As from April 11, 2020, a lately issued Hungarian government decree regulates how members’ meetings and general meetings should be held during the state of emergency. The new government decree also overrides the relevant provisions of the Civil Code and the articles of association of companies and other legal entities.
What additional rights does the government decree give to the management?
In the first part of our summary of this newest government decree, we have already explained the increased „freedom” of the management regarding corporate decisions.
In many company’s case, the adoption of the annual financial report under the Hungarian Accounting Act is due in the near future. Pursuant to the interim regulation introduced by the government decree, the management is entitled to decide on the approval of the company’s financial report and the use of the after-tax profit. Moreover, the management can take emergency measures during the state of emergency, which would normally fall within the competence of the decision-making body.
These are very far-reaching decisions. Aren’t the hands of the management tied?
Yes: the decisions mentioned before can only be taken if a meeting of the decision-making body cannot be held, either by the participation of the members by electronic means or by voting in writing.
In addition, the legislature intends to set limits on the “emergency measures” of the management as a guarantee: accordingly, the management (i) may not, as a general rule, amend the articles of association, (ii) decide on the dissolution of the legal entity without a successor, (iii) nor may it decide on the transformation, merger or division of the company.
An additional restriction is that (iv) additional payments or other capital injections may be ordered by the operational management of the legal entity only with the prior written consent of the members/founders. In the case of company forms where company law imposes a minimum capital requirement (i.e. in the case of limited liability companies and public limited companies), (v) the management may not decide to reduce the subscribed capital.
Can members hinder management decisions?
Yes, this is possible before the measure in question is taken; the management may not take a decision if in their written opinion, the majority (at least 51%) of members holding more than 25% of the votes object to the proposed decision of the management. (If the legal person has a member having majority influence or a qualified majority, such member can block the measures of the management on its own.)
What happens if the tasks of the management are not performed by one person but by a body?
Like in the case of decision-making bodies, the government decree intends to enable the widest possible use of electronic means in decision-making processes in the case of management acting as a body. If there is no agreed procedure for the use of modern means of communication (or deviates from the government decree), the chairman of the board (deputy in case of impediment) and ultimately the member requested by the management are entitled to determine the rules of meeting and decision-making. It is important that written consultation and decision-making can also take place by electronic message exchange (i.e. by e-mail).
These facilitations should apply not only to the decision-making of the board of executive officers, but also to the decision-making of the supervisory board (or, if one exists, the audit committee).
What happens to mandates that expire during the state of emergency?
If the mandate of the executive officer of the company expires during the time of the state of emergency, his/her position shall last until the 90th day after the end of the state of emergency. The executive officer shall perform duties during this period. The cited rule applies ex lege, i.e. without a decision of the decision-making body.
If the executive officer resigns, he/she shall still perform his/her duties during the emergency or for 90 days after its termination. The same is true if the mandate is for a fixed term and the fixed term would expire during the state of emergency.
On the other hand, the mandate of the executive officer shall terminate if he/she is removed from office by the supreme body or if a reason for exclusion or conflict of interest arises. It goes without saying that in the event of the death of executive officer, the mandate cannot be maintained either, the just implemented interim rules do not bring change in this, of course.
It is important to emphasize that in the above time interval – similarly to the rules described for the executive officer – the mandate of the permanent auditor does not expire, and the permanent auditor is also obliged to perform duties during this time.