Shareholder and board meetings during COVID-19

Introduction

In these fast-changing times, flexibility on the part of the executive and supervisory board is required. Case law shows that urgent demands or a busy schedule are no reason to fail to comply with corporate governance requirements. Instead a proactive approach is expected. The executive and supervisory directors must analyze the impact of COVID-19 for the financial and organizational position of the company. It is important that they take the necessary measures to mitigate any resulting risks and negative consequences, keeping the long term continuity in mind.

A swift response means quick decision-making. At the shareholders- board- and non-executive level. It is this process that is being impeded by the coronavirus. All events subject to permits have been banned until 1 June 2020. All other gatherings of more than three persons have been prohibited up to and including 28 April 2020. A meeting of shareholders, board members or supervisory directors may not be subject to a permit, it is not unlikely that such gatherings will also be banned for a period of time subsequent to 28 April 2020.

A notable exception is made for legally obligated assemblies, such as shareholder meetings for listed companies (provided less than 100 persons attend). Emergency legislation is currently being drafted to allow electronic meetings possible for such entities. The question remains for other entities what is allowed or obligated. The fact also remains that it is currently unadvisable, if not irresponsible, to organize a gathering of any size at this time.

Should the meeting go ahead? If so in what form? This blog deals with the possibilities.

Board of directors and non-executive/supervisory directors

In general, few formalities are attached to board meetings and meetings of the supervisory board of companies established in the Netherlands. It is possible that articles of association, agreements or regulations contain specific possibilities, conditions or restrictions, so always review these.

Written decisions: Decisions can be made in writing as long as it is clear to everyone which decisions are involved and there are no objections (raised) to this form of decision-making. In a company where harmony and good communication prevail, this is a fast and safe form of decision-making.

Power of attorney: If a physical meeting is held, members of the executive board or supervisory board can of course also be represented by another member - or in the event of a dispute, possibly a civil-law notary - by a power of attorney. In this way, the meeting can be held with a minimum physical presence. Even then, of course, the decisions to be made must be clear and no longer a point of discussion, otherwise the willingness to grant a power of attorney for the meeting is likely to be limited.

Telephone, video and portals: If it is important that the board members or the members of the supervisory board are able to enter into a discussion with and speak to each other, or if it is important that certain persons can be heard (e.g. in the event of dismissal of a director or supervisory director), electronic means of communication can be chosen, for example: telephone, video calls or meetings via online portals. However, it is important that everyone is enabled to actually participate and to communicate directly with each other via livestream. Preferably also choose a medium in which it is easy to determine who is taking part in the conversation, in order to avoid uninvited guests. It is advisable to choose a secure medium, especially when confidential information is involved. It has been repeatedly reported in the news that electronic meetings can be hacked.

Shareholders

Shareholders are obliged to attend a shareholders meeting at least once a year. Listed companies must do so by law during the first six months of the financial year (usually before 1 July). This currently poses most problems. Other companies only have to do this once before the end of the financial year (usually before 1 January), so these meetings can possibly be postponed. However, it may follow from the articles of association or shareholders' agreement that certain measures necessary for the company in connection with COVID-19 require the prior approval of the shareholders. This is more likely to be the case where far-reaching measures are involved, for example in the case of the divestment of important business units or important assets or the raising of (emergency) financing.

Written decision: The articles of association often (but not always) allow resolutions to be passed in writing or a vote to be cast in writing. However, resolutions will usually have to be approved unanimously, which makes this method of decision-making workable especially for companies with a somewhat smaller group of shareholders (where there is no shareholder conflict). In the case of public limited liability companies (N.V.’s), the decision itself must be taken unanimously. In the case of a private limited company (B.V.’s), the method of voting by writing must be approved unanimously, but the decision itself can still be taken by an absolute majority (50% plus one), unless the articles of association require a larger majority. We regularly see that unanimity is nevertheless required in the articles.

Proxy: Here too, at a physical meeting, shareholders can grant a proxy to a representative or a proxy holder. One person in particular could be appointed, so that as few people as possible need to attend the meeting physically. In the case of a somewhat larger company or group of shareholders (or in the case of a shareholder dispute), a civil-law notary is often appointed for this purpose.

Telephone, video and portals: for the time being, electronic means of communication can only be used if this is permitted under the articles of association. In recent years, this has usually been included as a standard clause in the articles of associations or - if not - has been included as a result of a conscious decision to allow such means of communication. Such a clause will not appear, however, in a private limited liability company (B.V.) with articles of association drafted before (and unamended since) 2007. The coronavirus will undoubtedly lead to a technological leap forward for many companies.

Electronic meetings if provided for in the articles of association

Both the B.V. and the N.V. have the possibility to participate digitally, to speak and to cast a vote or provide a proxy digitally. This must then be stated in the articles of association. If electronic meetings are permitted under the articles of association, a way must be chosen in which the shareholders can actually be identified. An individualized access code would be one way to do so. Again, it must be possible to follow the meeting while it is taking place (i.e. in real time via livestream). Preferably, questions can be asked during the meeting, but - partly for practical reasons - this is not formally required. Of course, there must also be a way for shareholders to cast their votes safely.

Especially when the government does not physically allow meetings (of more than three people) to take place and a shareholders' meeting is required for necessary decision-making, all the more so full remote participation (real-time participation, voting and - preferably – the possibility to ask questions) should be made possible.

However, please note that a fully virtual meeting is not (yet) possible. According to the law, the meeting must also take place physically. This is why this type of meeting is often referred to as a hybrid meeting: partly physically and partly electronically. The chairman of the meeting will therefore generally have to be present at a meeting venue permitted by the articles of association. Together with the secretary and possibly a civil-law notary who receives the voting proxies. In principle, directors and supervisory directors must also be present, but in the current circumstances it may be sufficient for them to be present virtually, provided they can also participate fully in the meeting. The quorum does not have to be physically present and can attend through electronic communication tools.

A virtual portal or web meeting would seem to be the appropriate way of doing this (with due observance of the aforementioned requirement to hold the meeting physically as well). There are various (and increasingly more) providers that make this possible. It does require an investment on the part of the company. This may not be desirable or appropriate during these uncertain corona times. A more limited option to allow for advance electronical voting may be more viable.

When using electronic means, a safe medium must be chosen. The company must make use of a professional party that offers electronic voting and meeting facilities suitable for electronic participation in the general meeting. The company has a best-efforts obligation in this respect.

Electronic meetings not provided for by the articles of association

If electronic meetings are not permitted under the articles of association, there is a major risk involved in virtual meetings (also in hybrid form). Even in times of corona. Resolutions passed at that meeting are voidable. The basis for decision-making under the articles of association is lacking.

An option then is to, for example, work with proxies. The willingness to vote by proxy can be facilitated by offering extensive opportunity to ask questions in advance (and during) the meeting. Once all voting proxies have been received, the meeting can still be broadcast electronically.

Emergency law on electronic conferencing

An emergency law is currently being drafted to make electronic meetings possible. The idea is that physical conferencing is undesirable because of the coronavirus. This was announced on 3 April 2020 by the Ministry of Justice and Security.

For the time being, however, this emergency law only applies to listed companies and associations that are required by law to hold annual general meetings. The board of legal entities may soon decide to hold a general meeting that can be followed entirely virtually via livestream (audio or video). Here, too, the condition will apply that members and shareholders may submit questions during or prior to that meeting, which will be answered at the latest during the meeting. Even if a member or shareholder has not been able to participate optimally in the meeting, the resolutions passed will still be valid. The management board may also postpone the deadline for holding a general meeting and the deadline for drawing up the annual accounts.

Communication

The notice convening the meeting must clearly state the manner in which the meeting is to be held. It is also important that a simple instruction is added, clearly stating how the participants can participate. No confusion should be able to arise 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 used as an important reason.

In short, there is no reason to halt decision-making within the company. However, consideration should be given to the best way to arrive at that decision-making. Check the articles of association for the possibilities, limitations and possible conditions.

If you have any questions, please contact us

Marjon Lok: lok@dvdw.nl or +31(0)6 21842612

Theo Hanssen: hanssen@dvdw.nl or +31(0)6 21200558