVID-19-Pandemie im Zivil-, Insolvenz- und Strafverfahrensrecht). The legislative initiative includes various changes to company law, which are designed to make it easier for companies to remain operational in view of the substantial restrictions on freedom of movement.
The management will be legally empowered to hold meetings of the shareholders with the approval of the supervisory board, even without express authorisation in the articles of association, and to arrange for the adoption of resolutions at such meetings. However, it is unclear whether this is also intended to apply where the articles of association explicitly prohibit this. In order to streamline such meetings, the management board will also be able to specify that questions have to be submitted electronically not later than two days prior to the meeting, and it will be able to decide in its discretion which of these questions to answer. The notice period for convening a meeting will be shortened to three weeks.
- If technical disruptions occur during the meeting that prevent shareholders from exercising their rights or the management from answering their questions, they will not be entitled to challenge decisions or resolutions, other than in the case of wilful misconduct. It appears doubtful whether this arrangement would withstand constitutional review, since it involves a substantial interference with the property rights of the shareholders.
- Even without express authorisation in the articles of association, the management will be permitted, with the approval of the supervisory board, to make advance payments against dividends (and compensatory payments to outside shareholders under control and profit-and-loss transfer agreements) on the basis of only provisional annual financial statements, provided that they show a profit and not more than one-half is distributed. Particularly in corporate group structures, this will make it easier to quickly shift resources to ensure the necessary liquidity.
- The management will have the ability, with the approval of the supervisory board, to postpone the annual general meeting for the 2019 financial year beyond 31 August to as late as 31 December 2020. This will not apply to SE companies, because under European law it is mandatory to hold the general meeting within six months of the close of the financial year.
Member resolutions will be able to be adopted by email or written circulation even where not all members are in agreement.
- Member resolutions will be able to be adopted by written circulation or electronically through a virtual general meeting of the members or representatives even where this is not expressly permitted in the articles of association. Here as well, it is unclear whether this applies where the articles of association explicitly prohibit this.
- Although the meeting is still required to be held within the first six months of the financial year, there will be no penalty for failing to do so.
- The meeting will be able to be convened through notice given by email or on the cooperative’s website.
- In departure from the current legal situation, the supervisory board alone will be able to approve the annual financial statements. According to the explanatory memorandum accompanying the new law, this arrangement is intended to apply only to those cases in which the cooperative is not in a position to hold a virtual meeting of the members or representatives, but it is not limited to this case.
- The board of directors will be permitted, with the approval of the supervisory board, to make advance payments against dividends and settlement balances of former members on the basis of only provisional annual financial statements, provided that they show a profit and not more than one-half is distributed. This arrangement also is designed to enable struggling cooperatives to obtain quick financial assistance.
- In order to avoid the requirement concerning court-designated emergency appointments, members of the board of directors or the supervisory board are to remain in office following the end of their term until a successor is appointed. Cooperatives will continue to have capacity to act even where the board of directors or the supervisory board does not have the minimum number of members prescribed by statute or the articles of association.
In addition, meetings of the board of directors and the supervisory board will be able to be held by written or email circulation or by phone or video conference even where this is not provided for in the articles of association or the bylaws.
In order to relieve the time pressure, pending transformation projects will be able to be undertaken in future even where they are based on annual financial statements that are older than eight months, but not more than 12 months. In other words, transformation processes relating to the 2019 financial year have until the end of 2020 to be reported to the commercial register of the legal entity being acquired for recording in the register. A follow-on amendment of the Transformation Tax Act (Umwandlungssteuergesetz) is still needed in order to achieve the legislative objective, since there will otherwise be pressure to conclude the transformation by 31 August 2020 for tax purposes.
Here as well, the board of directors is to remain in office after its term ends until a successor is appointed or it is dismissed.
- The board of directors will be able to hold virtual meetings of the members even where not provided for in the articles of association and permit members who are unable to participate in the meeting to cast their votes in writing.
- Furthermore, resolutions will be able to be adopted by written circulation under simplified conditions if all members were invited to participate, at least half of the member cast their votes by email, and the requisite majority was achieved.