The general meeting during COVID-19 & the Emergency Act
In these rapidly changing times, flexibility is required and expected from the board and the supervisory board. Busy or urgent work is, according to case law, not seen as an excuse for not complying with corporate governance obligations or complying with them to a lesser extent. Indeed, the management board and the supervisory board member are expected to adopt a proactive attitude. It is therefore important, for example, to investigate the impact of COVID-19 on the organizational and financial position of the company. It is also important that they take the necessary measures to minimize the risks that have arisen and the adverse consequences, with continuity in mind.
Fast action also means fast decision-making. At board, commissioner/supervisor and shareholder level. This is precisely what is made more difficult by the coronavirus. Events and meetings inside and outside are subject to specific regulations. At the time of writing this blog, meetings are currently not permitted at all and the 1.5 meter rule applies as standard.
As we have seen in Amsterdam and Rotterdam, decentralized government bodies can declare additional (aggravated) measures applicable. It is therefore always important to keep an eye on local and national obligations when planning meetings. A meeting of the shareholders, the management board or the supervisory board may not be an event requiring a permit, but it does fall under the above rules. It is also not unlikely that meetings will have to take place for some time under these changed circumstances and constantly changing legislation.
In order to accommodate companies and allow decision-making to proceed, the Temporary COVID-19 Justice and Security Act (also referred to as "the Emergency Act") became effective as of April 24, 2020. The operation of this law was originally until September 1, 2020. The Act has to be extended every three months with the latest proposal to extend the Act till the 1st of June 2021. Even after that, the law can always be extended until a later date.
Among other things, the Emergency Act includes the possibility of allowing general meetings to take place digitally in order to allow necessary decision-making to proceed. It also provides a basis for the board to extend the reporting period by five months. The law means that a failure to comply with the obligation to disclose the financial statements of the most recent fiscal year will not be taken into account if it is due to the effects of the corona outbreak. In doing so, the Emergency Act is retroactive to March 16, 2020. This means that all general meetings that have taken place since March 16, 2020 fall within the scope of the Emergency Act. However, for companies it sometimes remains a question of what is allowed and what is required. This includes the question of whether it is (again) unwise, if not irresponsible, to organize a meeting of any size at this time.
Should and may the meeting still go ahead? And if so, in what form? This blog explores the possibilities.
Management and supervisory boards/supervisors
Generally speaking, few formalities are attached to management board meetings and meetings of the supervisory board/supervisory directors of companies established in the Netherlands. However, such obligations may be included in the articles of association, for example. The Emergency Act provides for the possibility to deviate from certain provisions in the articles of association that relate to meetings and decision-making. For example, digital meetings will be made possible in certain cases. Provisions in the articles of association regarding physical meetings of the management board and supervisory board are not applicable. The board may not be restricted in its powers or be subject to a requirement of approval in relation to its decision-making.
Written: Decisions can be made in writing as long as it is clear to everyone what decisions are involved and no objections have been (and are being) made to this form of decision-making. In a company where there is harmony and good mutual communication, this is a quick and safe form of decision-making.
Power of attorney: If a physical meeting is held (after all), members of the management board or supervisory board/supervisory board can, of course, have another member - or in the event of a dispute, for example, a notary public - represent them by means of a power of attorney. In this way, the meeting can be held with a minimum physical presence. Even then, of course, the decision-making process must be clear and no longer a matter for discussion, otherwise the willingness to grant a proxy will be limited.
Calling, video and portals: If it does matter that board members or members of the supervisory board/supervisory board can engage in conversation among themselves, or if it is important that certain individuals can be heard (e.g., in the event of the resignation of a commissioner, supervisor, or director), electronic means of communication can be chosen: for example, telephone, video calling, or meeting via online portals.
It is important, however, that everyone is enabled to actually participate and communicate directly with each other via live stream. Preferably also choose a medium where it is easy to determine who is participating in the conversation in order to prevent uninvited guests. It is advisable to choose a secure medium, especially if confidential information is involved. The news has now repeatedly revealed that electronic meetings can be hacked. Make clear agreements about whether or not to record the meeting.
Shareholders have an obligation to meet at least once a year. Listed companies must do this by law in the first six months of the fiscal year (usually before July 1). Other companies must do so only once before the end of the fiscal year (usually before January 1). The Emergency Act temporarily allows the board of a public limited company to extend the six-month period by four months, in deviation from what is included in the law. For the private limited company, the statutory period of 'five months after the end of the financial year' can be extended by the board by another five months. Provisions in the articles of association that subject such extensions to the approval of another corporate body are declared inapplicable by the Emergency Act. If the board makes use of the possibility included in the Emergency Act, the general meeting will have no further authority to extend.
Nevertheless, it may follow from the articles of association or shareholders' agreement that certain measures - for example, in connection with COVID-19 - require the prior approval of the shareholders. This will more often than not be the case when it comes to drastic measures, for example when disposing of important business units or major assets or attracting (emergency) financing. A meeting will then be necessary anyway. The Emergency Act means that the provisions in the articles of association regarding the physical meeting of shareholders do not apply temporarily.
Written: Articles of association often allow (but by no means always) that resolutions can also be passed in writing, or that a vote can take place in writing. The resolutions will then usually have to be approved unanimously, which makes this method of decision-making particularly workable for companies with a somewhat smaller shareholder group (where there is no shareholder conflict). In the case of the public limited company, the resolution must be unanimous. In the case of the private limited company, the written vote must be unanimous, but the resolution can still be adopted with an absolute majority (50% plus one), unless the articles of association require a larger majority. We see that unanimity is often required here anyway. Under the Emergency Act: the board can temporarily determine that voting can or must take place by electronic means of communication. In the case of public limited companies, the board can also stipulate that (prior) voting is also possible by letter.
Proxy: Again, with a physical meeting, shareholders can provide a proxy to a representative or proxy. One person in particular could be designated, so that as few people as possible need to physically attend the meeting. In a somewhat larger company or shareholder group (or in the event of a shareholder dispute), a notary public is more often appointed for this purpose. Note: The articles of association regularly stipulate that a proxy may not be granted to a director. Under the law, the articles of association can in fact restrict the shareholders' ability to have themselves represented. Under the Emergency Act: the board can stipulate that each shareholder can participate in an electronic meeting (either himself or by means of a proxy), can speak at the meeting and can exercise the voting right.
Calling, video and portals: electronic means of communication could previously only be used if allowed by the articles of association. In recent years, this has usually been included as standard or at least a conscious decision has been made about it, but older articles of association of private limited companies (B.V.) from before 2007 will not yet include it. Even if the articles of association provided for electronic meetings, the law does not allow this to be done entirely electronically: there always had to be a physical meeting as well. The Emergency Act now also makes it possible for companies to have the general meeting completely digitally if the articles of association do not provide for this. It is up to the board to make a choice here. The coronavirus will undoubtedly lead to a technological leap for many companies anyway.
Electronic meeting of shareholders according to the articles of association
With both the B.V. and the N.V., the possibility exists to participate digitally, to speak and to cast a vote or a proxy digitally. If this possibility is included in the articles of association, the board does not have to take into account what is included in the Emergency Act; it may (only) comply with the obligations as prescribed in the articles of association. The meeting may, but need not, take place on the basis of the Emergency Act. This choice is in principle up to the board.
In the following, we discuss the possibility of electronic meetings based on the statutes; this is followed by a section on electronic meetings based on the Emergency Act.
If the board chooses to hold meetings electronically based on the articles of association, it must choose a means by which shareholders can be effectively identified. For example, consider an individualized access code. Again, it must be possible to follow the meeting as it takes place (i.e., real time via live stream). Preferably, questions can be asked during the meeting, but - partly for practical reasons - this is not required. Of course, there must also be a way for shareholders to safely cast a vote. Especially if the government does not physically permit the meeting or strongly advises against it and a shareholders' meeting is required for necessary decision-making, then it is all the more true that full remote participation (real-time participation, voting and - preferably - asking questions) must be made possible.
However, a fully virtual meeting has only been possible since the enactment (and for the duration) of the Emergency Act (see below). Without the application of that Emergency Act, a fully virtual meeting is not possible even if the articles of association allow an electronic meeting. The meeting must then also always take place physically according to company law. This is why this type of meeting is often called a hybrid meeting: partly physical and partly electronic.
In this case, however, the chairman of the meeting must be present at the statutorily permitted meeting location. Together with the secretary/notary public and possibly a civil-law notary who receives the voting proxies. In principle, directors and supervisory directors must also be present at a hybrid meeting, but in the current circumstances their virtual presence may be sufficient, provided they can also participate fully in the meeting. Thus, the quorum, even at a hybrid meeting, need not be physically present.
A virtual portal or web meeting seems (subject to the obligation to also hold the meeting physically) the appropriate way to do this. There are various (and increasingly more) providers that make this possible. It does require an investment from the company, while that may - especially in these times - not be desirable or appropriate. Sometimes it is also possible to vote electronically or in writing only beforehand.
When using electronic means, a secure medium must be chosen. The company must make use of a professional party that offers electronic voting and meeting facilities that are suitable for electronic participation in the general meeting. The company has a best-efforts obligation here.
Electronic meetings based on the Emergency Act
The Emergency Act makes it possible for the general meeting of a public limited company or private limited company, as well as an association and cooperative, to take place entirely digitally. Regardless of whether the articles of association do or do not provide for a (hybrid) electronic meeting. The board of directors makes this choice. Once again: application of the Emergency Act is not mandatory in principle, but it is an option as long as the Emergency Act is in force.
If the board chooses to make use of this option they must mention this in the notice of the general meeting. If the notice has already been sent out and the board still wishes to have an electronic meeting they can change the physical meeting to a digital meeting up to 48 hours before the general meeting.
The board may choose to completely deny shareholders and other persons entitled to attend meetings physical access to the general meeting. It is also conceivable that the board chooses to have the general meeting take place in a hybrid form by participating in the general meeting digitally together with the board from the meeting location.
If shareholders do not have physical access to the general meeting, they must be given the opportunity to ask questions in writing or electronically up to 72 hours (barring exceptions) prior to the meeting. The answers to these questions shall be discussed at the general meeting and posted on the company's website after the meeting or made available to shareholders in another way (electronically). Shareholders may also ask questions during the meeting, unless this cannot reasonably be required. This is at the discretion of the chairman of the meeting. Failure to comply with the obligations referred to in this paragraph shall not affect the validity of the decision.
The board may determine that prior voting is possible by electronic means of communication (and in the case of a public limited company: by letter). However, the board may also determine that the voting right can only be exercised by electronic means of communication. This must then be stated in the convocation or in an amendment of the manner of the meeting. The judge in preliminary relief proceedings of the District Court of The Hague ruled on 6 May 2020 with regard to an election of 50PLUS that even if the articles of association explicitly stipulate that voting must take place in writing, the Emergency Act can overrule these statutory regulations and the meeting (and voting) can still take place electronically.
It is important, however, that if the board of directors chooses to hold the general meeting electronically, the rules as set out in the Emergency Act must be complied with precisely. If you do not do this, the legal validity of a resolution may be affected.
If the board does not want to use the Emergency Act or the articles of association (if they allow this) to hold a meeting electronically, the alternative is to work with proxies, for example. The willingness to vote by proxy can be stimulated by offering ample opportunity to ask questions before (and during) the meeting. Once all voting proxies have been received, the meeting can still be broadcast electronically. Please note that the management board and shareholders must always act reasonably and fairly towards each other and the company. An unreasonable refusal to hold an electronic meeting can result in a breach of the standard of care laid down in the law.
The call to the meeting should clearly communicate the manner in which the meeting will be held. It is also important that a simple instruction is included which states in clear terms how the participants can participate. There can and should be no confusion about this. The invitees should preferably also be informed of the reasons why the meeting in question cannot be postponed until after the coronavirus. The interests of the company can be put first in this regard.
If there is no desire or ability to hold the meeting by proxy, written or electronic, it is advisable to take the necessary measures to ensure safety, in line with the requirements set by the government. People who show symptoms can be reasonably refused. Attendees should of course keep 1.5 meters distance from each other. The opportunity to wash hands must be provided and also the ventilation within a room must be adequate. Invitees should also be made aware of these measures in advance, pointing out any alternative ways of participating/voting (digital or otherwise). Also ask participants if they can submit their questions in advance as much as possible so that they can be answered during the meeting. It is advisable to consult the latest regulations shortly before the general meeting takes place and also to take into account possible local limitations of local government bodies.
In short, there is no reason to stop decision-making within the company. However, thought must be given to the best way to reach that decision making. Check the articles of association and the Emergency Act for the possibilities, limitations and possible conditions.
The information displayed on this website is for informational purposes only. COVID-19 conditions and related legislation are changing rapidly. If you are planning to hold a meeting, please contact us for up-to-date information.