Lex Covid Act – Impact on Bodies of Legal Entities

The Czech Parliament adopted an Act which is also known as „Lex Covid“. This Act is intended to solve the practical problems arising out of pandemic disease Covid-19 in the area of court proceedings, insolvency as well as functioning of legal entities. The purpose of this newsletter is to present the content of the Act relating to the functioning of legal entities.

Decision-making of legal entities’ bodies outside the physical meeting
The essential change being brought by Lex Covid is the extension of the regulation for decision-making bodies of legal entities outside their personal meeting – either in written form (per rollam) or by using technical means. The body of a legal entity may now decide even if the foundation legal act (particularly the Articles of Association or Memorandum of Association) does not permit such procedure. This option applies not only to the General Meetings, but also, for example, to the meetings of the Board of Directors or the Supervisory Board.

Therefore, Lex Covid in fact temporarily supplements (for the duration of the emergency measure) the Articles of Association or Memorandums of Association by allowing flexible actions to be taken by the bodies of legal entities in case this option has not been allowed in these documents yet. This should be very beneficial e. g. for joint-stock companies which are not obligated to hold general meetings with large number of people under difficult conditions, but instead the general meeting’s decisions may be taken in the form of per rollam.

Extension of the term of office of a body member
The extension of the term of office brought by Lex Covid relates to those members of elected bodies whose term of office would expire during the effectiveness of the emergency measure or within 1 month from the day following the date of its expiration. In that case, the term of office shall be extended until the lapse of three months following the end of the emergency measure. Automatic extension can be prevented by a member of the elected body delivering his disagreement to the legal entity before the expiry of the term of office.

Lex Covid also lays down the conditions for the resumption of the office if such term of office has expired between the adoption of the emergency measure and the date on which Lex Covid comes into force. The resumption of the function of a member of the body shall take place only if the member delivers his consent and if no other member has been elected in the meantime. The term of office shall expire 3 months after the day following the date of termination of the emergency measure.

Lex Covid allows, under specified conditions, the co-optation of members of the legal entity’s body, even if this possibility is not allowed within the foundation legal act. The co-optation represents a way in which the missing members of a particular body are elected by that body itself, with the effect until the next meeting of the body which is otherwise authorised to elect those members.

Deadlines for discussion the ordinary financial statements
Lex Covid also solves the practical problem residing in the obligation of general meetings of most companies to discuss the financial statements by the end of June. In this context, Lex Covid extends the deadline for discussing the ordinary financial statements of a private limited liability company, a joint-stock company or a cooperative – so that in case this deadline should expire earlier than 3 months after the date of termination of the emergency measure, it will expire up to 3 months after the termination of the emergency measure, but no later than on 31 December 2020. In fact, the companies are given more time to discuss the financial statements.

The above options are, of course, temporary and last during the emergency measures related to the Covid-19 epidemic.

In case of any questions regarding the functioning of legal entities, and not only during the state of emergency, please contact Mgr. Michal Pálinkás at Michal.Palinkas@randalegal.com.

Possibilities of holding general meetings and members’ meetings during the state of emergency II.

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.

Is there a risk for companies to be exposed to criminal investigations for non-complying with the measures implemented by the authorities?

Context

Following the accelerated spread of COVID-19, the President of Romania declared the state of emergency for a period of 30 days as of 16 March 2020. According to the latest press statements this will most likely be extended by an additional thirty days term.

One of the first measures announced by the Romanian prime minister was the tightening of the criminal laws regarding the offenses of spreading the infectious diseases. The purpose of adopting the new regulation was to enforce compliance with the measures taken by the authorities to prevent and stop the spread of COVID-19.

In recent weeks the national criminal investigation bodies have announced the opening of more than 200 criminal investigations.

The main crime pursued is the Preventing the fighting of diseases that incriminates the failure to comply with the measures taken for the prevention and combating of infectious and contagious diseases, if this resulted in the spreading of the disease.

Pursuant to Article 135 of the Criminal Code, the legal entities shall have criminal liability for offenses committed in relation to the performance of their object of activity or in their interest or their behalf. The criminal liability of legal entities does not exclude the criminal liability of the individual(s) participating in the commission of the same offense.

Which are the implications for companies who do not comply with obligations established by the authorities?

Although the main legislative changes concern the facts committed by natural persons who, for example, do not comply with the quarantine or isolation measures, the offense provided in Article 352 par. (2) of the Criminal Code also incriminates the acts committed by legal entities that do not comply with the obligations established by the authorities.

For a company to be liable, the following conditions must be met:

  1. The failure to comply with a pre-existing obligation or with measures ordered by public authorities in order to prevent or combat spreading of Coronavirus (such as the obligation of all companies to provide all the materials intended for personal hygiene, to disinfect frequently door locks and other exposed areas, like conference tables). The mandatory measures ordered by the authorities are established by the military ordinances or the emergency ordinances of the government . So far, the Ministry of Labor has issued a series of recommendations but not all of them mandatory for companies. The breach of the recommendations cannot trigger the criminal liability of legal entities;
  2. the breach of measures results in the infection of at least one person with COVID -19 virus.

Sanctions

The penalties applicable to legal entities breach the criminal law provisions include fines and other ancillary measures such as: the suspension of the activity or of one of the activities performed by the legal entity for a term between three months and three years or the closure of working points of the legal entity for a term between three months and three years or in worse case scenarios even the winding-up of the legal entities.

If a legal entity is held liable for Preventing the fighting of diseases as indicated in Article 352 par. (2) of the Criminal Code, the court can sentence the legal entity to a fine of up to 300,000 euros.

In case the preventing of fighting of diseases offence is committed involuntary, the fine can be established to a maximum of approx. 185,000 euros.

Also, the companies can be held liable for the offences regarding labor health and safety rules, such as the Failure to take labor health and safety measures if an employee is infected with COVID-19 following non-compliance with the labor protection measures. For instance if a company does not comply with the measures imposed by the authorities regarding the avoidance of the spread of COVID-19 and as a result of these non-compliance a client of the company is infected with COVID-19, the company will be criminally liable for  the crime of preventing the fighting of diseases. If this non-compliance has the consequence of creating an imminent danger for infecting the company’s employees with COVID-19 during the course of their professional activity, the company will be criminally liable also for the offense of Failure to take labor health and safety measures.

Recommendations

In order to avoid criminal investigations regarding this matter, the companies should develop a contingency and business continuity plan for an outbreak in the communities where their business operates, taking into consideration the guidance published by the World Health Organization.

Companies need to remain alerted and take note of and effectively implement the measures decided by the public authorities on an almost daily basis.

Corporate resolutions vs. coronavirus restrictions. Updated as of April 01, 2020.

Actions aimed at quelling the spread of COVID-19, such as border closures, flight cancellations and severe restrictions on gatherings and travel, may have a massive impact on business operations, especially when it comes to resolutions adopted by shareholders, management boards and supervisory boards.

If resolutions cannot be passed by the shareholders meeting or management board, it may have a significant adverse impact on the company’s daily business.

In order to address the needs of shareholders and members of corporate bodies, we wish to offer some insight on solutions that may help mitigate the impact of the state of epidemic, as well as an overview of the amendments to the Commercial Companies Code, introduced as part of the so-called “Anti-Crisis Shield” on the basis of the Act of March 31, 2020, amending the Act on Special Solutions Related to Prevention and Combating of COVID-19, Other Infectious Diseases and Crisis Situations Arising from them, as well as amending selected other acts (the “Act”).

Supervisory Board

It might be easier for a supervisory board to operate if the following options are applied:
– passing written resolutions by circulation:
– voting on resolutions through electronic means;
– proxy voting (in writing).

Now, when the Act has been passed and come into force, adoption of resolutions in the manners listed above is possible with no need to define the basis for such action in the company’s articles of association (unless the articles of association expressly exclude such options).

Moreover, as a result of amendments to the Commercial Companies Code, introduced by the Act, resolutions on matters put on the agenda during a supervisory board meeting, election of the supervisory board president or deputy president, appointment of a management board member, and dismissal or suspension of such individuals can also be adopted by circulation or through electronic means.

Management Board

The Act has also modified the provisions of the Commercial Companies Code as regards adoption of resolutions by management boards. It is now allowed to:
– attend meetings through electronic means (unless the company’s articles of association expressly exclude this option);
– pass resolutions by circulation or through electronic means (unless the company’s articles of association expressly exclude this option);
– vote in writing by delegating the voting power to another management board member (unless the company’s articles of association expressly exclude this option).

Meetings of shareholders

Shareholders meetings may only be held in Poland, and should take place in the city/town where the company’s registered office is situated, or at a different location, as specified in the company’s articles of association or agreed upon by all shareholders.

Shareholders who are unable to attend a meeting in person may use the following solutions:

1) Proxy voting

A shareholder may appoint a proxy who will attend the meeting and vote on the shareholder’s behalf (unless applicable laws or the articles of association impose any restrictions in that respect).
A proxy should be granted in writing or will otherwise be null and void.
The company’s management board members and employees cannot attend a shareholders meeting in the capacity of a proxy.

2) Voting in writing (in a private limited liability company)

In the case of a private limited liability company, shareholders can pass resolutions in writing, i.e. by:
– expressing a written consent for a resolution to be adopted; or
– holding a vote on a resolution in writing, following all shareholders’ approval of such voting procedure.

A vote in writing may be held irrespective of the place where the shareholders are when casting a vote.

Not all resolutions may be adopted by circulation, though. Voting in writing is not an option in case voting secrecy is required (e.g. in case of a resolution on dismissal of a management board member or other HR issues).

3) Attending a meeting through electronic means

A shareholder may attend a shareholders meeting through electronic means (videoconference, teleconference, etc.).
The Act allows the possibility to participate in a meeting through electronic means, regardless of whether the articles of association so permit (unless the articles of association expressly exclude such option).

The following conditions apply to attendance through electronic means:
– a decision on attendance through electronic means is made by the person convening the meeting;
– the shareholders meeting notice needs to include information about the manner of participation, speaking, performance of voting rights and raising objections to the adopted resolution(s);
– real-time two-way communication needs to be ensured during the meeting, while all participants who are outside its venue must be able to speak at the meeting;
– shareholders can also participate and vote through proxies, exercising their voting rights before or during the meeting.

Detailed rules for participation through electronic means should be specified in bylaws adopted by the supervisory board (or in case there is no supervisory board in a private limited liability company – in bylaws adopted in a resolution of shareholders (which can be passed outside of a shareholders meeting).

However, this format of a shareholders meeting is not equivalent a virtual meeting. This means that the following rules apply to meetings held through electronic means:
– a meeting should be held in a specific venue in Poland, determined in accordance with the Commercial Companies Code and the company’s articles of association;
– the chairperson and the clerk (or a notary public, if the notarial form is required for minutes from the meeting) must be present at the meeting, while the remaining participants are allowed to communicate electronically;
– written minutes from the meeting are required.

In case of public companies, the Act also implements the obligation to ensure a real-time broadcast of a shareholders meeting.

Moreover, the Act includes provisions governing the manner in which companies receive, register and count electronic votes. These provisions will come into effect as of September 03, 2020, though.

4) Using the IT system

Shareholders may make decisions using the model resolution available in the IT system but this option is only available to private limited liability companies established through the IT system.

There is no need to hold a formal shareholders meeting in order to pass this type of resolution, with the only condition for its valid adoption being that all the shareholders should vote by submitting a relevant statement through the IT system.

The above-mentioned voting statements must be confirmed with an electronic signature, a qualified electronic signature or a trusted signature.

Extension of deadline for preparation and approval of financial statements in relation to CVOID-19

The Act includes solutions aimed at helping companies to meet the deadline to hold an annual shareholders meeting, at which shareholders approve the company’s financial statements for the previous financial year.

The Act includes a provision according to which the minister competent to handle public finance affairs would be authorized to issue a regulation entitling him/her to postpone the deadlines for the approval of financial statements in case of the state of epidemic threat or the state of epidemic, considering the need to ensure proper performance of obligations in that respect.

On March 2020, the Minister of Health issued a regulation specifying new deadlines for fulfillment of recordkeeping obligations, as well as obligations related to preparation, approval and publication of financial statements or information, and their submission with competent registries, units or authorities (Dz.U. / Journal of Laws of 2020, item 570), on the basis of which the deadline has been extended for preparation of separate financial statements, directors’ reports and consolidated financial documents of capital groups.

Pursuant to the regulation:
– the deadline to prepare annual financial statements, directors’ report, and consolidated financial statements / report on capital group operations has been extended by 3 months, i.e. they should be made within 6 months of the balance sheet date (if the financial year ends on December 31, 2019, the deadline is June 30, 2020);
– the deadline to approve annual financial statements, directors’ report, and consolidated financial statements / report on capital group operations has been extended by 3 months, i.e. they should be approved within 9 months of the balance sheet date (if the financial year ends on December 31, 2019, the deadline is September 30, 2020);
In case of entities that are supervised by the Polish Financial Supervision Authority, the aforesaid dates have been extended by 2 months.

The extended deadlines apply to obligations concerning the financial year ended after September 29, 2019, yet no later than April 30, 2020, whose due date did not fall before March 31, 2020.

The regulation came into force as of March 31, 2020.

Remuneration policy

According to the Act, in case of declaration of the state of epidemic threat or the state of epidemic, the minister competent to handle the affairs of financial institutions is authorized to issue a regulation specifying a different deadline for adoption of a resolution on remuneration policy for management and supervisory board’s members, as discussed in article 36 section 1 of the Act of October 16, 2019 on Amendments to the Act on Public Offerings and Conditions for Introduction of Financial Instruments into Organized Trading, and on Public Companies, and Amendments to Selected Other Acts.

In case such regulation is issued, a shareholders meeting’s resolution on remuneration policy should be adopted within the deadline specified in the regulation.

Many of the solutions outlined above may significantly facilitate and expedite the operations of corporate bodies and daily business, both during the epidemic and afterwards.

In light of the existing and planned regulations, now might be a good time to insert relevant provisions into the company’s constitutional documents, adopt the required policies or grant relevant proxies.

Our corporate law team is ready to address any questions or doubts you might have. Please feel free to contact us.

Measures adopted regarding the functioning of the governing bodies of companies

Some measures adopted by Royal Decree-Law 8/2020, of 17 March, on extraordinary urgent measures to face the economic and social impact of COVID-19 (“RDL 8/2020″), articles 40 to 42, regarding the functioning of the governing bodies of companies during 2020 are detailed below.

On the convening and holding of General Meetings and the decision-making process

  • In the event General Meetings were convened before the state of alarm was declared but they were supposed to be held after such notice, the company’s governing body may modify the time and place of such meeting (or suspend its celebration) by publishing a note on the company’s website at least 48 hours in advance, or publishing said note in the Spanish Official State Gazette (in the event the company has no website). If the General Meeting is suspended altogether, a new one must be convened within a month after the state of alarm ends.
  • Sessions can be held telematically, in real time. Under these circumstances, sessions will be deemed to have taken place in the company’s registered address.
  • Agreements can be adopted by written votes without a meeting, if the chairperson so decides and at least two members of the governing body request it.

On the submittal of financial statements and other compulsory documents

  • Generally speaking, the deadlines currently in force for the drafting of financial statements and the submittal of reports and other compulsory documents are suspended. Once the state of alarm ends, these deadlines shall be reinstated, and companies will have three months for the drafting and submittal.
  • The period to approve the financial statements, once drafted, shall be three months from the moment the drafting period ends.
  • In the event of a mandatory audit, the period to verify the financial statements that were formulated before the state of alarm was declared will be of two months after it ends.

Other corporate provisions applicable during the state of alarm

  • Partners may not exercise their right of withdrawal until the state of alarm ends.
  • The reimbursement of contributions made by cooperative partners is suspended until six months after the state of alarm ends.
  • If the term for which the company was constituted ends, or the latter is the subject of a dissolution of some kind, the automatic dissolution shall remain on hold until (i) two months after the state of alarm ends (preferred option) or (ii) the deadline to adopt a dissolution agreement expires, from the date the state of alarm ends.
  • Administrators will not be liable for the corporate debts contracted while the state of alarm was in force, provided the cause for dissolution also falls within this period.
  • The expiration of registry entries is cancelled and will be reinstated the day after the state of alarm ends.

Provisions related to listed companies

  • The publication and submittal of their annual financial report to the Spanish National Stock Market Commission (CNMV), together with that of the audit report, may be done up to six months after the financial year ends.
  • The General Shareholders’ Meeting can be held within the first ten months of the business year.
  • When convening the Meeting, the Board of Directors can call for its online celebration and the remote casting of votes. The Board can also pick any place within the Spanish territory for its celebration, even if these options are not included in the company bylaws.
  • If, however, the measures imposed by the authorities prevented the General Shareholders’ Meeting from being held at the place specified in the call but the Meeting was validly constituted, another place in the same province could be chosen instead (provided the Meeting was held that same day and attendees were given reasonable time to reach the new destination).
  • In the event the Meeting had not yet been validly constituted, a call for another Meeting that has the same agenda and notice requirements as the one not held may be given (i.e., at least five days in advance).
  • Furthermore, the agreements telematically adopted by the Board of Directors shall be considered valid, even if this option is not part of the company bylaws.

Implications of COVID-19 on M&A Transactions

We face an unprecedented business environment, given the scale and speed with which the coronavirus situation is developing.

Our clients face various challenges – from protecting and supporting employees and customers, facing material supply chain challenges, to preserving liquidity and adapting to new and to a large extent unknown operating conditions. Also, pending transactions that were signed pre-crisis and that now may or may not be closed, need to be efficiently handled. And despite the background of these current market conditions, we expect that both strategic investors and financial sponsors will, for various reasons, consider and pursue new transactions in the coming months.

To assist clients in navigating the M&A process in this unprecedented environment, here are the key points for the near future from our perspective:

MAC Clauses

Material adverse effect or material adverse change (MAE or MAC) clauses have only been seen very rarely prior to the hit of the Corona crisis in Germany. And even if a purchase agreement contains such an MAE/MAC clause, it might not cover a pandemic such as COVID-19. Therefore, most buyers may not be able to invoke the termination of a transaction based on a MAE/MAC clause at the moment.

As a consequence going forward, the parties of an M&A transaction need to negotiate explicit language to address COVID-19 risk-allocation in the context of an MAE/MAC provision. We have seen this practice followed in response to past crises.

Termination rights

Parties should pay extra attention to the seemingly routine “outside date” termination provisions since government approvals, particularly mandatory merger clearances, and further closing conditions might get delayed under the current conditions. The risks of delay need to balanced between the parties, and so do potential changes in the target’s financial results if the period prior to closing is particularly long. 

In addition, it is now even more important to synchronize termination rights under the financing commitments on the one hand and the purchase agreement on the other hand.

Due diligence and reps & warranties

Extensive due diligence investigations to determine legal and financial risks and vulnerabilities become even more important – from reviewing supply chains to understand dependencies and potential shortfalls, analyzing key contracts to assess, inter alia, termination rights and force majeure provisions, to reviewing liquidity shortages and potential insolvency risks.

Moreover, specific representations (for example as to contingency planning, protocols, etc.) regarding the crisis may become more common in M&A deals in the coming months.

W&I insurance

As COVID-19 is a known risk, insurers will most likely specifically exclude coronavirus-related losses from their policy coverage. In addition, an insured’s “knowledge” of a situation typically excludes that situation from policy coverage. For that reason, the scope of specific diligence regarding COVID-19, which would also apply to post-signing “updates” from a seller, and their effect on the insured party’s knowledge should be carefully addressed with legal counsel in the context of W&I insurances.

Interim operating covenants

In the interim period until closing, sellers normally operate the target’s business in the “ordinary course” to protect its value. However, given the current economic situation, ordinary course might very likely be counterproductive and might actually be the last thing a buyer wants a seller to do – the parties will therefore need to discuss and tailor “emergency” measures to put the seller, without obtaining prior consent of the buyer, in a position to preserve the target’s business in this time of crisis. This applies particularly to liquidity maintenance, debt refinancing and working capital management, but also to exceptions for changes required by law or regulation.

Insolvency protection

Now even more than before, transactions need to be structured insolvency proof, avoiding unpleasant surprises and later disputes with an insolvency administrator or the authorities in the interests of all parties. This relates to analyzing and mitigating the risks for (a) the seller in case of an insolvency of the target and/or the buyer and (b) the buyer in case of an insolvency of the seller.

Employment reorganisation

Potential employment reorganisation features following closing should be addressed in the course of the transaction already – from adhering to essential employment-law procedures to negotiating the effects of potential post-closing reorganization issues on the purchase price.

Purchase price adjustments

Regarding the current uncertainties, we expect locked box mechanics will be rarely seen in the near future – in particular as the net debt and working capital of a target might significantly change in the interim period until closing. A balanced purchase price adjustment mechanism can therefore play an important role to provide for deal certainty.

Austria: Facilitation of shareholders’ meetings

In order to prevent the spread of the coronavirus, events are completely prohibited and no more than five people at a time should meet at any one place in Austria. General meetings and shareholders’ meetings in which more than five people are supposed to participate are therefore currently not possible. While this situation may still be manageable for some companies with a small number of shareholders, this poses a particular problem for public companies, as shareholders are in principle free to be physically present at the general meeting.

To solve this problem, the Austrian legislator has made the following changes to the law as of 23.3.2020:

  • For the duration of measures taken to prevent the dissemination of COVID-19 according to the COVID-19 Measures Act (Federal Law Gazette I 2020/12), meetings of shareholders and board members may be held without the physical presence of the participants (Article 32 § 1 (1) of the COVID-19 Company Law Act).
  • The Federal Minister of Justice has been authorised to issue ordinances laying down more detailed rules on implementation which ensure a comparable quality of decision-making.

The provisions on implementation without physical presence take precedence as lex specialis over deviating provisions in the articles of association. The use of technical means of communication, such as videoconferencing, should make it possible to achieve a comparable quality of decision-making even without holding a meeting in person. Therefore, a legal basis for virtual meetings and other forms of decision-making (e.g. written votes) is to be created on a temporary basis, whereby the detailed regulations for individual or all legal forms of an ordinance are reserved for the Federal Minister of Justice.

However, current developments clearly show that electronic means of communication make an effective contribution to maintaining the ability of companies to act at all times. It remains to be seen whether the current predicament will provide the desirable impetus for a sustainable modernisation and technologisation of the legal framework in this area.

Antitrust law in Corona-times – an overview for companies

The Corona virus also leads to exceptional circumstances for companies in the field of antitrust law. The European competition authorities have recognised this and issued a joint statement on 23 March 2020 on possible relaxations but also with warnings (link to download the statement on the BKartA website). The authorities, however, are promising easing, but also explicitly warn against exploiting the  special situation for inflated health prices. 

We summarize the antitrust significance of the Corona crisis below:

Relaxation of antitrust law

According to the joint statement, the authorities are aware of the social and economic consequences of the Corona virus. In order to ensure the distribution of scarce products, cooperation between competitors is likely to be possible. If there are concerns, companies willing to act could contact the competition authorities. In Germany, the Federal Minister of Economics has already publicly suggested that antitrust law should be relaxed, at least for retail chains, and that cooperation between the food industry and retailers should be allowed because of the border closures. The situation in the United Kingdom is wider, where food retailers are already allowed to exchange information on stocks and work together on transport and storage capacities and personnel to ensure deliveries.

Relationship with competitors

The Corona-crisis itself does not give an ’emergency right’ for antitrust violations. Coordinated action with competitors remain critical from an antitrust point of view. For example, discussions and agreements between competitors to deal with the crisis are  regarded as restrictive of competition, e.g. by raising prices for increased costs or concerted rejections of supplier/customer claims. This also applies, of course, when competitors meet in associations. There is a great danger here that the common need will result in a prohibited agreement. Companies should therefore, as before Corona, verify the use of contact with competitors for their admissibility under antitrust law. Discussions, for example, on possible protection and hygiene measures in companies may be permitted.  We are happy to assist you in clarifying doubts.

Influence on dealers’ prices

The authorities make it also clear in the joint statement that manufacturers with price caps may force their dealers not to exploit the situation for ‘unjustified price increases’. With regard to pricelimits, the prohibition on cartels continues to apply. Suppliers can still issue non-binding price recommendations. However, these must not have an impact, e.g. by incentives or threatened disadvantages such as fixed prices. 

Price abuse

In the joint statement, the authorities explicitly warn against exploiting the situation for inflated prices, in the health sector in the field of health. The lack of  important supply products  and supply chain problems is already leading companies to significantly increase prices for some products due to the huge demand. For example, disinfectant products are often charged many times the average price. Such practices are closely monitored by the antitrust authorities. In Germany, above all, dominant companies are subject to special conduct obligations, but every other company is also subject to the limits of usury, which is a criminal offense in Germany.

Scarce goods

If Corona leads to the scarcity of certain products in the case of dominant companies, these companies must supply their customers without discrimination.

Mergers

Merger control requires companies to expect longer waiting times. Several competition authorities have already announced delays. For this reason, for example, both the Federal Cartel Office and the European Commission are asking companies and their representatives to reconsider whether a procedure must be submitted and to postpone notifications as far as possible Link to the communication from the Federal Cartel Office / Link to the communication of the EU Commission.

Summary

  • If your products or services are systemically relevant, there is the possibility of easing antitrust restrictions in case of difficulties.
  • However, under these circumstances the control of the competition authorities is also more intensive.
  • In this crisis situation, price increases must be examined very closely and the drivers for this should be documented.

We are happy to assist you in clarifying doubts. Above all, the actlegal team wishes you and your families to come through this extraordinary time healthy.

Corporate resolutions vs. coronavirus restrictions

Actions aimed at quelling the spread of COVID-19, such as border closures, flight cancellations and severe restrictions on gatherings and travel, may have a massive impact on business operations, especially when it comes to resolutions adopted by shareholders, management boards and supervisory boards.

If resolutions cannot be passed by the shareholders meeting or the management board, it may have a significant adverse impact on the company’s daily business.

With this alert, we want to offer shareholders and members of corporate bodies some insight on solutions that may help mitigate the impact of the state of epidemic, as well as an overview of the amendments to the Commercial Companies Code, which are about to be introduced as part of the so-called “Anti-Crisis Shield.”

Supervisory board

It might be easier for a supervisory board to operate if the following options are applied:
– passing written resolutions by circulation;
– voting on resolutions through electronic means;
– proxy voting (in writing).

The above options are available only if permitted by the company’s articles of association.

Works are underway to change the above as part of the so-called “Anti-Crisis Shield.” Based on the published draft bill amending the “Act on Special Solutions Related to Prevention and Combating of COVID-19, Other Infectious Diseases and Crisis Situations Arising from them,” as well as amending selected other acts (the “Draft Bill”), it would be possible to pass resolutions in the aforesaid manners with no need to define the basis for such action in the company’s articles of association (unless the articles of association expressly exclude such options).

It should be noted that resolutions on matters put on the agenda during a supervisory board meeting, election of the supervisory board president or deputy president, appointment of a management board member, and dismissal or suspension of such individuals cannot be adopted by circulation or through electronic means. The Anti-Crisis Shield is going to change the regulations to allow these resolutions to be passed in the manners listed above.

Management board

At present, there are no regulations that would explicitly allow a management board to pass resolutions by circulation or through electronic means (e.g. during a videoconference). With much debate surrounding this way of adopting resolutions, it is recommended to comprehensively regulate the manner of holding management board meetings in the articles of association.

Pursuant to the Draft Bill, the lawmakers pledge to allow management board members to:
– attend meetings through electronic means (unless the company’s articles of association expressly exclude this option);
– pass resolutions by circulation or through electronic means (unless the company’s articles of association expressly exclude this option);
– vote in writing by delegating the voting power to another management board member (unless the company’s articles of association expressly exclude this option).

These changes have yet to be adopted.

Meeting of shareholders

Shareholders meetings may only be held in Poland, and should take place in the city/town where the company’s registered office in situated or at a different location, as specified in the company’s articles of association or agreed upon by all shareholders.

Shareholders who are unable to attend a meeting in person may use the following solutions:

1) Proxy voting
A shareholder may appoint a proxy who will attend the meeting and vote on the shareholder’s behalf (unless applicable laws or the articles of association impose any restrictions in that respect).
A proxy should be granted in writing or will otherwise be null and void.
The company’s management board members and employees cannot attend a shareholders meeting in the capacity of a proxy.

2) Voting in writing (in a private limited liability company)
In the case of a private limited liability company, shareholders can pass resolutions in writing, i.e. by:
– expressing a written consent for a resolution to be adopted; or
– holding a vote on a resolution in writing, following all shareholders’ approval of such voting procedure.

A vote in writing may be held irrespective of the place where the shareholders are when casting a vote.

Not all resolutions may be adopted by circulation, though. Voting in writing is not an option in case voting secrecy is required (e.g. in case of a resolution on dismissal of a management board member or other HR issues).

3) Attending a meeting through electronic means

A shareholder may attend a shareholders meeting through electronic means (videoconference, teleconference, etc.). However, as things stand now, this is a viable option only if the articles of association allow the possibility to hold meeting in such way.

Holding a shareholders meeting through electronic means (with no need for physical presence) is allowed only if real-time broadcast from the meeting is available, with the absent shareholders being able to communicate and speak during the meeting in real time.

However, this format of a shareholders meeting is not equivalent a virtual meeting. This means that the following rules apply to meetings held through electronic means:
– a meeting should be held in a specific venue in Poland, determined in accordance with the Commercial Companies Code and the company’s articles of association;
– the chairperson and the clerk (or a notary public, if the notarial form is required for minutes from the meeting) must be present at the meeting, with only the shareholders being allowed to communicate electronically;
– written minutes from the meeting are required.

Shareholders may also attend and vote at meetings held through electronic means by proxies, in accordance with the rules specified above.

4) Using the IT system

Shareholders may make decisions using the model resolution available in the IT system but this option is only available to private limited liability companies established through the IT system.

There is no need to hold a formal shareholders meeting in order to pass this type of resolution, with the only condition for its valid adoption being that all the shareholders should vote by submitting a relevant statement through the IT system.

The above-mentioned voting statements must be confirmed with an electronic signature, a qualified electronic signature or a trusted signature.

Annual shareholders meeting

The Draft Bill includes solutions aimed at helping companies to meet the deadline to hold an annual shareholders meeting, at which shareholders approve the company’s financial statements for the previous financial year.

Pursuant to the Commercial Companies Code, all annual shareholders meetings should take place within six months after the end of each financial year. The Draft Bill includes a provision according to which the minister competent to handle public finance affairs would be authorized to issue a regulation entitling him/her to postpone (on a discretionary basis) the deadlines for the approval of financial statements in case of the state of epidemic threat or the state of epidemic, considering the need to ensure proper performance of obligations in that respect (it needs to be noted here that on March 20, 2020, the Health Minister announced the state of epidemic in Poland). If the minister chooses to issue a regulation setting a new deadline for the fulfilment of obligations related to the approval of financial statements, falling more than six months after the end of a financial year, annual shareholders meetings should be held no later than on the date specified in such regulation.

Remuneration policy

The Draft Bill also aims to revise the Act of October 16, 2019 on Amendments to the Act on Public Offerings and Conditions for Introduction of Financial Instruments into Organized Trading, and on Public Companies, and Amendments to Selected Other Acts. Based on the intended changes, the annual shareholders meeting of a public company (i.e. a company with its registered office in Poland, with at least one share admitted to trading on a regulated market) would be obliged to pass a resolution on the remuneration policy applicable to the management board and supervisory board members until August 31, 2020.

Many of the solutions outlined above may significantly facilitate and expedite the operations of corporate bodies and daily business, both during the epidemic and afterwards.

Some of these options are only available if they are permitted under the articles of association, so now might be a good time to insert relevant provisions into the company’s constitutional documents or grant relevant proxies.

Our corporate law team is available to answer any questions you might have.

The planned innovations in company law resulting from the ‘Act to mitigate the consequences of the COVID 19 pandemic’.

The protective measures for the avoidance of the further spread of the COVID-19 pandemic do restrict the freedom to hold meetings; this also affects general / shareholder meetings of listed and private companies. This could have a significant negative effect as it will delay resolutions on important matters, such as approving annual accounts, capital measures, appointment of new boards.

The draft legislation for the law to mitigate the impact of the COVID 19 pandemic in civil-, insolvency and criminal procedural law provides for various simplifications for calling and holding such meetings and taking resolutions if such meetings are held still in 2020.

In case of stock corporations (AktiengesellschaftAG) and Societas Europaea (SE), for example,

  • the board of directors (Vorstand) can decide on the possibility to cast votes in the general meeting via electronic means even if this is not provided for in the articles of association;
  • the convening period can be reduced to below 21 days; and
  • the board of directors can decide to hold the general meeting within the business year (i.e. after the first 8 months)

The above changes are ‘safeguarded’ by a limitation of the possibilities of shareholders to challenge resolutions by the general meeting.

In  case of a company with limited liability (GmbH) there will the possibility to take resolutions in writing even if not all shareholders agree are extended (currently this is only possible if all shareholders agree to this). Also, the law will introduce some provisions regarding cooperative (Genossenschaft), associations (Vereine) and foundations (Stiftungen) which will make it easier to hold meetings and pass resolutions and to keep the board of directors in office even though ordinary period of their office might have been terminated automatically due to time limiations.

And last but not least, in case of a merger, the German transformation act requires to submit a balance sheet of the company which transfers its assets to another entity, and that the effective date of such balance sheet is not older than 8 months. This period will be extended to 12 months in order to account for the fact that due to the Coronacrisis, the taking of the shareholder resolutions required for the merger might take longer than 8 months.