Up to now, the virtual Annual General Meeting has been a provisional solution due to the exceptional situation caused by the pandemic, with an end date of August 31, 2022 set in the so-called COVID-19 Act. The German Federal Ministry of Justice has now presented a ministerial draft on the “Introduction of Virtual Annual General Meetings of Stock Corporations”, which could also open up a permanent alternative to holding the Annual General Meeting in person for the period after the corona pandemic. We have summarized the main provisions of the draft.
1. Main Provisions of the Ministerial Draft
1.1 Provision by the Articles of Association or authorization of the Executive Board in the Articles of Association
The possibility for stock corporations to continue to choose the format of the virtual Annual General Meeting in the future is created in the draft by introducing a new section 118a German Stock Corporation Act-Draft (Aktiengesetz-Entwurf – „AktG-E“). The proposed standard regulates the basic requirements for holding the Annual General Meeting in virtual form as well as issues relating to attendance, time limits and documents to be made available at the meeting. Accordingly, the option of a virtual shareholders’ meeting can be chosen either directly by a provision in the Articles of Association or by an authorization of the Executive Board provided for in the Articles of Association (“opt-in”). If the Executive Board is authorized by a corresponding provision in the Articles of Association, then – unlike under the COVID-19 Act – no approval of the Supervisory Board is required for the decision to hold the virtual meeting.
However, a corresponding provision of the Articles of Association or the authorization of the Board of Management in the Articles of Association must be limited in time and may apply for a maximum period of five years after registration of the company, or after registration of the amendment to the Articles of Association.In order to avoid companies being forced to move in view of the expiry of the COVID-19 Act on August 31. In order to prevent companies from being forced to move in view of the expiry of the COVID-19 Act on August 31, 2022 and the future requirement to amend the Articles of Association, the draft bill provides as a transitional arrangement that for shareholders’ meetings convened up to and including August 31, 2023, the Executive Board may decide, with the consent of the Supervisory Board, that the meeting is to be held as a virtual meeting pursuant to Section 118a AktG-E.
Holding the meeting in virtual format requires – in this respect, there are no deviations from the pandemic-related provisional arrangement – complete video and audio transmission of the meeting. The draft bill also retains the requirement for shareholders to exercise their voting rights via electronic communication (electronic participation or electronic postal voting) and the granting of proxies.
According to the draft, shareholders are also to be given the opportunity to object to the resolution of the Annual General Meeting by means of electronic communication.
It is noteworthy that the draft bill also deliberately refrained from regulating hybrid forms of participation, i.e., a mixed form of face-to-face and virtual event that goes beyond enabling electronic participation pursuant to Section 118 (1) sentence 1 AktG.
1.3 Strengthening shareholder rights in the virtual shareholders’ meeting
However, compared to the pandemic transitional solution provided by the COVID-19 Act, the draft provides for a more comprehensive regulation of shareholders’ rights in the case of the virtual shareholders’ meeting, including during the meeting.
The explicit aim of the draft bill is to streamline the Annual General Meeting by bringing forward information and decision-making processes. Whereas the day of the Annual General Meeting continues to be the decisive point in time for exercising a large number of shareholders’ rights in the face-to-face event, in the draft bill these are predominantly located in the period before the Annual General Meeting in the virtual format.
Previously, under the COVID-19 Act, shareholders had the right to ask questions in the run-up to the Annual General Meeting. The draft bill now specifies as a prerequisite for holding in virtual form both a right of shareholders to information pursuant to Section 131 AktG and a right to speak by way of video communication during the meeting. Questions, comments and video statements must be registered or submitted up to four days before the Annual General Meeting. The shareholders’ right to information in the draft only includes a right to ask questions in the run-up to the meeting, but also a right to ask questions in electronic form during the Annual General Meeting on the answers given by the Executive Board at the meeting.
The new provision in the draft thus goes beyond the right to ask questions under the COVID-19 Act and standardizes a fully-fledged right to information for shareholders, which is again accessible to the information enforcement procedure under Section 132 AktG. Shareholders may submit statements in advance as well as exercise their right to speak in the form of the video statement. However, the speeches may not contain questions. During the meeting, meeting-related motions (motions that are not counter-motions pursuant to § 126 AktG) are possible; i.e. in particular motions on points of order or on the removal of the chairman of the meeting. Counter-motions to proposed resolutions, on the other hand, can only be made before the meeting. Mit Einberufung der Versammlung kann der Vorstand hiervon abweichende – die Rechte der Aktionäre erweiternde – Bestimmungen treffen.
In order to improve the information base of shareholders, the management board report or its main content must be made available to shareholders no later than six days before the meeting.
1.4 Further Regulations
The ministerial draft also provides for a number of adjustments of a technical nature, including, for example, requirements for the inclusion of connected shareholders in the list of participants and the dispensability of specifying a meeting location.
In addition, the draft stipulates an obligation to attend at the location of the Annual General Meeting for the members of the Board of Management and the Supervisory Board (for the latter not in the case of participation via video and audio transmission permitted under Section 118 (3) sentence 2 AktG), the chairman of the meeting and, in the cases of Section 176 (2) sentence 1, 2 AktG, also for the auditor. If, in addition, notarization is required in accordance with Section 130 (1) AktG, the presence of the notary public at the location of the Annual General Meeting is also mandatory in the case of a virtual Annual General Meeting. If a proxy has been appointed, the proxy should also be allowed to attend the meeting, but is not obliged to do so.
1.5 Risks of rescission
Like the COVID-19 Act, the draft bill provides for an exclusion of avoidance in the event of a violation of shareholders’ rights in the virtual shareholders’ meeting due to technical malfunctions. This is intended to prevent the Company from being exposed to increased risks of rescission when choosing the virtual format.
Under the COVID-19 Act, however, the exclusion of rescission does not apply in the event of intentional violations by the Company. The draft bill does not adhere to this restriction to intentional violations; the exclusion of avoidance is now also not to apply in the case of gross negligence. However, according to the explanatory memorandum to the draft, it will not be possible to assume intent or gross negligence if a professional service provider has been commissioned with the technical implementation of the event.
The exclusion of avoidance due to violation of formal requirements for notifications pursuant to Section 125 AktG, which was still regulated in the COVID-19 Act, is not reflected in the draft bill.
In addition, the draft bill does away with the requirement under the COVID-19 Act that shareholders must have exercised their voting rights in order to file an objection. In the draft, the right to contest is linked to the shareholder’s electronic connection to the virtual shareholders’ meeting.
In fact, the right to information and the obligation to allow follow-up questions at the Hauptversammlung, which will once again apply in full, will again increase the risks of challenge for the companies compared with the relief provided by the provisional provisions of the COVID-19 Act.
During the current four-week application period, the federal states and associations can submit requests for changes to the draft bill. It therefore remains to be seen in what form the virtual shareholders’ meeting will ultimately find its way into the law. Irrespective of this, however, it can already be said that the permanent inclusion of the virtual shareholders’ meeting in the German Stock Corporation Act means that it represents a genuine alternative to the face-to-face meeting, which goes far beyond the provisional model of the COVID-19 Act, in particular due to the comprehensive regulation of shareholders’ rights.
The draft represents a welcome processing of the experience with virtual shareholders’ meetings by the legislator, which, however, is still clearly influenced by the model of the presence shareholders’ meeting. The regulations on the right to speak and ask questions at the Annual General Meeting reflect the practice that has developed for large companies, but represent a major challenge for small listed companies.