Corporate Law27.03.2020 Newsletter

Changes in German corporate law due to COVID-19

(Last update: 27 March)

Today, the German Federal Council [Bundesrat] approved the so-called Act to Mitigate the Civil, Insolvency and Criminal Procedural Law Consequences of the COVID-19 Pandemic [Gesetz zur Abmilderung der Folgen der COVID-19-Pandemie im Zivil-, Insolvenz- und Strafverfahrensrecht]. The statute includes changes in German corporate law to mitigate negative effects of the protective measures to limit the COVID-19 Pandemic, in particular the restriction to assemble, on the companies' ability to operate.

1. Changes in German stock corporation law (including partnership limited by shares [Kommanditgesellschaft auf Aktien] and European stock corporation [Societas Europaea

1.1 Virtual general meeting

The most important change in German stock corporation law is the authorization of the executive board to hold the annual general meeting as a "virtual general meeting" with the approval of the supervisory board, even in the absence of such authorization in the articles of incorporation. This will allow for general meetings to be held without the physical presence of shareholders. This requires, however, that

  • the entire general meeting is transmitted in video and audio
  • the shareholders can exercise their voting rights via electronic communication (voting by mail or electronic participation) as well as by granting a voting proxy,
  • the shareholders are given the opportunity to ask questions by means of electronic communication, and that
  • shareholders who have exercised their voting rights are given the opportunity to formally object to resolutions of the general meeting.

In order to deal with the possible scenario of a flood of shareholder questions, possibly including non-objective ones, the executive board may – in deviation from Section 131 of the German Stock Corporation Act [Aktiengesetzbuch – AktG] – at its own due discretion decide which questions to answer and how to answer them. The executive board may also require that questions be submitted electronically at least two days before the general meeting.

The possibility of the shareholders to bring action against resolutions passed in virtual general meetings is also limited. A resolution may, for example, only be declared void due to technical faults if it is proven that the company acted wilfully [vorsätzlich]. Similarly, shareholders’ resolutions may only be declared void due to violation of the right to information of the shareholders if it can be proven that the executive board deliberately exercised its discretion as to which questions to answer in violation of its duties.

 

1.2 Reduced period of notice for convening general meetings

In addition, the executive board may, with the approval of the supervisory board, convene the general meeting temporarily with a notice period of only 21 days instead of the usual 30 days. Provisions of the articles of association which deviate from this are irrelevant. Likewise, the record date for the ownership of bearer shares [Inhaberaktien] is postponed to the beginning of the twelfth day and the deadline for the company to receive the evidence is postponed to no later than the fourth day before the meeting.  Other deadlines to be observed in connection with the general meeting are also adjusted accordingly.  

 

1.3 Extension of the deadline for holding the annual general meeting

Normally, the annual general meeting of a German stock corporation must be held within the first eight months of the business year in accordance with Section 175 para 1 sentence 2 of the German Stock Corporation Act [Aktiengesetzbuch – AktG]. In view of the difficulties caused by the protective measures (at least) in the first half of 2020, the executive board may now temporarily decide, with the consent of the supervisory board, to hold the annual general meeting at a later date within the business year, i.e. generally within twelve months from the end of the previous business year. However, if the business year of the company deviates from the calendar year, the extension of the deadline does not exceed 31 December 2020.


1.4 Online participation possibilities at on-site general meetings

Section 118 of the German Stock Corporation Act [Aktiengesetzbuch – AktG] already provides for the possibility to let shareholders participate online in on-site general meetings. Until now, however, this was subject to a corresponding authorization in the articles of association. The executive board has now been released from this requirement and may provide for online participation possibilities even in the absence of such authorization, if this has been approved by the supervisory board. However, since the online participation – unlike the virtual general meeting – still requires a “physical” general meeting, this provision will probably be less relevant in practice than the possibility of a virtual general meeting (see above).


1.5 Advance payment on the balance sheet profit

A substantial simplification, on the other hand, is the option now available of making an advance payment on the of the prospective balance sheet profit for the financial year just ended even in the absence of corresponding authorization in the articles of association (in deviation from Section 59 para 1 of the of the German Stock Corporation Act [Aktiengesetzbuch – AktG]. Such payment now merely requires the approval of the supervisory board. With this move, the legislator is reacting to the widespread concern that a postponement of the annual general meeting season would also result in dividend payments. According to the new regulation, the advance payment must still not exceed half of the amount remaining from the net income after deduction of the amounts that must be retained according to law or the articles of association. Furthermore, the advance payment may not exceed half of the previous year's balance sheet profit.


1.6 Resolutions of the supervisory board without a physical meeting

All decisions of the executive board to make use of the facilitations described above are subject to the approval of the supervisory board. Deviating from the normal rules under Section108 para 4 of the German Stock Corporation Act [AktG], the resolution can now always be adopted in writing, by telephone conference or a similar way, i.e. without a physical meeting of the supervisory board members. Neither a stipulation in the articles of association or the bylaws of the supervisory board nor the consent of all board members are required. However, this applies only to resolutions on the facilitations under the new law, whereas the general rules continue to apply to other resolutions.


1.7 Legal forms covered by the new rules 

The facilitation described above apply to German stock corporations [Aktiengesellschaft, AG], stock corporations limited by shares [Kommanditgesellschaft auf Aktien, KGaA] and European stock corporations [Societas Europaea, SE], irrespective of whether their stocks are listed. However, an exemption applies to European stock corporations (SE) with regard to the prolongation of the deadline for the annual general meeting. Due to the mandatory requirements under EU law (Art. 54 para. 1 of Regulation (EC) No. 2157/2001), the annual general meeting of an SE must still be held within six months from the end of the business year. Furthermore, the described facilitations also apply to mutual insurance companies [Versicherungsverein auf Gegenseitigkeit, VVaG] to the extent they are subject to the relevant provisions of the German Stock Corporation Act.
 


2. Changes applying to limited liability companies [GmbH]

For limited liability companies [Gesellschaft mit beschränkter Haftung, GmbH], the possibilities to adopt shareholders’ resolutions without a physical meeting are likewise extended. Temporarily, the consent of all shareholders is no longer required for resolutions to be adopted in writing or textform in accordance with Section 48 para 2 of the German Limited Liability Company Act [GmbH-Gesetz]. Hence, whereas resolutions without a physical meeting factually required unanimous voting, the support of the required majority is now sufficient. Though the new law does not go into such detail, it should therefore be sufficient if all shareholders have the opportunity to vote and the required majority votes in favor of the resolution, even if the remaining shareholders do not react at all. Having said this, the new rules do not help with regard to resolutions which must be notarized, like amendments to the articles of association, capital measures or conversions.



3. Amendments regarding the German Reorganization Act [Umwandlungsgesetz]

The maximum period for the retroactive effect of mergers and splits under the German Reorganization Act [Umwandlungsgesetz - UmwG] is temporarily prolonged from eight to twelve months. Hence, it is now sufficient if the date of the closing balance sheet of the merging or split entity according to Section 17 para 2 sentence 4 of the German Reorganization Act [UmwG] is no longer than one year prior to the filing of the measure with the commercial register. This applies to mergers and, due to the reference in Section 125 of the German Reorganization Act [UmwG], also to splits and spin-offs. The timing restrictions for companies who want to take such measures in the current year, namely that all relevant documents must be completed within the eight months period from the business year end, are thereby extended by four months.



4. Validity of the changes until end of 2020

All of the described changes and facilitations only apply until 31 December 2020 for the time being. However, the Federal ministry of justice is authorized to extend the validity until 31 December 2021, if these seems appropriate due to continuing effects of the COVID-19-pandemic in Germany.

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Dr. Peter Etzbach<br/>LL.M. (New York)

Dr. Peter Etzbach
LL.M. (New York)

PartnerAttorneyAttorney at Law (N.Y.)

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Dr. Günter Seulen

Dr. Günter Seulen

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Dr. Nefail Berjasevic<br/>EMBA, LL.M. (NYU)

Dr. Nefail Berjasevic
EMBA, LL.M. (NYU)

PartnerAttorneyAttorney at Law (N.Y.)

Konrad-Adenauer-Ufer 23
50668 Cologne
T +49 221 2091 428
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