COVID-19: consequences for meetings of shareholders
04/06/2020 - Reading time: 2 minutes
Due to the COVID-19 pandemic, the government prohibited assemblies of more than five persons (www.sozialministerium.at). This article briefly outlines what consequences this might entail for Austrian corporations and what steps can or should be taken by the relevant executive bodies. The company law related amendments introduced with the Second COVID-19 Act (2. COVID-19-Gesetz) (Federal Law Gazette I No. 16/2020) are extended with the Fourth COVID-19 Act (4. COVID-19-Gesetz) and now also provide for facilitations for other company forms (Federal Law Gazette I No. 116/2020).
Pursuant to section 1 (1) Company law-related COVID-19 Act (Gesellschaftsrechtliches COVID-19-Gesetz, COVID-19-GesG), for the purpose of preventing the spread of COVID-19, meetings of shareholders and meetings of company officers of a corporation, a partnership, a cooperative, a private foundation or an association, a mutual insurance foundation, a small insurance foundation or a savings bank may also be held without the physical presence of its participants and resolutions may also be passed in a different manner, subject to statutory orders (Verordnung) which are yet to be adopted.
The use of technical means of communication - in particular, adequate video conference (optical and acoustic two-way communication in real time) - is envisaged to enable decision-making of comparable quality also without holding a physical meeting. Section 1 temporarily provides a legal basis for such cyber meetings and other forms of decision-making (e.g. written resolutions).
More detailed regulations for corporations and other company forms have been reserved for a statutory order issued by the Federal Minister of Justice. We will keep you up to date.
The Fourth COVID-19 Act provides for the admissibility of carrying out meetings pursuant to the provisions of the Company-law related COVID-19 Act no longer being dependent on whether legal measures for the purpose of preventing the spread of COVID-19 are still in force at the respective point in time. The measures applicable to the meetings referred to in the Fourth COVID-19 Act will generally be permitted until the end of 2020.
The general meeting of shareholders of a stock company
- Section 104 of the Austrian Stock Corporation Act (Aktiengesetz, AktG) regulates the convocation of an annual ordinary general meeting of shareholders by the board of directors within the first eight months of the business year. Shorter deadlines set out in the Articles of Association must be taken into account. As a rule, general meetings of shareholders must be held physically, which, due to the current COVID-19 pandemic, will not be possible in many cases.
Until a statutory order regulating general meetings of shareholders without physical presence of the participants is adopted, the following shall be considered.
If a general meeting has already been scheduled, potential postponement, rescheduling or cancellation should be considered. The necessary steps in this respect must be taken by whoever convened the meeting in the first place, thus usually by the board of directors. The board of directors needs an important reason to postpone or cancel the meeting. Such important reason can obviously be deemed existent due to the current situation, the categorisation of COVID-19 as a pandemic and the prohibition of assembly declared by the government. Protecting assembly participants from a possible infection constitutes a material justification.
The fact that the eight-month convocation period within which an ordinary general meeting of shareholders of a corporation has to be held (section 2 (1) COVID-19-GesG) is extended to twelve months also speaks in favour of a postponement being possible in the current situation.
In case of postponing or rescheduling a general meeting, the relevant form requirements and deadlines must be taken into account.
Even without an amendment of the relevant law, it is possible - in case of unlisted companies - that a general meeting is held without the physical presence of its participants, provided that all shareholders waive any and all form requirements and deadlines applicable for convening and holding a general meeting. As a consequence, approval of the resolution by all shareholders may be given in writing as well as by way of a telephone or video conference or via an ad-hoc broadcast call.
The shareholders’ meeting of a limited liability company
Similarly to the stock corporation, in case of a limited liability company, too, an annual ordinary shareholders’ meeting must be convened and held within the first eight months of the business year. In general, what has just been said about the general meeting of shareholders of a stock corporation applies also to the limited liability company.
The Fourth COVID-19 Act also provides for the possibility of limited liability companies holding their shareholders’ meeting within the first twelve instead of eight months of the financial year (section 2 (3) COVID-19 GesG).
Also for limited liability companies, it was possible to hold shareholders’ meetings without the physical presence of the participants already before the law amendment, insofar as the participation of a notary was not mandatory which is the case, for example, with regard to capital measures. Holding a shareholders’ meeting via electronic means of communication, by way of a video conference, is possible if all shareholders verifiably - in writing - give their consent. Even though a written version is not required for a resolution to be effective, issuing a circular resolution on the resolutions passed by way of a video conference is advisable with a view to obtaining legal certainty and avoiding disputes over the resolutions passed.
With the Fourth COVID-19 Act, the legislator also provided for the possibility to carry out notarisations without the physical presence of the notary within the scope of shareholders’ meetings during which the participation of a notary is mandatory (see article on “Consequences for notarisations”).
Further meetings of shareholders
In addition, the Fourth COVID-19 Act provides for the following further new regulations with regard to meetings of corporations and their bodies:
The option to hold meetings of shareholders is extended from eight to twelve months also with regard to cooperatives (section 27a Cooperatives Act (Genossenschaftsgesetz, GenG)).
Such time limit extension is not possible in case of an SE as well as an SCE because with regard to these legal forms the period during which the general meeting of shareholders must be held is provided on EU law level (cf. Article 54(1) SE Regulation and Article 54(I) SCE Regulation: “within six months of the end of its financial year”).
In accordance with the explanatory notes on the act, however, the management and administrative body of an SE or SCE will most likely not be blamed for refraining from convening a general meeting of shareholders in this period due to COVID-19 even without an explicit extension of said time limit.
What also needs to be stated is that also time limits for the convocation or holding of certain meetings stipulated in the Articles of Association, bylaws or relevant documents of other legal forms currently do not have to be complied with insofar as, due to COVID-19, holding such meetings at the originally envisaged point in time appears not possible or not expedient even when taking into account the forms of execution set out in section 1 GesG. The decision is to be made at the professional discretion of the body responsible for convening the relevant meeting.
Finally, not adhering to the statutory provisions stipulating that Supervisory Board meetings must be held quarterly, shall explicitly not constitute a violation of statutory provisions until the end of April 2020 provided that holding such meeting in a timely manner is not possible due to COVID-19. After this point in time, said meetings can and must - in application of section 1 COVID-19 GesG and the respective (yet to be adopted) statutory order - in any case be held again.
With the broadening of the possibilities for convening ordinary meetings of shareholders, the rules regarding the submission of annual financial statements and disclosure obligations for invoicing documents are adapted and expanded accordingly.
Section 2 of the First COVID-19 Justice Accompanying Act already provided for the extension of time limits for submitting annual financial statements by the period starting from 22 March 2020 and ending on 30 April 2020, with the possibility of this time limit being further extended by a statutory order issued by the Federal Minister of Justice. With the Fourth COVID-19 Act, the need for a further extension has now been met.
The Fourth COVID-19 Act provides for the general extension of the time limit to twelve months (section 4 (2) COVID-19-GesG). At the same time, the time limit for preparing financial statements was extended from five to nine months which also applies to other entrepreneurs (section 193 (2) Austrian Business Code (Unternehmensgesetzbuch, UGB)). The extension of the time limit not only applies to the documents referred to in section 222 (1) UGB, but also to other invoicing documents which, subject to other provisions (such as, for example, section 244 (1) UGB), must be provided within the time limits set out for submitting financial statements (e.g. in particular the consolidated financial statements and the management report), as well as to the corresponding obligations of cooperatives and associations.