Act to mitigate the consequences of the Corona Pandemic – far reaching changes in stock corporation law

The Bundestag approved the law to mitigate the consequences of the corona pandemic on 25 March 2020, which aims to mitigate the economic and legal consequences of the corona pandemic. The law also contains very significant changes in stock corporation law.

The following is a summary of the main points. They apply to all Annual General Meetings held in 2020.

Virtual Annual General Meeting

All Annual General Meetings may be held by resolution of the Management Board with the approval of the Supervisory Board as virtual general meetings without the physical presence of shareholders or their proxies, if the Annual General Meeting is broadcast, e.g. online, shareholders can exercise their voting rights by postal vote or electronic participation, and shareholders are given the opportunity to ask questions via electronic communication and to object to the resolutions of the Annual General Meeting by electronic means.

Shareholders may only participate in a virtual general meeting by electronic means. This is a novelty in German stock corporation law – until now, every shareholder had the right to physically participate in the Annual General Meeting.

In order to enable shareholders to participate electronically or to exercise their voting rights by postal vote, the law also provides that the Management Board, with the approval of the Supervisory Board, may allow this to be done even without authorisation by the Articles of Association or rules of procedure.

Furthermore, the Management Board may, with the approval of the Supervisory Board, permit the participation of members of the Supervisory Board by way of video and audio transmission and the video and audio transmission of the Annual General Meeting even without authorisation by the Articles of Association or rules of procedure.

According to the explanatory memorandum, the notary should be present at the place of residence of the chairperson of the meeting.

Severe restriction of shareholder rights in the virtual general meeting

The right of shareholders to receive answers to the questions they have asked has been eliminated in the virtual Annual General Meeting. With the approval of the Supervisory Board, the Board of Management may decide at its own dutiful and free discretion which questions it answers and how. It may also stipulate that questions must be submitted by electronic communication at least two days before the meeting. In plain language, this means that shareholders do not have the right to receive answers to their questions in the virtual Annual General Meeting. If the Board of Directors does not answer questions, this is probably not a reason to be able to challenge resolutions adopted by the Annual General Meeting, unless the Board of Directors has exercised its discretion incorrectly.

If the Management Board decides to offer shareholders the option of postal voting only (and not to participate by means of electronic communication), shareholders will be denied the opportunity to submit motions (such as procedural motions or countermotions) at the Annual General Meeting. The postal vote only allows the exercise of voting rights; in this case, shareholders do not participate in the Annual General Meeting in the legal sense.

From our point of view, these regulations are a real invitation to hold “critically” expected general meetings as virtual general meetings this year. If a general meeting is held virtually, shareholders have only the right to ask questions (but no right to information), the right to vote and a (limited) right of recession. If, in addition, shareholders are only granted the right to vote by post (and not to participate by means of electronic communication), the right to submit motions at the general meeting is also lost.

Reduction of the period of convocation

The period of notice for convening both an attendance general meeting and a virtual general meeting may be shortened to 21 days. In contrast to the previous legal situation, this period is not extended by the days of the registration period. This means that there no longer have to be 36 days between the day of convening and the day of the general meeting, as was previously the rule in case of a registration requirement, but only 21 days.

Restriction of the right of rescission

The shareholders’ right of rescission is restricted. A violation of the new regulations on the conduct of the virtual general meeting (including the right to ask questions) only leads to the voidability of resolutions if the company can be proven to have acted intentionally. The burden of proof lies with the contesting shareholder.

Twelve-month period for holding the Annual General Meeting

The period for holding the Annual General Meeting is extended from eight to twelve months after the end of the financial year. This is a great help. After all, it was foreseeable that if the previous law had continued, there would have been a massive concentration of AGMs in August.