On January 30, 2020, the World Health Organization (WHO) has qualified the Covid-19 epidemic as a “global public health emergency”.
On March 3, 2020, French Minister of Economy and Finance Bruno Le Maire, pronounced a “state of economic emergency” due to the Covid-19 epidemic in France. By this date, French companies had already suffered losses estimated at more than one billion euros according to the Ministry of Economy.
On March 16, 2020, President Emmanuel Macron and Home Secretary Christophe Castaner announced a stay-at-home order to contain the Covid-19 epidemic for a period of at least fifteen days (Decree No. 2020-260 of 16 March 2020 regulating movements as part of the fight against the spread of the covid-19 virus).
On March 23, 2020, the French Parliament voted Law No. 2020-290 declaring the state of emergency for a period of two months (until May 24, 2020) and enabling the Government to adopt certain measures in order to deal with the emergency situation resulting from the Covid-19 epidemic and the imposed containment measures. Law No. 2020-290, among others, authorizes the Government to adapt and simplify certain corporate laws and regulations relating to the holding of shareholders’ and board meetings, reporting obligations and dividend distributions.
On March 25, 2020, the French Government adopted Order (Ordonnance) No. 2020-321 in order to temporarily adapt the rules for convening, informing, meeting, and deliberating, applicable to shareholders’ and Board meetings with a view to enable companies to continue to carry out their activity despite the measures taken to fight the Covid-19 epidemic (“Order No. 2020-321”). These measures enter into force retroactively as of March 12, 2020, and will apply until July 31, 2020, provided that such delay may be extended by the French Conseil d’Etat until, at the latest, November 30, 2020.
On March 25, 2020, the French Government also adopted Order (Ordonnance) No. 2020-318 on the establishment, audit, review, and approval of the accounts and other documents and information companies shall file or disclose in the context of the Covid-19 epidemic (“Order No. 2020-318”).
Given the tense situation on the stock markets, the French stock exchange authority (Autorité des marchés financiers – “AMF”) also published a series of press releases in particular with respect to the holding of shareholders’ meetings, as well as regarding the disclosure rules applicable to listed companies.
The AMF also published a general ban on short selling of equity stocks on all the Euronext Paris markets from March 17 to April 16, 2020.
Preparation and approval of annual accounts
Approval of annual accounts – Pursuant to article 3 of Order 2020 318, the delays for (i) approving the annual accounts and the documents attached thereto, and (ii) convening the shareholders’ meeting approving such accounts, are extended by three months for companies having closed their annual accounts between September 30, 2019 and the expiry of a one-month delay after the termination of the health emergency situation enacted under the March 23,2020 Law (i.e. at least on June 24,2020).
Such extended delays do not apply in case the company’s statutory auditor(s) has(ve) already issued its (their) report(s) on the annual accounts prior to March 12,2020.
Companies will be able to hold their annual shareholders’ meeting on the approval of their annual accounts until September 30, 2020 (instead of June 30), subject to the aforementioned exceptions. Listed company choosing to postpone their shareholders’ meeting shall immediately inform the market via a press release.
n any case, a shareholders’ meeting can always be postponed (ajourné) even after publication of the meeting notice. In such case, the information relating to the postponement shall be published in the French public notice journal (BALO).
Other accounting documents and forecasts (comptabilité prévisionnelle) – Companies having more than 300 employees or with net sales (chiffres d’affaires net) exceeding 18 millions euros) shall prepare certain other accounting documents defined by Article L232-2 of the Code of commerce, including P&L forecasts. Pursuant to Order 2020-318 the delay for preparing such documents has been extended by two months for the documents relating to the accounts or semesters closed between November 30, 2019 and the expiry of a one-month delay after the termination of the health emergency situation (i.e. at least on June 24, 2020).
Sociétés anonymes having a management board (directoire) and a supervisory board (conseil de surveillance) – The delay for the management board to provide the annual accounts to the supervisory board has been extended by three months. This extension applies to companies having closed their annual accounts between September 30, 2019 and the expiry of a one-month delay after the health emergency situation (i.e. at least on June 24, 2020).
Private companies benefiting from public subsidies allocated to specific expenses (subventions affectées à une dépense déterminée) – Companies benefiting from public subsidies allocated to specific expenses shall prepare a report on the use of such subsidies within six months from the termination of the financial year. The delay for preparing such report has been extended by three months provided such report relates to the accounts or semesters closed between November 30, 2019 and the expiry of a one-month delay after the termination of the health emergency situation (i.e. at least on June 24, 2020).
Holding of Shareholders’ and Board meetings
Virtual shareholders’ meetings can temporarily be held. Pursuant to French corporate law, shareholders’ meetings in must be physically held.
However, due to the Covid-19 epidemic, Order 2020-321 allows the Board to decide that general shareholders’ meeting will be held without shareholders, auditors and employee representatives being present physically or by any mean of communication, provided the meeting is convened at a place, where on the convening date, collective gatherings are prohibited for health reasons.
Order 2020-321 further provides that shareholders participating in the meeting by means of a conference call or audio-visual conference allowing their identification will be deemed to be present for the calculation of quorum and majority. In practice, listed companies are not expected to hold their shareholders’ meetings by videoconference due to technical issues regarding the identification of shareholders.
Listed companies choosing to go for one of the two aforementioned options shall publish as soon as possible a press release in order to inform their shareholders accordingly.
The AMF recommends that listed companies broadcast their general meetings live on their website and communicate widely in this respect.
Shareholders’ meetings can be held behind closed doors (i.e. without the shareholders being either physical or remotely present), or through video- or teleconference means.
Shareholder vote possible without being physically present – Under existing laws and regulations shareholders may already vote either by correspondence (vote par correspondence) or by proxy (procuration), or directly through a secure voting platform on the Internet (for issuers having allowed such a method of voting). In case of proxy given without any indication of the representative, any resolution proposed by the board will be voted positively and other resolutions not proposed by the board will be voted negatively.
If the Board decides so, shareholders may also vote through video- or teleconference.
In a press release dated March 27, 2020, the AMF provided some guidance and good practices for the organization by listed companies of their shareholders’ meeting given the exceptional measures taken by French authorities (see page 7). Such good practices aim at providing the shareholders with a clear, precise and accessible information notably on the shareholders’ meeting, the access to the documents submitted to the shareholders or the various available means to vote.
Is it possible to amend the agenda and the draft resolutions (texte des resolutions) once the meeting notice (avis de réunion) has been published in the BALO? Yes. The agenda and the draft resolutions provided in the meeting notice are not final. Shareholders remain entitled to ask written questions relating to the shareholders’ meeting, and subject to certain conditions, to request the board to add an item on the meeting’s agenda. The applicable minimum threshold enabling shareholders to request that an item be added on the meeting’s agenda depends on the share capital of the company and is calculated on a sliding scale (at least 5% if the share capital is less than €750,000 and in the very largest companies, it may approach 0.50%).
For companies listed on a regulated market, such a request shall be submitted to the company at least 25 days prior to the date of the shareholders’ meeting, but not later than 20 days following the date of publication of the meeting notice (avis de réunion) in the Bulletin des annonces légales obligatoires – “BALO”).
Communication of documents or information per email. Pursuant to article 3 of the Order 2020-321, companies which are required to provide their shareholders with certain documents and information in view of a shareholders’ meeting can send such documents by email, provided that the shareholder has requested that the document be communicated to his email address.
Can a company opt for a remote shareholders’ meeting even if the meeting has already been convened?Yes, according to article 7 of Order 2020-321, in case the general meeting has already been convened, and the board decides to allow the shareholders’ meeting to be held remotely, the shareholders shall be informed of such a decision as soon as possible via the publication of a press release.
In such case, the remaining formalities to be complied with the purpose of convening the shareholders’ meeting shall still be undertaken. Formalities which have already been done before the decision to hold the shareholders’ meeting remotely will remain valid and will not have to be renewed.
Consequence of the impossibility to send a convenience letter to the shareholders per mail. According to article 2 of Order 2020-321, a shareholders’ meeting will not be deemed null and void if a listed company required to send a convening letter to its shareholders by physical mail, was unable to mail such a letter due to circumstances external to the company.
Recommendations of the AMF
On March 27, 2020, the AMF published a range of good practices that publicly listed issuers should keep in mind when organizing their shareholders’ meetings, among which in particular:
Set up, as soon as possible before the shareholders’ meeting, clear, precise and accessible communication for all shareholders concerning: (i) the holding of the meeting (indicating if it will be held without the presence of shareholders), (ii) the ways to inform shareholders (in particular the consultation of documents and information relating to the meeting); (iii) the available means to participate to the meeting (possibility to ask question before the meeting, impossibility, as the case may be, to ask oral question and to propose new resolutions during the meeting); and (iv) the available means to vote.
Highlight, on the home page of the issuer’s website, a link to the website’s pages dedicated to the shareholders’ meeting.
Allow shareholders to vote though Internet via a secure voting platform, if the issuer has enough time to set up such a voting system prior to the shareholders’ meeting.
Broadcast the shareholders’ meeting live on the issuer’s website and communicate widely in this respect, and keep the record of the meeting available on the website.
If applicable, when publishing the press release announcing that the shareholders’ meeting will be held behind closed doors, remind the shareholders’ of the different possibilities they have to vote without being physically present.
Inform shareholders directly by email of the specific voting and meeting procedures (when the email address is known to the issuer). This information does not exempt the issuer from its obligations to provide information to shareholders by post.
Enable shareholders to exercise their right to information and provide them with a copy of the documents they are entitled to review at the company’s registered office, if such documents are not available on the company’s website.
As meetings behind closed doors do not allow shareholders to ask oral questions during the meeting, agree to receive and handle, to the extent possible, shareholders’ written questions sent after the deadline provided for by applicable law.
Use electronic means of communication whenever possible in connection with the company‘s procedures and communications relating to shareholders’ meetings. In this respect, the AMF recommends that issuers create an email address dedicated to shareholders’ questions regarding the meeting and to communicate on their website that such an address has been created.
Inform the public as soon as possible of the specific measures put in place for the voting and holding of shareholders’ meetings.
Shall Board meetings be held physically? Pursuant to French corporate law, the Board’s rules of procedure (règlement intérieur) may provide that the Board members may attend meetings using videoconferencing or telecommunications facilities, unless otherwise provided in the company’s articles of association and except for Board meetings held to approve the company’s annual accounts.
In order to take into account the difficulties to hold physical meetings due to the current mobility restrictions, article 9 of Order 2020-321 states that even if not provided in the Board’s rules of procedure, videoconferencing or telecommunications facilities may be used to attend Board meetings notwithstanding a prohibition of the articles of association and even for Board meetings held to approve the annual accounts. Pursuant to Order 2020-321, Board may also adopt its decisions through written consultation.
Board meetings for the approval of the annual accounts may be held remotely.
The minutes of a general meeting shall in any case be recorded and signed in a hard copy (no electronic signature). However, as of today most of Commercial courts accept that companies proceed to the legal formalities with scanned copies of such minutes.
Disclosure rules applying to listed companies
Obligation to publish non-public information that is likely to have a significant influence on stock prices By way of a press release published on February 28, 2020 which was completed by a press released dated March 23, 2020, the AMF recalled that the Market Abuse Regulation requires that issuers disclose, as soon as possible, all inside information that concerns them directly or indirectly, i.e. all precise, non-public information that is likely to have a significant influence on stock prices. Therefore, any knowledge of the Covid-19 epidemic’s significant impact on the activity, performance or outlook must therefore be disclosed without delay.
The ESMA also stated in its communication dated March 11, 2020 that issuers should disclose as soon as possible any relevant significant information concerning the impacts of COVID-19 on their fundamentals, prospects or financial situation.
Given the uncertainty surrounding the future development of this outbreak, the AMF recommends that issuers periodically re-assess the epidemic’s estimated and anticipated impact on their company’s activity and outlook with respect to its materiality and/or amount. According to the AMF, such a reassessment shall in any case be undertaken upon filing of the universal registration document (document d’enregistrement universel – “URD”) (please see slide 10 for further information in this respect).
The AMF further recommends that: (i) issuers communicate this information when presenting their annual results, and (ii) issuers disclosing their forecast for 2020 to the market when publishing their annual results, communicate which assumptions they used in preparing this forecast, with respect to the potential impacts of the epidemic.
However, an issuer may always on its own responsibility, delay disclosure to the public of inside information provided that all of the following conditions are met: (i) immediate disclosure is likely to prejudice the legitimate interests of the issue; (ii) delay of disclosure is not likely to mislead the public, and (iii) the issuer is able to ensure the confidentiality of that information.
Any knowledge of the Covid-19 epidemic’s significant impact on the activity, performance or prospects of the company must be disclosed without delay.
Publicly listed companies which closed their financial year on December 31, 2019 shall submit their annual financial report (rapport financier annuel) including their management report, which must include a description of the main risks and uncertainties faced by the company, before 30 April 2020.
Taken into account the difficulties encountered by issuers in preparing financial reports and the challenges faced by auditors in carrying out timely audits of accounts due to the COVID-19, the ESMA recommended to national competent authorities to “apply forbearance powers towards issuers who need to delay publication of financial reports beyond the statutory deadline” (with a two-month maximum delay for annual financial reports, and a one-month maximum delay for half-yearly financial report).
Further to the ESMA communication, the AMF issued a press release on March 30, 2020 to inform that (i) any delay to publish financial reports beyond the statutory deadline shall be disclosed to the market with the reasons for such delay and an estimated date for such publication and (ii) the AMF will postpone any of its invitation vis-à-vis defaulting issuers to comply with such publication with a two-month delay for annual financial reports and a one-month maximum delay for half-yearly financial report.
The AMF recommends that issuers include the information that “they deem appropriate in the light of the coronavirus outbreak as of the date of filing their annual financial report”. For issuers publishing an URD, the “Risk Factors” section should where necessary, deal more specifically with the economic exposure of the listed company to this epidemic, as well as any measures that may have been taken with this regard.
A description of the main risks and uncertainties faced by a company before 30 April 2020 shall be included in the annual financial report. For issuers publishing a URD; the “Risk Factors” section should deal more specifically with the economic exposure of the company to the epidemic.
When filing their URD, issuers shall in particular reassess whether the current Covid-19 epidemic will affect their previously announced financial forecasts. Pursuant to the AMF, the URD shall expressly indicate, as the case may be, whether previously disclosed forecasts are not relevant anymore and, if applicable, that a new forecast cannot be provided for the moment due to the global uncertainty.
Further, the AMF states that when a significant impact of Covid-19 is identified or anticipated, previous prospective communications not taking into account the epidemic must be reviewed and amended.
Finally, the AMF recalls that changes to forecasts which have been provided in already filed URDs shall be disclosed through a press release.
Issuers meeting the thresholds requiring them to publish a statement on their extra-financial performance should also describe in the dedicated section “Security and health at work” the measures they have taken in order to ensure the security of the employees in the context of the Covid-19 epidemic.
The AMF further recommends that “impacts of this epidemic should also be considered, if necessary, in the financial statements of 31 December 2019, as a post-closing event requiring disclosures”. However, no adjustment to the financial statements as at December 31, 2019 will be necessary, as only an event related to circumstances already existing at the date of closure can lead to an adjustment of the accounts.
Equity short selling ban by AMF for one month and closer monitoring of short selling during three months
Following the sharp decline of equity markets in March 2020 the Italian, Spanish, French and Belgian securities regulators took in mid-March 2020 emergency measures to ban short selling for periods ranging from one month (France, Spain, Belgium and Greece) to three months (Italy) on all stocks listed on the respective local markets over which such regulators have jurisdiction.
An emergency short-selling prohibition, for a period of one month (from March 18 to April 16, 2020) was enacted by the AMF on all transactions that might constitute or increase net short positions on shares admitted to trading on Euronext French trading venues (Euronext regulated market, Euronext Growth and Euronext Access) for which the AMF is the relevant competent authority as well as to all related instruments relevant for the calculation of the net short position.
The ban applies to transactions executed both on a trading venue or over the counter (OTC) and applies to any natural or legal person domiciled or established within the EU or in a third country.
This measure does not, however, apply to market-making activities, trading in index-related instruments or short positions entered into hedge positions on convertible bond or subscription rights.
The European Securities and Markets Authority (ESMA), for the first time ever considered that these extended-period bans by were “justified by current adverse events or developments which constitute a serious threat to market confidence and financial stability” and “appropriate and proportionate to address the existing threat to market confidence” in these respective national markets.
Temporary lowering of short selling mandatory notifications threshold from 0.2 to 0.1% until June 17, 2020
Pursuant to the 2012 EU Short Selling Regulation, ESMA also, and for the first time, made use of its emergency powers under Article 28 of said regulation to temporarily lower short selling reporting thresholds throughout the EU.
Considering that lowering the reporting threshold is a precautionary action that, under the exceptional circumstances linked to the ongoing COVID-19 pandemic, is essential for authorities to monitor developments in markets, ESMA required during a three-month period starting on March 16, 2020, the holders of net short positions in shares traded on an EU-regulated market to notify the relevant national securities regulator (i.e. in France, the AMF) if the position reaches or exceeds 0.1% of the issued share capital after the entry into force of the decision (against 0.2% under existing regulations).
The temporary transparency obligations apply to any natural or legal person, irrespective of their country of residence.
They do not, however, apply to shares admitted to trading on a regulated market where the principal venue for the trading of the shares is located in a third country, to market making or stabilization activities
Protective Measures against hostile takeover bids
Extreme dislocation and a major sell-off in our equity markets have led to many public companies finding their stock prices at severely depressed levels, often over 50% off last twelve month highs. While most companies and investors are in crisis management mode, these markets may nevertheless present attractive opportunities for opportunistic strategic or financial bidders, encouraging them to launch a takeover bid (TOB). The French Minister of Economy and Finance said that he was ready to use “without any hesitation all the instruments available” to protect French companies which would be destabilized by the violent stock market turbulence.
Existing provisions to be considered
Declaration of crossing : any 5% threshold in share capital or voting rights must be made by any investor crossing alone or in concert such threshold, to the company and the AMF : such declaration will inform the company and the public on any position taken by an investor ; it may be recommended to modify the bylaws to include any lower threshold to be declared (2 or 3%) ;
TOB mandatory minimum acceptance threshold : a bidder must reach at least 50% of the capital or voting rights of the target at the closing of the offer (referred to as “mandatory minimum acceptance threshold”). If the mandatory minimum acceptance threshold is not reached, then the offer automatically lapses ; therefore, ‘friendly’ significant shareholder(s) may protect the company against a TOB ;
Squeeze out threshold : bidders will try to acquire as many shares as possible to reach a 90% threshold in shares and voting rights, in order to squeeze out the remaining shareholders and delist a company ; therefore, ‘friendly’ shareholder(s) with a 10% stake may discourage a bidder to launch a TOB ;
Change of control clauses : strategic contracts/collaboration agreements could refrain a potential bidder to launch a TOB, should strategic contracts and collaboration agreements entered into by the company provide for such change of control clauses.
Foreign Investment Control : in case of a foreign bidder, the existing foreign investment control regulation by the French State could potentially be applicable. Pursuant to such regime, a prior approval of the French State could be necessary (possible broad interpretation by the French authorities of the protected areas entering into the scope of foreign investment control).
In guidelines published on March 25, 2020, the European Commission has called upon EU Member States to make full use of their foreign direct investment (FDI) screening mechanisms to take into account the risks arising in connection with the Covid-19 crisis with respect to critical health infrastructures, supply of critical inputs, and other critical sectors. The Commission further recommended that those Member States that currently do not have a FDI screening mechanism adopt a “full fledged screening mechanism”.