COVID-19: Simplifications for companies

The protective measures adopted in order to contain the COVID-19 pandemic, in particular the restrictions of meetings, are affecting corporate decision-making. On 25 March 2020, the German Bundestag adopted the "Act on Mitigating 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"], which was published in the German Federal Law Gazette on 27 March 2020.

A summarised first glance on relevant regulations of the current COVID-19 legislation is available for download here.

In order to maintain the companies' ability to act, the law provides e.g. for temporary substantial simplifications of the holding of general meetings - even if the related articles of association do not include such authorisation. Furthermore, the deadlines for reorganisation measures shall be extended. The main contents of this act relating to company law are:

I) Simplification of holding of general meetings of stock corporations (AG), partnerships limited by shares (KGaA) and European companies (SE)

Stock corporations, partnerships limited by shares (KGaA) and European companies (SE) shall be enabled to hold both the annual general meeting and extraordinary general meetings despite the existing restrictions of meetings. This is to be achieved by the following legislative measures:

1) Simplification option of online participation and purely virtual general meetings

With the consent of the supervisory board, the management board shall be able to make decisions – even without such authorisation by the articles of association – regarding the participation of shareholders in the general meeting by means of electronic communication and the participation of members of the supervisory board by means of video and audio transmission. Furthermore, the management board shall be able to authorise video and audio transmission of the meeting.

The management board shall also be able to decide that the meeting is held as a virtual general meeting. With the consent of the supervisory board, the management board shall be able decide that the meeting is held without the physical presence of the shareholders or their representatives. This shall be possible provided that  

• the entire meeting is transmitted via audio and video,
• shareholders can vote via electronic communication (electronic postal vote or electronic participation) and grant authorisation to vote by proxy,
• shareholders are granted the opportunity to ask questions electronically,
• shareholders who have participated in a virtual meeting are given the opportunity to object to a resolution of the general meeting electronically.

The management board decides at its due and free discretion as to which questions it answers and how, i.e. not all questions need to be answered, a summary or selection of reasonable questions may be prepared in the interest of the other shareholders. The management board may also require that questions are to be submitted electronically (e.g. to an email address specified for this purpose) no later than two days before the meeting.

2) Restriction of the options for avoidance of a resolution adopted by the general meeting

The options for the avoidance of resolutions adopted by the general meeting shall be restricted in order to prevent that the companies refrain from using the simplifications in fear of actions for avoidance. Therefore, in extension of Sec. 243 (3) No. 2 Stock Corporations Act [Aktiengesetz - AktG], actions for avoidance may not be based on

• breach of the obligation to acknowledge receipt of the votes cast in a notification to shareholders voting via electronic communication or postal vote,
• video and audio transmission of the general meeting, and
• breach of the requirements for holding a purely virtual general meeting,

unless the company can be proven to have acted intentionally.

3) More flexibility in terms of time for holding general meetings

The management board may decide to reduce the period of notice for convening the General Meeting to 21 days before the date of the General Meeting. In this case the evidence of share ownership must relate to the beginning of the twelfth day prior to the meeting and, in the case of bearer shares in the company, must be received by no later than the fourth day prior to the general meeting. The management board may specify a shorter period for the receipt of the evidence by the company in the invitation convening the general meeting.

The time limits for the notices pursuant to Sec. 125 (1) and (2) AktG are adjusted accordingly. If the meeting is convened with a 21-day-period of notice, the notice pursuant Sec. 125 (1) sentence 1 AktG (communications to intermediaries, shareholders and shareholder associations) must be given at the latest twelve days before the meeting and the notice pursuant to Sec. 125 (2) AktG must be given to those entered in the share register at the beginning of the twelfth day before the general meeting. Requests for additions to the agenda must be received by the company at least fourteen days prior to the meeting.

It is furthermore possible that the general meeting takes place within the whole financial year, and not necessarily during the first eight months of the financial year (does not apply to SE).

4) Simplified advance payment of an interim dividend from the net income

The management board can decide without authorisation by the articles of association to pay an interim dividend from the net income to shareholders in accordance with Sec. 59 (2) AktG.

5) Consent of the supervisory board required

The decisions of the management board require the consent of the supervisory board (does not apply to a one-tier European company (SE) without supervisory board). The supervisory board may, notwithstanding the provisions of the articles of association or the rules of procedure, adopt the resolution on consent in writing, by telephone or in a comparable manner without the physical presence of the members.

6) Scope of application

The simplifications only apply to general meetings or interim dividends from the net income that take place in 2020.

II) Simplifications for adopting resolutions in limited liability companies (GmbH)

By way of derogation from Sec. 48 (2) of the German Limited Liability Companies Act [GmbH-Gesetz - GmbHG], resolutions of the shareholders may be adopted in text form or by written casting of votes even without the consent of all shareholders. This only applies to general meetings held and resolutions adopted in 2020.

III) Reorganisation measures

The legal requirements relating to the effective date of the closing balance sheet pursuant to Sec. 17 (2) sentence 4 of the German Reorganisation Act [Umwandlungsgesetz - UmwG] shall be simplified in order to prevent that reorganisation measures fail in the absence of the possibility of holding meetings. Accordingly, the Act provides for an extension of the maximum time limit, which is to be calculated retroactively, for the effective date in the closing balance sheet of the transferor from eight to twelve months. It is hence sufficient for the admissibility of the registration if the balance sheet has been drawn up as of an effective date not more than twelve months prior to the application. This only applies to registrations made in 2020.

IV) Extension option

The validity of the foregoing exemptions and simplifications may be extended until 31 December 2021 at the latest if this appears necessary due to the continuing effects of the COVID-19 pandemic in the Federal Republic of Germany.

Practice note

German legislature provides companies and their bodies with increased flexibility to ensure their ability to act and to take decisions in spite of the restrictions imposed by the pandemic. Our experts will be pleased to advise you on company law matters, in particular with regard to the current situation.