Virtual General Meeting 2021 – Stronger Shareholder Questions, Shorter Deadlines, and Codified Fiction Solution
Shortly before the end of last year, i.e. on 22 December 2020, the Bundestag passed an "Act on the Shortening of the Residual Debt Exemption Procedure and on the Adjustment of Pandemic-Related Provisions in Company, Cooperative, Association and Foundation Law as well as in Tenancy and Lease Law" (herein-after referred to as the "Adjustment Act"), in which, among other things, the provisions on the virtual general meeting of public limited companies are again adjusted to take into ac-count experiences from the past year. The relevant regulations can be found in Art. 11 of the Adjustment Act.
The adjustments to the general meeting are only marginal in terms of text, but quite significant in terms of content.
Extension and entry into force
The virtual general meeting is now permitted until the end of 2021. However, the following amendments will only come into force on 28 February 2021 – therefore, these rules cannot be applied to general meetings held until 27 February 2021.
Right to ask questions and obligation to answer
The shareholders' previous "opportunity to ask questions" has been upgraded to a "right to ask questions". In addition, the board is now obliged to answer the shareholders' questions. In the future, it will no longer be at the discretion of the board "whether" to answer shareholder questions, but it must do so. However, the board can still decide "how" it answers questions "according to its dutiful, free discretion" (“pflichtgemäßes, freies Ermessen”). Thus, for example, the combination of several questions in individual blocks of answers is permissible, but the complete non-answering of permissible questions will in the future constitute a challenge-relevant offence.
With the regulations on the right to ask questions and the obligation to answer them, the legislator is responding to a variety of voices from practitioners, especially from shareholder protection groups. It remains to be seen whether this is compatible with the possibility for shareholders to submit questions in advance of general meetings. In any case, a flood of questions should not be encouraged by legislation.
Extension of the deadline for submitting questions
In addition, the possibilities of the board to limit the shareholders' right to ask questions in terms of time were also restricted. While the board could previously stipulate that questions must be submitted up to two days before the general meeting, the deadline has now been extended to one day before the general meeting. However, questions within the general meeting (and thus further inquiries) are still excluded.
The extension of the deadline for submitting questions to one day before the general meeting, in our view, was not absolutely necessary, and it also seems doubtful whether it is appropriate. In the past AGM season, the previous deadline of two days before the AGM probably rather improved the quality of the answers given to the questions submitted. If this deadline is now halved, it will be more difficult for companies to maintain this high level and to group the questions in a meaningful way.
"Fiction solution"
Last year, it was initially unclear how a shareholder, who under the corona rules is not entitled to ask questions or propose motions at the meeting itself, could submit a motion or election proposal. Many companies applied the so-called "fiction solution", which has now also been enshrined in law. In this case, motions and election proposals (sections 126, 127 AktG – German Stock Corporation Act) are deemed to have been made at the general meeting if they are received by the company in due time and the shareholder is duly legitimized and registered for the general meeting.
The newly introduced fiction solution responds to the experiences of the past annual general meeting season and creates legal certainty. We expressly welcome this change.
Conclusion
Given the ongoing pandemic, it was imperative to extend the opportunity for a virtual general meeting.
With the further adjustments made, the legislator is reacting to experiences from the 2020 general meeting season and is responding to voices from the field, especially from the shareholder community. The 2021 AGM season will show whether all the adjustments prove sensible.
Overall, the development is in flux and the first outlines of a new, then permanently applicable law for online general meetings are emerging. Hybrid general meetings, in which shareholders can participate both on-site and online, will hopefully be possible after Corona, but still require further regulation.
Thanks to my co-author Peter Holst, LL. M.