Virtual AGM - The next virtual AGM season is just around the corner
In its session on 7 September 2021, the Bundestag extended the possibility of holding virtual general meetings for the year 2022. It thus followed the resolution recommendation and the report of the budget committee.
The current regulations are extended until 31 August 2022 without making any changes to the content of the previous law. Only § 7 of the COVID-19 Act is adapted. In paragraphs 1 to 3, the words "in 2020 and in 2021" are replaced by the words "up to and including 31 August 2022".
This step is to be welcomed, as the course of the pandemic is still impossible to estimate and enables companies to plan with certainty for the coming HV season. Nevertheless, the permanent anchoring of the virtual AGM must be seriously discussed in the next legislative period.
In the following you will find a summary of the expected regulations of the law that are essential for companies along with other current articles.
Please note that we constantly update the articles.
Article 1: COVID-19 Insolvency Suspension Act - COVInsAG
- In principle, suspension of the obligation to file for insolvency until 30 September 2020.
- No suspension of the insolvency filing obligation if the insolvency maturity is not based on the consequences of the spread of the SARS-CoV-2 virus (COVID-19 pandemic) or if there are no prospects of eliminating an existing insolvency.
- But: statutory presumption that insolvency maturity is due to the effects of the COVID-19 pandemic and there are prospects of eliminating an existing insolvency if the debtor was not insolvent on 31 December 2019.
- If the debtor is a natural person, section 290(1)(4) InsO shall apply with the proviso that no refusal of residual debt discharge may be based on the delay in opening insolvency proceedings in the period between 1 March 2020 and 30 September 2020.
- Insofar as the insolvency obligation is suspended
- payments made in the ordinary course of business, in particular such payments which serve the maintenance or resumption of business operations or the implementation of a reorganisation plan, shall be deemed to have been made with the diligence of a prudent and conscientious business manager,
- the repayment of a new loan granted during the suspension period and the provision of collateral to secure such loans during the suspension period shall not be deemed to be detrimental to creditors until 30 September 2023,
- the granting of the loan and the provision of security are in principle not to be regarded as an immoral contribution to the delay of insolvency, and
- legal acts which granted or enabled the other party to obtain security or satisfaction which the other party was entitled to claim in the manner and at the time are in principle not voidable in subsequent insolvency proceedings.
- In the case of creditor insolvency petitions filed within a certain period of time, the opening of insolvency proceedings requires that the ground for opening the proceedings already existed on 1 March 2020
- The Federal Ministry of Justice and Consumer Protection shall be authorised to extend the provisions until 31 March 2021 at the latest by statutory order without the consent of the Bundesrat if this appears necessary due to continuing demand for available public assistance, persistent financing difficulties or other circumstances.
Article 2: Act on Measures in Company, Cooperative, Association, Foundation and Condominium Law to Combat the Effects of the COVID 19 Pandemic
§ 1 AG, KGaA, SE, mutual insurance associations:
- The decisions on the participation of shareholders in the general meeting by way of electronic participation (section 118(1) sentence 2 AktG), postal voting (section 118(2) AktG), the participation of members of the supervisory board by way of video and audio transmission pursuant to section 118(3) sentence 2 AktG and the admission of video and audio transmission (section 118(4) AktG) may be taken by the company's executive board even without authorisation by the articles of association or rules of procedure.
- The board of directors may decide that the meeting shall be held as a virtual general meeting without the physical presence of the shareholders or their proxies, provided that 1. the video and audio transmission of the entire meeting takes place, 2. the shareholders' voting rights can be exercised via electronic communication (postal vote or electronic participation) as well as the granting of a proxy, 3. 3. the shareholders are given the opportunity to ask questions by means of electronic communication and the questions are answered according to dutiful discretion, and 4. the shareholders who have exercised their voting right by postal vote or electronic participation are given the opportunity to object to a resolution of the general meeting.
- The executive board shall decide in its dutiful discretion which questions it answers and how; it may also specify that questions are to be submitted by electronic communication no later than two days before the meeting.
- Notwithstanding section 123, paragraph 1, sentence 1 and paragraph 2, sentence 5 of the Stock Corporation Act, the executive board may decide to convene the general meeting no later than the 21st day before the day of the meeting. In deviation from section 123, paragraph 4, sentence 2 of the Stock Corporation Act, the proof of shareholding pursuant to section 67c, paragraph 3 of the Stock Corporation Act shall, in the case of listed companies, relate to the beginning of the twelfth day before the meeting and, in the case of bearer shares, must be received by the company at the address specified for this purpose in the notice of convocation no later than on the fourth day before the general meeting, unless the management board provides in the notice of the general meeting for a shorter period for the receipt of the proof by the company; deviating provisions of the articles of association shall be irrelevant. In the case of a convocation with a shortened notice period, the notice pursuant to section 125, paragraph 1, sentence 1 of the Stock Corporation Act shall be given no later than twelve days before the meeting and the notice pursuant to section 125, paragraph 2 of the Stock Corporation Act shall be given to those registered in the share register at the beginning of the twelfth day before the general meeting.
- In deviation from section 122, paragraph 2 of the Stock Corporation Act, requests for supplements in the aforementioned case must be received by the company at least 14 days before the meeting.
- In deviation from § 59 section 1 of the Stock Corporation Act, the Executive Board may decide, even without authorisation by the Articles of Association, to pay a discount on the net profit to the shareholders in accordance with § 59 section 2 of the Stock Corporation Act. This applies accordingly to a down payment on the compensation payment within the meaning of § 304 AktG to outside shareholders. § Section 304 AktG to outside shareholders under an inter-company agreement.
- The executive board may decide that the general meeting shall be held within the financial year in deviation from § 175 section 1 sentence 2 AktG.
- The above decisions of the Executive Board shall require the consent of the Supervisory Board. In deviation from § 108 section 4 AktG, the supervisory board may pass the resolution on the approval in writing, by telephone or in a comparable manner without the physical presence of the members, notwithstanding the provisions in the articles of association or the rules of procedure.
- The contestation of a resolution of the general meeting on the grounds of the facilitations provided by this Act, in particular within the scope of § 118 paragraph 1 sentence 3 to 5, paragraph 2 sentence 2 or paragraph 4 of the Stock Corporation Act, the violation of formal requirements for notifications pursuant to § 125 of the Stock Corporation Act as well as Article 2 § 1 paragraph 2 of the Act, shall be excluded, unless the company can be proven to have acted intentionally.
- The above regulations only apply to general meetings and interim payments on the balance sheet profit that take place in 2020.
- The above regulations are to a large extent applicable to mutual insurance companies within the meaning of § 171 of the Insurance Supervision Act.
In derogation of § 48 GmbHG, resolutions of the shareholders may be passed in text form or by casting votes in writing, even without the consent of all shareholders.
§ 2 Limited liability companies
Resolutions of the members may also be passed in writing or electronically if this is not expressly permitted in the articles of association. In this case, the Executive Board shall ensure that a list of the members who participated in the adoption of the resolution is attached to the minutes. The manner of voting shall be recorded for each member who participated in the adoption of the resolution. The contestation of a resolution of the general meeting may not be based on violations of the law or of the rights of members that are attributable to technical malfunctions in connection with this resolution, unless the cooperative can be accused of intent or gross negligence.
§ 3 Cooperatives
- The convocation may be made on the internet on the website of the cooperative or by direct notification in text form.
- The adoption of the annual accounts may also be carried out by the Supervisory Board.
- With the consent of the Supervisory Board, the Executive Board may, at its due discretion, make an advance payment on an expected payment of a settlement credit of a member who has left the cooperative or a dividend payment expected to be made to a member.
- A member of the Executive Board or of the Supervisory Board of a cooperative shall remain in office after the expiry of his term of office until the appointment of his successor. The number of members of the Executive Board or the Supervisory Board of a cooperative may be less than the minimum number determined by law or the Articles of Association.
- Meetings of the Executive Board or the Supervisory Board of a cooperative as well as joint meetings of the Executive Board and the Supervisory Board may also be held by circulation in text form or by telephone or video conference without a basis in the Articles of Association or the Rules of Procedure.
§ 4 Conversion law
For the admissibility of the registration of conversion transactions it is sufficient if the balance sheet has been drawn up as at a record date not more than twelve months before the registration.
§ 5 Associations and foundations
- A member of the executive board of an association or foundation shall continue to hold office after the expiry of his term of office until he is dismissed or until his successor is appointed.
- The executive committee may also, without authorisation in the statutes, allow association members to
- to participate in the general meeting without being present at the place of the meeting and to exercise membership rights by electronic communication, or
- without attending the general meeting, to cast their votes in writing before the general meeting is held.
- A resolution passed without a meeting of members is valid if all members have been involved, at least half of the members have cast their votes in text form by the deadline set by the association and the resolution has been passed with the required majority.
§ 6 Condominium Owners' Associations
- The last appointed administrator within the meaning of the Condominium Act shall remain in office until he is dismissed or until a new administrator is appointed.
- The business plan last adopted by the condominium owners shall continue to apply until a new business plan is adopted.
§ 8 Authorisation to issue ordinances
The Federal Ministry of Justice and Consumer Protection shall be authorised to extend the validity of sections 1 to 5 in accordance with section 7 until 31 December 2021 at the latest by statutory order without the consent of the Bundesrat if this appears necessary due to the continuing effects of the COVID 19 pandemic in the Federal Republic of Germany.
Article 5: Contractual Provisions on the Occasion of the COVID 19 Pandemic (Amendment to the Introductory Act to the EGBGB)
§ Article 1 Moratorium
- A consumer shall have the right to refuse performance of a claim relating to a consumer contract which is a continuing obligation and which was concluded before 8 March 2020 until 30 June 2020 if, as a result of circumstances attributable to the spread of infection with the SARS-CoV-2 virus (COVID-19 pandemic), it would not be possible for the consumer to perform the service without jeopardising his reasonable subsistence or the reasonable subsistence of his dependants. The right to refuse performance exists in relation to all material continuing obligations. Material continuing obligations are those which are necessary for the provision of services of general economic interest.
- A microenterprise has the right to refuse performance of a claim related to a contract that is a continuing obligation entered into before 8 March 2020 until 30 June 2020 if, as a result of circumstances attributable to the COVID 19 pandemic,
- the Company is unable to perform, or
- the company would not be able to provide the service without jeopardising the economic basis of its business.
- The right to refuse performance does not apply if its exercise is unreasonable for the creditor because the failure to perform would jeopardise the economic basis of his business (microenterprise) or if the exercise of the right to refuse performance is unreasonable for the creditor because the failure to perform would jeopardise his reasonable livelihood or the reasonable livelihood of his dependants or the economic basis of his business (consumer). If the right to refuse performance due to unreasonableness is excluded, the debtor has the right to terminate the contract.
- The right to refuse performance does not apply in connection with tenancy, lease and loan agreements or in connection with claims under labour law.
§ Section 2 Restrictions on the termination of tenancies and leases
- The landlord may not terminate a tenancy of land or of premises solely on the ground that the tenant fails to pay rent during the period from 1 April 2020 to 30 June 2020 despite it being due, provided that the failure to pay is due to the effects of the COVID-19 pandemic. The connection between the COVID 19 pandemic and non-performance must be made credible. Other rights of termination shall remain unaffected.
- No deviation to the detriment of the tenant is possible.
- The regulations shall be applied accordingly to leases.
- The provisions shall apply until 30 June 2022.
§ 3 Provisions on loan law
- For consumer loan agreements concluded before 15 March 2020, claims of the lender for repayment, interest or redemption payments falling due between 1 April 2020 and 30 June 2020 shall be deferred for a period of three months from the due date if, due to the exceptional circumstances caused by the spread of the COVID 19 pandemic, the consumer suffers a loss of income which means that he cannot reasonably be expected to provide the service owed. In particular, he cannot reasonably be expected to provide the service if his reasonable livelihood or the reasonable livelihood of his dependants is at risk.
- The consumer is free to continue to make his contractual payments on the originally agreed dates of performance. If he does so, the deferment shall be deemed not to have been granted.
- Cancellations by the lender due to default in payment, due to a significant deterioration of the consumer's financial circumstances or the value of a security provided for the loan shall be excluded until the expiry of the deferment. This may not be deviated from to the detriment of the consumer.
- The lender shall offer the consumer a discussion on the possibility of an amicable settlement and on possible support measures. Means of distance communication may also be used for this purpose.
- If an amicable settlement is not reached for the period after 30 June 2020, the term of the contract shall be extended by three months. The respective due date of the contractual services shall be postponed by this period.
- The above provisions shall not apply if the deferral or the exclusion of termination is unreasonable for the lender, taking into account all circumstances of the individual case, including changes in the general circumstances of life caused by the COVID 19 pandemic.
- The above provisions shall apply mutatis mutandis to compensation and recourse among joint and several debtors under section 426 of the Civil Code.
- The Federal Government shall be authorised to amend the scope of application of the above paragraphs of section 3 by ordinance with the consent of the Bundestag and without the consent of the Bundesrat and to include in particular micro, small and medium-sized enterprises in the scope of application.
§ 4 Authorisation to issue ordinances
- The Federal Government shall be empowered by ordinance, without the consent of the Bundesrat, to
- to extend the duration of the right to refuse performance for consumers and micro-enterprises until 30 September 2020 at the latest,
- to extend the termination restriction for tenancies and leases to payment arrears which have arisen in the period from 1 July 2020 to 30 September 2020 at the latest,
- to extend the period during which claims under loan agreements are eligible for deferment until 30 September 2020, and to extend the extension of the term of the agreement in the absence of an agreement on support measures following a discussion between lender and borrower to up to twelve months,
- if it is to be expected that social life, the economic activity of a large number of enterprises or the gainful employment of a large number of people will continue to be significantly affected by the COVID 19 pandemic.
- The Federal Government shall be empowered to extend the above-mentioned deadlines beyond 30 September 2020 by statutory order with the consent of the Bundestag and without the consent of the Bundesrat if the impairments continue after the statutory order enters into force.
Article 6: Entry into force, expiry
Article 1 shall enter into force with effect from 1 March 2020. Article 2 shall enter into force on the day after promulgation and shall expire at the end of 31 December 2021. Article 3 shall enter into force on the day after promulgation. Article 4 shall enter into force on 27 March 2021. Article 5 shall enter into force on 1 April 2020. Article 240 of the Introductory Act to the Civil Code shall expire on 30 September 2022.
Author: Dr. Susanne Rückert
After the Federal Government had discussed a draft law to mitigate the consequences of the COVID-19 pandemic in civil, insolvency and criminal procedure law on Monday, 23.03.2020, the formulation aid was presented to the German Bundestag as a draft law by the CDU/CSU and SPD parliamentary groups on 24.03.2020. The draft law, which - temporarily - suspends, modifies and extends basic legal regulations, was adopted under Bundestag Printed Paper 19/18110 and again contains minor changes to the previous formulation aid. In the meantime, the draft law was adopted by the Bundesrat with a single marginal amendment on Friday, 27 March 2020, under Bundesrat Printed Matter 153/20 and was executed on the same day and announced in the Federal Law Journal 2020 Part I No. 14 page 569f.
With the regulations to mitigate the consequences of the COVID-19 pandemic, the German legislator has simplified the procedure for extraordinary and ordinary general meetings in 2020, especially for stock corporations, (equally for cooperatives, associations and partnerships limited by shares, Societas Europaea, and also for limited liability companies). Although, at first, these regulations only apply in 2020, the extent of these adjustments is appropriate in the light of current events and are a visible relief for companies, particularly with regard to the costs and the planning of a general meeting.
In theory, the legislator is creating a new instrument that allows affected companies to make necessary resolutions and to remain capable of acting, despite possible restrictions due to the pandemic. However, questions must also be allowed as to what the practical implementation looks like, which risks have to be considered and where the legislator has missed to find a clear regulation.
The law provides, among other regulations, that without an authorisation from the statutes or by-laws
- the management board may enable online participation in the general meeting,
- a general meeting without physical presence of the shareholders may be held with limited opportunities for avoidance,
- the convocation period may be reduced to 21 days,
- the management board is authorised to make advance payments on the net profit or the compensation payment, and
- the general meeting can be held within the fiscal year.
With regard to the simplifications mentioned above, it should be noted that all measures may be implemented by the management board without authorisation of the statutes or by-laws, but that these simplifications still require the approval of the supervisory board. However, the new legislation allows the supervisory board to make decisions in writing, by telephone or in a comparable manner without the physical presence of the supervisory board members. In order to ensure legal certainty for the companies in the long term, the legislator now provides that decisions made at general meetings affected by the simplifications cannot be challenged on the basis of the simplification - however, wilful breaches are excluded.
In addition to the general decision to hold the general meeting without physical presence and violations of the limited duty to provide information, the violation of formal requirements for notifications pursuant to Section 125 AktG shall not give rise to any possibility of avoidance.
The management board can either order the voting right to be exercised by means of a written or electronic postal vote (postal vote) or hold a general meeting without any physical presence. Should the general meeting be held without physical presence, the company must consider the following points:
- The entire meeting, including the general debate and votes, must be broadcasted via video and audio stream, however, it is not assumed that the transmission will be technically uninterrupted and will reach every shareholder.
- The shareholders must have the opportunity to ask questions:
- The opportunity to ask questions is not equivalent to the right to information, nor does it constitute a right to an answer.
- The management board may decide on the answers to the questions at its own dutiful and free discretion.
- In case of a large number of questions, the management board may, within the limits of its dutiful discretion, group questions together, select meaningful questions and give preference to shareholders' associations and institutional investors with significant voting rights.
- The management board may also decide to submit the questions at the latest two days before the general meeting, to allow only registered shareholders to ask questions or to offer an open round of questions.
- Exercising of voting rights and granting of proxies must be made possible electronically.
- Application rights only apply if the shareholders participate electronically.
- The management board has to provide an opportunity for an electronic objection to the notary public, which has to be declared by the end of the general meeting and by means of electronic communication.
The change in law is particularly beneficial with respect to the virtual general meeting. Already in the early weeks of the pandemic, voices of general meeting experts in Germany became louder as to whether an adjustment of Section 118 AktG in line with the current crisis was possible. This concern had also been noticed by the federal government, which is making use of its legislative competence and, among other measures, providing companies with the instrument of the virtual general meeting for 2020. Since the new legislation was announced on 27 March 2020, it remains to be seen how the individual companies will make use of this opportunity. On a practical level, companies need to examine how their statutes and by-laws are designed and whether management board competence must be exercised without authorisation pursuant to the statutes. Furthermore, a concept must also be discussed with the individual service provider for general meetings in order to guarantee a smooth process of a virtual general meeting. However, a consultation with the notary public is also indispensable, since the draft legislation recommended, among other measures, that the notary public should be present at the actual location of the chairman for the notarisation process.
Finally, it should be noted that the substantial restriction of the right to information under Section 131 AktG appears questionable - not only from a shareholder perspective. Not only does it affect the essential right of shareholder participation, the question whether such a restriction is in fact legally justifiable under European Law may also arise. Furthermore, the legislator should have considered that the simplifications only apply to decisions that are urgently required in 2020 due to the COVID-19 pandemic. As a result, potential misuse by companies could have been prevented in advance.
Please also read "Balance Sheet Meeting of the Supervisory Board in Times of COVID-19".
Autor: Peter Lange
Since the new legislation was announced on 27 March 2020, a number of general meeting service providers have already reacted and are recommending a range of measures to implement a virtual general meeting, such as:
- The general meeting can only be attended electronically. Therefore, a link to an online portal is provided on the company's website, which allows shareholders to actively participate in the meeting via stream.
- Shareholders must, however, register within defined time frames. The shareholder/representative is identified in accordance with the invitation when accessing the portal (entrance control) with the share register number or admission ticket number and a registration code (PIN). This represents the only opportunity for shareholders/representatives to receive the broadcast of the virtual general meeting.
- Questions raised in the general debate can be submitted electronically. A limitation of characters per question and a limitation of the number of questions per shareholder/representative is possible.
- Voting rights may be exercised electronically until the close of voting. The voting behaviour can be communicated in advance and can also be amended during the general meeting up until the close of the meeting. The chairman of the meeting thereby determines the time limit for exercising voting rights.
- The opportunity to object electronically to the notary public is provided until the close of the online general meeting.
In order to hold such general meetings online, configured technical systems are required. They offer opportunities but also risks - and on the plus side - are already set up.
Autor: Dr. Susanne Rückert
The new COVID 19 pandemic mitigation law also provides for the possibility of time limit reductions by the Executive Board in advance of the AGM, subject to the approval of the Supervisory Board. These are the following regulations summarised here:
- Instead of the 30-day notice period previously provided for by law (section 123 (1) sentence 1 AktG), the executive board is to be able to shorten this period to 21 days. Contrary to section 123 (2) sentence 5 AktG, the days of the registration period do not count.
- The regulations on the registration period itself were not changed. The registration must be received by the company at least six days before the meeting unless the articles of association provide for a shorter period. A shortening of the deadline by the executive board can only be considered if the articles of association authorise it.
- Due to the shortening of the deadline, the record date must also be postponed. Accordingly, in the case of a convocation on the day before the meeting, the twelfth day before the meeting at the earliest shall be considered as the record date for listed companies. In the case of bearer shares of the company, a convocation must be received at the latest on the fourth day before the general meeting. Deviating provisions of the articles of association shall be irrelevant here. In the case of a convocation with a shortened notice period, the notice pursuant to § 125 (1) sentence 1 of the Stock Corporation Act must be given no later than twelve days before the meeting; the notice pursuant to § 125 (2) of the Stock Corporation Act must be given to those registered in the share register at the beginning of the twelfth day before the general meeting.
- Requests by shareholders for additions to the agenda (section 122 (2) AktG) must be received by the company at least 14 days - instead of the previous 24 or 30 days - before the meeting. Due to the systematic position of the regulation, it is to be assumed that this shall only apply if the general meeting was convened with the shortened notice period of 21 days.
- The regulations are intended to apply to general meetings convened before 3 September 2020 as well as to those convened after that date.
- The board of directors may also decide that the general meeting shall be held within the financial year, in derogation of section 175 (1) sentence 2 AktG. It is therefore sufficient if the ordinary general meeting for the previous year takes place by the end of the current financial year. The decision of the executive board on an extension of the deadline requires the consent of the supervisory board. Notwithstanding the provisions in the articles of association or the rules of procedure, the supervisory board may, in derogation of section 108 (4) of the AktG, adopt the resolution of approval without the physical presence of the members, in writing, by telephone or in a comparable manner.
- The aforementioned new regulations also apply to partnerships limited by shares; the regulations are to be partially applicable to the European Company (SE).
The regulations of the recently passed law are very welcome against the background of the current COVID 19 pandemic. In some places, clarification by the legislator is still needed.
- One problem is that if the general meeting is convened with a shortened 21-day period, shareholders' requests for additions to the agenda must be received by the company at least 14 days before the general meeting is held. Consequently, this means that in such cases the company has less time to prepare for the shareholders' requests for additions to the agenda. Whether the requests for additions can then still be adequately taken into account is questionable, especially in the case of extensive requests and also against the background of the planning of a virtual meeting.
- However, the new provisions do not comment on the interaction between the now existing possibility to hold general meetings within a financial year and the shortened notice period pursuant to section 123 (1) sentence 1 AktG. Since section 123 (1) AktG only prescribes a minimum period, a voluntary extension of this period by an earlier announcement of the convocation is perfectly permissible. However, in order not to obstruct the shareholders' protection of disposition by the danger of forgetting, a limit of about 10-12 weeks before the general meeting is to be set for the early announcement. Exceeding this "maximum period" can therefore lead to the contestability of the resolutions passed in the general meeting. It cannot be ruled out that constellations may arise in which the extension of the eight-month period standardised in section 174 (1) sentence 2 AktG to 12 months can de facto not be used, since the maximum period - in the absence of regulations to the contrary to date - also applies in these cases. An improvement on the part of the legislator would also be desirable here.
Authors: Verena Leuchten, Peter Lange
On Wednesday, 25 March 2020, the Federal Parliament unanimously passed a bill of the CDU/CSU and SPD parliamentary groups to mitigate the consequences of the COVID 19 pandemic in civil, insolvency and criminal procedure law.
With regard to the regulations in the new COVID-19 Insolvency Suspension Act ("COVInsAG"), the following can be summarised:
Pursuant to Section 15a (1) sentence 1 of the German Insolvency Code (Insolvenzordnung, "InsO"), the management bodies of legal entities and partnerships shall file a request to open insolvency proceedings without undue delay, but at the latest, however, three weeks after the commencement of insolvency or overindebtedness.
Based on the new regulations the obligation to file for insolvency is to be temporarily suspended due to the SARS-CoV-2 virus (COVID-19 pandemic). This is intended to protect companies that got into financial troubles as a result of the COVID-19 pandemic. This consideration is based on regulations that were established after the flood disasters of 2002, 2013 and 2016. This regulation intends to prevent companies from having to file a request to open insolvency proceedings before the aid measures to be decided on by the German government take effect. The obligation to file a request to open insolvency proceedings is to be suspended for a period until 30 September 2020.
Prerequisite for the suspension of the obligation to file a request to open insolvency proceedings (Section 1 COVInsAG)
To apply for the suspension of the obligation to file for insolvency:
- The reason for insolvency is based on the effects of COVID-19.
- There are reasonable prospects of remediation based on an application for public assistance or serious financing or remediation negotiations by an applicant.
According to Section 1 of the COVID-19-Insolvency-Suspension-Act (COVID-19-Insolvenzaussetzungsgesetz, "COVInsAG"), there is a legal presumption that an insolvency is based on the effects of the COVID-19 pandemic and that there are prospects of eliminating an existing insolvency if the debtor was not insolvent on 31 December 2019. Conversely, this means that there is no suspension of the obligation to file a request to open insolvency proceedings if the insolvency is not based on the consequences of the spread of the COVID-19 pandemic or if there are no prospects of eliminating an existing insolvency.
For natural persons, the special feature applies that, under certain conditions, residual debt discharge cannot be refused if the opening of insolvency proceedings is delayed between 1 March 2020 and 30 September 2020.
The Section is initially to apply until 30 September 2020. However, the Federal Ministry of Justice is to be authorized to extend the suspension until 31 March 2021 at the latest, if this appears to be necessary due to continued demand for available public assistance, ongoing financing difficulties or other circumstances (Section 4 COVInsAG).
Consequences of the suspension of the obligation to file a request to open insolvency proceedings (Section 2 COVInsAG)
If the obligation to file a request to open insolvency proceedings is suspended, payments which are made in the ordinary course of business, in particular those payments which serve to maintain or resume business operations or to implement a restructuring concept, shall be deemed to be in keeping with the due care of a prudent manager faithfully complying with his duties.
In addition, the repayment of a new loan granted during the suspension period, if it takes place before 30 September 2023 latest, and the provision of collateral to secure such loans during the suspension period are not deemed to be detrimental to creditors.
Furthermore, the granting of a loan and the provision of security are in general considered to not be immoral; legal acts which have granted security or reimbursement to the other party or enabled the other party to be granted security or to be reimbursed and which the other party was legally empowered to claim in that type and at that time are generally not contestable in subsequent insolvency proceedings. Moreover, the granting of credit and collateral during the suspension period should not be regarded as an immoral contribution to the delay in filing for insolvency.
In the case of requests to open insolvency proceedings filed by a creditor within a certain period of time, pursuant to § 3 COVInsAG insolvency proceedings shall only be opened if the reason for opening the proceedings already existed on 1 March 2020.
Risks of the planned regulation
However, the new regulations also entail risks for those responsible in the company. If an insolvency occurs, management bodies must prove that the offence of a delay in filing for insolvency are not fulfilled. They must therefore be able to prove that the company's financial difficulties were caused by COVID-19 and that it was therefore not possible to file for insolvency immediately. It is therefore advisable that management bodies document exactly what influence COVID-19 has on the financial situation of the company and how far negotiations on state aid have progressed. The management bodies are therefore required to carry out a thorough examination to determine whether their company meets the requirements for suspension of the obligation to file for insolvency. If corporate bodies waive an application for insolvency although the conditions for suspending the obligation to file for insolvency are not met by their company, there is a risk of substantial criminal and civil penalties. It remains unclear whether companies should also be included that were already in a restructuring process before the COVID-19 pandemic occurred and whose positive prognosis for continued existence up to that point is counteracted by the direct and indirect effects of the COVID-19 pandemic. This has to be examined in detail in each individual case. In this context it remains also unclear whether the legislator will improve the regulations in the future.
Autor: Verena Leuchten
In order to protect consumers and entrepreneurs from the economic consequences of the COVID-19 pandemic, the legislator has introduced temporary regulations in the area of Civil Law in favour of those affected: Consumers and microenterprises are granted the right to refuse performance in the case of substantial continuing obligations. The tenant or lessee can no longer terminate tenancies and leases in the event of non-performance. Concerning consumer loan agreements, claims are deferred for the benefit of consumers and termination options are excluded. The new regulations are temporary and limited for a period of a few months and generally apply until 30 June 2020. However, in the event that the COVID-19 pandemic cannot be successfully overcome within this period, the legislator has, as a precaution, already provided authorisations that allow the regulations to be applicable up until 30 September 2020 and even beyond.
Right to Refuse Performance for Consumers and Microenterprises
Consumers and microenterprises with substantial continuing obligations concluded before 8 March 2020 will be granted the right to refuse performance until 30 June 2020 if they are affected by the COVID-19 pandemic:
Microenterprises as defined by the new law are enterprises with less than 10 employees and an annual turnover or annual balance sheet not exceeding EUR 2 million. A continuing obligation shall be substantial if it is necessary for the adequate provision of essential services (for consumers) or the adequate business continuation (for microenterprises). The law is designed to secure the provision of basic services (electricity, gas, water and telecommunications) for consumers and micro-enterprises.
Consumers are affected by the COVID-19 pandemic if they would not be able to provide the service without risking their livelihood or that of their dependants due to circumstances caused by the spread of infection with the SARS CoV-2 virus. Microenterprises have the right to refuse to perform if they are unable to provide the service due to circumstances caused by the COVID-19 pandemic or if they would not be able to provide the service without risking the economic viability of their business.
The debtor's right to refuse performance shall be void if the refusal of performance is unreasonable for the creditor. The debtor's right to refuse performance shall be void if the refusal of performance is unreasonable for the creditor in the individual case. According to the new law, this shall apply if the creditor himself is in a state of emergency due to the COVID-19 pandemic. In this case, the debtor is entitled to terminate the continuing obligation.
However, it is currently still unclear how those affected will have to prove the causality of the Covid-19 pandemic. Due to the substantial restrictions of legal positions and in order to fulfil the purpose of the new regulations, still, high demands are likely to be required. For microenterprises, the submission of a monthly profit and loss account, comparative figures from the previous year and hard copies such as notices of termination or cancellations may be considered.
These regulations do not apply to tenancy, lease and loan agreements or to claims under labour law.
Restriction on Termination of Tenancy and Lease Agreements
According to the new legislation, a landlord cannot terminate the tenancy for the sole reason that the tenant does not pay the rent in the time period from 01 April 2020 to 30 June 2020 due to the impact of the COVID-19 pandemic. The connection between the COVID-19 pandemic and the non-payment must be made credible. The regulation applies to all tenancies of real estate or premises and must be applied to leases accordingly.
Due to the termination restriction for tenancies, a number of large companies have already announced their intention to temporarily suspend rental payments. Although the law does not provide that the obligation to pay the rent does not apply, it deprives the landlord of the sanction to terminate the agreement. . The difficulty with this regulation appears to be that the problem is initially entirely passed on to the landlord. Once the regulation expires, the tenant faces the problem of paying the arrears of rent. The contracting parties should therefore consider whether a different regulation can be negotiated.
Consumer Loan Agreements: Deferment and Termination Restrictions
The new legislation also introduces several regulations to protect consumers on consumer loan agreements. With regard to consumer loan agreements concluded before 15 March 2020, the due claims of the creditor within the period as of 1 April 2020 until 30 June 2020 shall be deferred for a period of three months beginning with the due date.
This facilitating regulation requires that the consumer suffers a loss of income due to the COVID-19 pandemic which makes it unreasonable to expect the consumer to perform the service owed. An unreasonable situation shall apply in particular if the reasonable livelihood of the consumer or the reasonable livelihood of his dependants is at risk. A deferral does not apply if the consumer performs the service in accordance with the agreement. The new legislation also provides the opportunity for the contracting parties to negotiate alternative arrangements, e.g. partial performance or debt rescheduling.
Moreover, a termination due to a significant deterioration in the financial circumstances of the consumer or the value of the collateral provided should be excluded until the expiry of the deferral. The new legislation also provides that the creditor shall offer the consumer the opportunity to discuss the possibility of a mutual agreement as well as support measures. If a mutual agreement cannot be reached for the time period beginning 30 June 2020, the agreement period shall be extended for a period of three months and the respective due date of the contractual services shall be postponed by this period.
The aforementioned regulations do not apply if the deferral or exclusion of termination is considered unreasonable for the creditor in an individual case, including taking into account the changes caused by the COVID-19 pandemic.
Autor: Constantin Schulte Steinberg
"Pacta sunt servanda" - in times of Covid-19, this principle, which is especially critical for company acquisitions, is likely to be increasingly called into question. Collapsing earnings and the threat of recession lead us to expect that in the case of company purchase agreements that have just been concluded and are about to be executed, so-called Material Adverse Change ("MAC") clauses will be resorted to in order to rescind or renegotiate purchase prices, or that the inclusion of Covid-19-related negative scenarios in MAC clauses will be demanded in ongoing contract negotiations.
In order to take into account changes in the economic conditions of the target company between the time of signing and closing, MAC clauses have recently also increasingly found their way into company purchase agreements in Germany. MAC clauses generally allow the buyer to withdraw from the contract if the condition of the acquiring company deteriorates significantly between the signing and the closing of the business combination agreement. Such clauses serve the buyer to safeguard the condition of the acquisition company until completion, since he is often already affected by the consequences of an economic deterioration at the target company, but on the other hand he cannot yet exert any comprehensive influence on the company. At the same time, after signing, the seller side has a high economic interest in ensuring that a transaction does not subsequently fail. Therefore, a provision is often found in MAC in favour of the seller, according to which a MAC event does not exist if this is due to exogenous factors affecting the whole economy.
Against this background, the current Covid-19 crisis is likely to be relevant in two constellations:
- What role do MAC clauses play in transaction processes that are still ongoing and about to be signed?
- To what extent is transactional certainty affected in transactions that have already been completed and are still pending execution?
In ongoing transactions, even if they are close to closing and do not fall victim to Covid-19, it is imperative for the management of the acquiring company to ask itself whether, due to the ongoing Covid-19 crisis, a MAC clause needs to be added to the purchase agreement or whether an already negotiated clause needs to be adjusted. If a consideration leads to foregoing this step, this should be supported by an external assessment and carefully documented.
When deciding on the design of a MAC clause, the parties will face two challenges in particular:
- What impact can the current Covid-19 crisis have on the target company and which scenarios should therefore be covered by a MAC clause?
- What is the likely timeframe between signing and execution of the company purchase agreement?
Usual empirical values cannot be used in answering these questions, as the scope of Covid-19 impairments is a novelty and the environment is changing with considerable dynamics. The competition authorities have already announced extended processing times and other enforcement conditions will also only be fulfilled with a time lag.
For the formulation of future clauses, it seems advisable in the interest of both parties to strive for more differentiated approaches. This may also be advisable on the legal consequences side - if a transaction is concluded despite the current circumstances, a release from the contract, as is usually the case (all or nothing), may often not be the appropriate remedy.
In the case of business purchase agreements that have already been concluded but not yet executed, the parties also face challenges.
First, there is the obvious question of whether an existing MAC clause applies at all and whether the buyer side can derive rights from it. Due to the common formulations of MAC clauses so far, according to which in particular cases of force majeure explicitly do not constitute a MAC case, good arguments should often be found that the MAC clause does not apply. In individual cases, however, this will strongly depend on the individual drafting, but also on the objective the parties have pursued with the MAC clause.
Nevertheless, sellers will often find themselves confronted with the buyer side using the MAC clause as a gateway to start a discussion about the purchase price. Often this will be commercially quite understandable, given that companies are just losing their earning power for an unknown period of time and at the same time face the threat of a prolonged recession. This makes it all the more important for sellers to prepare for this in advance and to evaluate the options of forcing a closing on the agreed terms in a court of law in an emergency - so far such disputes have been very rare, but Covid-19 could also reject known principles of experience in this respect.
In addition to MAC clauses, purchasers who regret a transaction may also try to avoid the contract through the legal principle of Section 313 BGB, i.e. a lapse of the basis of the contract. Although this principle is often excluded in connection with the damages regime of the sales contract - depending on the contract design, the buyer side will be able to argue that such an exclusion was only made in connection with the guarantee catalogue, circumstances such as the current Covid-19 crisis are consequently not covered.
Authors: Jan Hartmann, Bettina Geuder
In addition to the question of postponing the annual general meeting, the current annual general meeting season also raises, among other things, the question of virtually holding the meeting of the supervisory board to adopt the financial statements:
- In principle, the articles of association of a public limited company may permit a meeting of the supervisory board free of time limit and form. In the literature and also by the Legal Committee of the Bundestag (Resolution Recommendation and Report of the Legal Committee, BT. Drucksache 14/9079, p. 17f.) it is recommended, however, to hold at least one face-to-face meeting per year and not to over-extend virtual meetings so that the supervisory board does not violate its duty of care.
- The above applies in particular to the balance sheet meeting. Here the law in § 171 para. 1 sentence 2 AktG provides that the members of the supervisory board shall discuss the annual financial statements in detail together with the auditor. Up to now it has been disputed whether this can only be ensured within the framework of the presence meeting or also through virtual meetings (video or internet conference). The voices against the second option are likely to be partly outdated here. Many of them, as well as the resolution recommendation of the legal committee of the Bundestag, date back to 2002. In the meantime, technology has advanced much further and can ensure a detailed exchange between the parties involved in the annual financial statements.
- Particularly in times when external factors make it seem necessary that the existing technology must and can ensure the possibility of continuing the work, the requirement for formalities provided by a law must not be interpreted too formally. Rather, it should be based on the meaning and purpose of the provision; accordingly, it should not be the form of the dispute, but the intensity of the dispute in terms of content that is the yardstick for the fulfilment of the supervisory board's duties.
Author: Peter Lange
The corona virus leads to exceptional circumstances for companies, including the area of competition law. The European competition authorities of the European Competition Network (ECN) already recognised this and published a joint statement on 23 March 2020 on possible loosening but also with warnings (joint statement on the BKartA website). The authorities explicitly warn not to exploit the situation for charging excessive prices in the health care sector, but also announce possible loosening in some areas of competition law. In the following, we provide an overview of this statement and summarize the impact of the Corona crisis on competition law:
Loosening of competition law
The authorities said they are aware of the social and economic consequences of the Corona virus. Cooperation between competitors to ensure the distribution of scarce products might be possible, the authorities announced in their joint statement. Companies willing to cooperate could contact the competition authorities if they had any concerns.
The German Federal Minister of Economics Altmaier had already considered the loosening of the anti-trust law in Germany, at least for retail chains, due to the border closures, and allowing cooperation between the food industry and retail trade. In the UK, food retailers could be allowed to exchange information on stock levels and cooperate on transport, storage capacities and personnel to ensure deliveries (see also the CMA's notification).
Relationship to competitors
Many cartels in the past had their origins in crisis. Corona already has a huge impact on the German and worldwide economy. However, the crisis does not give any "right of self-defence" for competition law violations. Coordinated actions with competitors are critical from a competition law perspective. Discussions and agreements between competitors on how to deal with the crisis, e.g. with price increases for increased costs or concerted rejection of supplier/customer claims, are considered to restrict competition. This also applies, of course, when competitors meet in associations. There is great risk that the common misery may result in a prohibited agreement. Companies should therefore check possible contacts with competitors to ensure that they are permitted under competition law. E.g. discussions on possible protective and hygiene measures in companies may be permissible.
Impact on dealers' prices
In their joint statement, the authorities clarify that manufacturers may use price caps to force their dealers not to exploit the situation for "unjustified price increases". The ban on cartels still applies with regard to minimum prices. Should the dealer decide to reduce prices to stimulate business, suppliers may not counteract this or even prohibit it. Suppliers may also issue non-binding price recommendations. But this only applies as long as the recommendations do not lead to a fixed price, e.g. by granting incentives or threaten with disadvantages.
Note: The Corona virus often also affects the supply relationships between suppliers and customers. "Force majeure" can lead to a suspension of contractual performance obligations (we will be happy to send you a Fieldfisher overview on request).
In their joint statement, the authorities also issue a warning not to take advantage of the situation to charge excessive prices, especially in the health care sector. The problems in the supply chain and the shortage of essential products are already leading to significant price increases of certain products due to the enormous demand. Some companies already charge four times the average price for certain hygiene products. Such practices are currently being monitored by the cartel authorities. For example, the English CMA has already established a COVID-19 task force to combat negative effects on competition (CMA's notification). The CMA fears that companies could exploit the current situation by charging excessive prices or giving misleading statements about their products. The CMA has already contacted companies and platforms on suspicion. The Greek HCC also initiated investigations following numerous consumer complaints and already sent questionnaires to various companies active in the production, import and marketing, especially for surgical masks and disposable gloves. In Germany, especially market-dominant companies are subject to special obligations, but also every other company is subject to the limits of usury in its pricing, which is even punishable under criminal law in Germany. The authorities warn that they will not hesitate to take immediate action should they become aware of such conduct.
The Corona virus can lead to the disruption of supply chains and thus cause shortages of certain products. In this case market-dominant companies must serve their customers without discrimination.
In the context of merger control, companies must expect longer waiting periods. Various competition authorities have already announced delays. For this reason, the German Bundeskartellamt, the European Commission and the French Autorité de la concurrence for example ask companies and their representatives to reconsider whether it is necessary to submit proceedings and to postpone notifications as far as possible (Commissions's notification/ notification of the BKartA).
Cartel damages: longer duration of proceedings
Companies planning to claim for cartel damages must be prepared for longer proceedings. On the one hand, courts are already largely occupied with ongoing proceedings. On the other hand, courts in many federal states are in course of the crises required to take measures to prevent the spread of the Corona virus. This includes the closure of court rooms and the cancellation of hearings (announcement of the Dusseldorf Regional Court). As a result, a considerable proportion of the proceedings already scheduled are postponed. The management may be obliged to examine possible claims for damages. When considering whether to sue for damages (as well as evaluating settlement proposals), the longer duration of proceedings may become relevant.
The Corona crisis will have no impact on the disclosure and prosecution of cartels by the authorities. The cartel authorities remain operational. The Bundeskartellamt already announced that the authority's ability to work is assured (notification of the BKartA). The Bundeskartellamt's whistleblower system also remains open. Companies can receive a 100% immunity from fines if they are the first to approach the Bundeskartellamt and uncover a cartel or play a decisive role in uncovering it through their contribution. All other cartel members can receive a reduction of up to 50% if they cooperate with the Bundeskartellamt on a permanent and unrestricted basis.
Besides coping with the economic challenges and losses caused by the Corona crisis, those responsible in companies are still required to ensure compliance with competition law, because even in times of crisis the risk of a violation of competition law is not reduced. In particular, the challenges of dealing with competitors needs to be kept in mind. You can find further information in our Corona Executive Update on our website.
Europe: The European Commission has launched a website on coronavirus and rapid response (link to the Commission's website). Here the Commission publishes measures against the coronavirus, but also provides information, for example, about fraudulent practices on the Internet. The German Minister of Economics, Altmaier, told Commission's head of competition, Margrethe Vestager, that the current aid programmes would not be sufficient. He said that further emergency measures were necessary to support EU companies during the Covid-19 pandemic.
France: The French Autorité de la concurrence informs that the time limits for proceedings before the authority will be adjusted due to legal orders in the context of the health emergency. This concerns merger cases, establishment of regulated legal professions, filing of observations and briefs, leniency applications, transmission of procedural documents, prescription, appeals and the execution of commitments and injunction (see here).
Netherlands: The Dutch ACM provides information on coronavirus on their website (link to the ACM`s notification). However, the authority is doing "business as usual" and remains available. Companies that want to cooperate could contact the authority as several companies already did. Additionally the ACM also stresses that companies must not take advantage of the crisis.
Norway: The Norwegian Konkurransetilsynet also warns not to take advantage of the current situation after receiving information about disproportionate price increases for certain products. The Authority is considering applying the 'Price Policy Act', which prohibits unreasonable prices and business conditions and allows the Authority to regulate prices for important goods and services (link to notification). In principle, however, the authority is of the opinion that free competition is best for society and consumers.
Austria: The BWB also recognises the need for cooperation and is currently prioritising complaints from the health sector (link to BWB's press release). The deadlines for merger control procedures have been changed by law: For all notifications filed after 21 March 2020 and before 30 April 2020, Phase I will end on 29 May 2020. Early clearances remain possible upon request. Notifications additionally can now be made electronically (more information here)
Spain: Similarly to France, the Spanish CNMC also refers to Spanish legislation which provides for the suspension of time limits and deadlines for the completion of procedures of public bodies (link to CNMC's notification). The CNMC has set up a special e-mail account to deal with complaints and requests relating to Covid-19. Given the exceptional circumstances, certain anti-competitive practices may be justified (Information (in Spanish))
Czech Republic: The Czech competition authority has stated that during the pandemic, access to files will be provided electronically or via flash drive. The measure mainly aims at public procurement cases, but it also covers cartel cases. Documents that would not be accessible in a normal scenario will not be made available even now.
Turkey: The Turkish authority has announced "zero tolerance" for abusive prices in the food sector due to the corona outbreak.
UK: After the British CMA published a guidance regarding business cooperation under competition law, the FCA (Financial Conduct Authority) and the PSR (Payment Services Regulator) have confirmed their support in the context of the pandemic and a consistent approach in the financial services sector (link to FCA's website).
US: The Antitrust Division of the Department of Justice (DoJ) and the Federal Trade Commission (FTC) have issued a joint antitrust statement on Covid-19 (link to Statement). The authorities want to make it clear to the public that there are many ways in which companies, including competitors, can engage in pro-competitive cooperation that does not violate antitrust law. For this reason, the authorities will attempt to respond to all COVID-19-related inquiries, and inquiries concerning public health and safety, within seven calendar days after receiving all necessary information.
Author: Pia Meetz
From our international offices
On this page you will find relevant information on legal measures in France in the context of the COVID 19 pandemic (French/English).
Legislative Decree No. 18 of 17 March 2020
Legislative Decree "Cure Italy": Measures to support families, workers and businesses.
The Decree "Cure Italy": with this decree, which entered into force on 17 March 2020, the government has introduced measures to strengthen the national health system and provide economic support to families, workers and businesses in the context of the epidemiological emergency of the coronavirus (COVID-19).
The provisions adopted cover various aspects of the daily lives of individuals and businesses and should also be examined in light of the numerous measures taken by independent authorities and public administrations.
We have therefore separately analysed the main measures relating to administrative law, contracts, real estate, intellectual property, corporate tax and liquidity (as well as labour law, as set out in our previous alert, which can be downloaded here).
On this page you will find relevant information on legal measures in the UK in the context of the COVID 19 pandemic.