COVID-19 – The Impact on German Corporate Law

Temporarily, companies are unable to hold shareholders’ meetings in the physical presence of their shareholders. However, meetings with physical presence are required by law for public limited company (Aktiengesellschaft – AG), partnership limited by shares (Kommanditgesellschaft auf Aktien – KGaA) and Societas Europaea (SE). This applies particularly to the annual general meeting, where distribution of an entity’s net profit is resolved.

For a limited liability company (GmbH), the law provides for the adoption of resolutions in physical meetings as well. Outside of a meeting, shareholder resolutions may only be adopted if all shareholders agree thereto.

The implementation of mergers and spin-offs pursuant to the German Transformation Act (Umwandlungsgesetz – UmwG) – in addition to the above mentioned issue regarding the holding of physical shareholders’ meetings – may be impeded by the fact that these measures must be registered with the commercial register within eight months from the effective date of the relevant closing balance sheet.

BILL ON CORPORATE LAW MEASURES TO FIGHT THE IMPACT OF THE COVID-19 PANDEMIC

To enable the affected companies of different legal forms to remain flexible to acting despite the restrictions of the individuals’ right to convene, the German parliament (Bundestag) adopted the bill on the mitigation of the COVID-19 pandemic’s consequences inter alia in corporate law on 25 March 2020. The Federal Council agreed to this bill during its session on March 27 2020. This means it can come into force before the end of March following execution by the Federal President, which is expected shortly. The law will apply retroactively as of March 1 2020. It provides the following facilitation for the adoption of resolutions in general and shareholders’ meetings, limited to the calendar year 2020:

PUBLIC LIMITED COMPANY, PARTNERSHIP LIMITED BY SHARES, SOCIETAS EUROPAEA (SE)

• A general meeting can take place as a virtual general meeting without the physical presence of the entity’s shareholders if:
  •  the entire meeting is transmitted by video and audio transmission,
  • the shareholders’ exercise of voting rights via electronic communication (postal vote or electronic participation) or by granting power of attorney is possible,
  • the shareholders are given the opportunity to ask questions by means of electronic communication, and
  • the shareholders without appearing physically at the site of the meeting, are given the opportunity to file an objection to any of the general meeting’s resolutions.
• The board of directors can permit the participation of the shareholders or their representatives in the general meeting by use of electronic communication devices as well as the participation of the supervisory board members by means of video and audio transmission even without an authorization thereto in the entity’s articles of association.
• The shareholders’ right to challenge resolutions of the general meeting, in particular on the grounds of deficiencies of the electronic communication options or the implementation of the virtual general meeting per se, is widely restricted.
• The annual general meeting, which shall receive the approved annual accounts and resolve on the distribution of the net profit, can be convened at any time within the fiscal year instead of within the first eight months, as long as the new date still falls within the calendar year 2020. However, this provision does not apply to the Societas Europaea (SE).
• Shortened convocation period – Instead of the minimum convocation period of 30 days, the board of directors is entitled to convene the general meeting no later than on the 21st day before the day of the meeting. For listed companies, the proof of share ownership must refer to the beginning of the twelfth day before the meeting.
• Requests for amendments of the agenda must be received by the company at least 14 days (instead of 24 or 30 days in case of listed companies) before the meeting.
• Even without authorization in the entity’s articles of association, the board of directors can resolve on an advance payment on the net profit (“interim dividend”) subject to the remaining statutory requirements.

LIMITED LIABILITY COMPANY

Ordinary shareholder resolutions can be adopted in text form or by written vote even without the consent of all shareholders to this form of adopting resolutions.

TRANSFORMATION LAW

For the duration of the calendar year 2020, the application to the commercial register of a merger or spin-off can be made up to twelve months (instead of eight months) after the balance sheet date.

TRANSITIONAL ARRANGEMENTS

The outlined modifications to the law of the public limited company, partnership limited by shares and Societas Europaea (SE) apply to general meetings taking place and advance payments on the net profit being distributed in the course of the calendar year 2020 only. Equally, the measures regarding the adoption of resolutions in a limited liability company and the application of measures under transformation law apply to shareholder resolutions adopted and applications to the commercial register made in the course of the calendar year 2020 only.

The Federal Ministry of Justice and Consumer Protection (Bundesministerium der Justiz und für Verbraucherschutz – BMJV) is entitled to extend the application of the modifications by statutory instrument (Rechtsverordnung) without further consent of the States’ Council (Bundesrat) up until December 2021 31, if this appears necessary due to the continued impact of the COVID-19 pandemic in the Federal Republic of Germany.

The bill on the mitigation of the COVID-19 pandemic’s consequences in private, insolvency and criminal proceedings law (BT-Drucksache 19/18110) is available here.