German relief law offers facilitation for Annual General Meetings

The German legislator facilitates the holding of AGMs aiming to maintain a company's capacity to act despite the crisis

The C19-AuswBekG provides for the following facilitations:

Virtual AGM

Even without corresponding authorisation in the articles of association or the rules of procedure, the management board can order the participation and voting of shareholders and the participation of members of the supervisory board via electronic communication, and video and audio transmission of the meeting.

Whereas under current law there must always be a physical meeting and online participation and exercising of voting rights is only optional, according to C19-AuswBekG the management board can decide to hold the annual general meeting without the physical presence of shareholders and their representatives, provided that:

• a video and audio transmission of the entire annual general meeting takes place;
• the exercise of voting rights by shareholders via electronic communication (postal vote or electronic participation) and the granting of proxies are made possible;
• the possibility for shareholders to ask questions is granted by means of electronic communication; and
• the possibility of appealing against resolutions of the annual general meeting is ensured.

The management board can decide on the answering of questions at its discretion. It could also be ordered that questions must be submitted by electronic communication at least two days before the meeting. Unless this issue is addressed, shareholders' information rights could be restricted severely.

Change of AGM deadlines

The notice period can be shortened by the management board to 21 days prior to the date of the annual general meeting. This does not include the registration period. In the case of listed companies, the proof of shareholding (Nachweis des Anteilsbesitzes) must begin 12 days prior to the meeting and in case of bearer shares (Inhaberaktien) must be received by the company no later than four days prior to the meeting. (Shorter periods may be specified in the invitation). If the notice period is reduced to 21 days, notifications pursuant to Section 125 of the German Stock Corporation Act (e.g. notifications to intermediaries, shareholders, shareholders' associations) must be made at the latest 12 days before the meeting and, in the case of registered shares (Namensaktien), and notifications must be made to those entered in the share register 12 days before the meeting. Demands for amendments (Ergänzungsverlangen) must be received by the company 14 days before the meeting.

Finally, the management board can decide not to hold the AGM within the first eight months of a financial year, but within the entire financial year. (This does not apply to European companies since the German legislator lacks the regulatory competence for this). If the financial year corresponds to the calendar year, general meetings can be held by 31 December 2020.

Restriction on possibility of appeal

Actions for avoidance (Anfechtungsklagen) cannot be based (in addition to Section 243 (3) no. 1 of the German Stock Corporation Act) on the following:

• violation of the obligation to confirm receipt of the vote cast in the case of electronic voting or postal voting;
• the video and audio transmission of the annual general meeting; and
• violation of the requirements for holding a virtual general meeting (see section above).

This is the case unless the company can be proven to have acted with intent. In this case, the burden of proof for intent is on the shareholders, which should make it considerably more difficult to file actions for avoidance.

Facilitation of interim payments

Finally, the management board can also decide, even without authorization in the articles of association, to make an interim payment to shareholders out of the prospective net income in accordance with Section 59 (2) of the German Stock Corporation Act. The same applies to an interim payment on the compensation payment (Section 304 of the German Stock Corporation Act) to outstanding shareholders under an intercompany agreement.

Approval of supervisory board

Decisions of the management board to make use of the above facilitations require the approval of the supervisory board in each case. This does not apply to European companies with a monistic structure. Irrespective of the provisions of the articles of association or the rules of procedure, the supervisory board can pass its approval resolution in writing, by telephone or in a comparable manner without the physical presence of the members.

Applicability of the facilitations

The above facilitations are applicable to annual general meetings and interim payments out of the prospective net income that takes place in 2020. The facilitations can be extended until 31 December 2021 by legislative decree (Rechtsverordnung). The provisions of C19-AuswBekG relate to the version of the German Stock Corporation Act that has been in force since 1 January 2020 even though certain provisions of this version only apply from 3 September 2020.

Disregarded: appointment of an auditor

Contrary to demands that have been expressed, C19-AuswBekG does not provide for the appointment of the auditor for the annual and consolidated financial statements for 2020 or, in the case of listed companies, for the review of the condensed financial statements and interim management report as part of the half-yearly financial report for 2020 without corresponding resolution of the general meeting. If general meetings are postponed in accordance with the law, this will likely also lead to delays in audits of the financial statements. In case the final law should not contain any provisions in this respect, solutions will have to be developed on a case-by-case basis.

Conclusion and practical advice

The legislator has recognised the necessity of maintaining the capacity for companies to act in times of restrictions in the possibilities for assembly. The facilitations aim at preparing and holding non-physical general meetings at short-notice and as smoothly as possible. Even if not all open questions have been clarified, C19-AuswBekG provides for sensible and pragmatic facilitations. By admitting virtual general meetings without a physical presence, this regulation opens up possibilities for the future – virtual AGMs that could save money and minimise the risk of actions for avoidance. It is possible that digital general meetings may become standard after the pandemic has ended.

For smaller, particularly non-listed companies, it appears preferable to postpone their general meetings, and then wait and see how things develop vis-à-vis the pandemic and the associated restrictions on assemblies and legal practices.

The law on the establishment of an economic stabilisation fund (Wirtschaftsstabilisierungsfonds or WSF), which has also been passed on 27 March 2020, enables the WSF to "participate in the recapitalisation of companies″ by way of hybrid bonds, profit participation rights, silent partnerships, convertible bonds and share participations. As a precautionary measure, companies should consider creating in their general meetings the conditions for WSF participation, such as by means of authorised or conditional capital.

For more information on the law's requirements for holding digital AGMs, contact your regular CMS advisor or CMS experts: Richard Mayer-Uellner and Matthias Engelen.