Corporate governance during the Coronavirus outbreak – Exceptional measures enacted in Luxembourg
The ongoing Coronavirus outbreak is testing the foundations of modern society. In the corporate world, it is making companies globally rethink their usual working practices and policies, including their corporate governance mechanisms.
Given the health concerns associated with the current outbreak, together with travel restrictions and restrictions on gatherings of people imposed by the government, it is not only inadvisable but in fact virtually impossible to hold physical meetings in Luxembourg. Instead, companies have to consider potential alternatives which would allow decisions to be made in a safe and socially responsible manner.
Following the declaration of a state of emergency on 18 March 2020, Luxembourg has taken new measures to facilitate companies holding their meetings remotely.
To this effect, the Grand Ducal Regulation of 20 March 2020 introducing measures concerning the holding of meetings of companies and any other moral persons (the Regulation) was adopted after taking into account the advice of the Luxembourg Chamber of Commerce. The Regulation entered into force on the day of its publication i.e. 20 March 2020.
What changes pursuant to the Regulation?
The Regulation brings significant and, in the current environment, much needed changes to the shareholder and board meeting holding mechanisms provided for in the Luxembourg law of 10 August 1915 on commercial companies, as amended (the Companies Law) by introducing alternative means to adopt decisions as follows:
- Shareholder resolutions: All Luxembourg companies can hold their general meetings without physical presence and can require their shareholders or any other participants to the general meeting to exercise their rights exclusively through (1) a written voting form or electronic voting form, (2) a proxy or (3) videoconference or any other telecommunication means that permits identification of the participants to the meeting
Special reference is made to listed entities which are subject to the Law of 24 May 2011 on the exercise of the general meetings for listed companies where a shareholder or any other participant has designated an agent different to an agent designated by proxy as mentioned above but in line with article 8 of such law. In such case, this agent can only participate to the general meeting by the means provided within the Regulation.
The same provisions also apply to bondholders’ meetings.
- Board resolutions: The Regulation provides that board resolutions may be adopted in writing and meetings may be held, without the physical presence of members being required, via videoconference or any other telecommunication means that permits identification of the participants to the meeting.
These provisions apply to resolutions to be taken by any other bodies of the company (other than the general meeting).
It is particularly important to note that the provisions above apply notwithstanding any provisions to the contrary included in the articles of association (the Articles) of the company.
Any shareholder / member of other corporate bodies attending meetings or participating in resolutions pursuant to the means provided by the Regulation shall be considered as present for the purposes of calculating the quorum and majority of that assembly.
Other notable considerations
The provisions of the Articles relating to the signing of the minutes of the board meeting will also need to be considered, as in the absence of provisions allowing a dedicated member of the board e.g. the chairman of the meeting to sign the minutes alone, such minutes should normally be signed by all of the members of board who attended the meeting. Electronic signatures may be considered in such circumstances, subject to conditions.
On the basis of the Companies Law, shareholder resolutions in private limited liability companies with up to sixty shareholders (sociétés à responsabilité limitée - Sàrl) may also be taken in writing, provided that such resolutions do not amend the Articles. This adds even more flexibility when physical meetings are impossible to hold. It is important, however, to verify that the Articles do not provide for a lower threshold, which, if exceeded no longer allows for written resolutions to be adopted – this may be the case, for example, for companies which have not aligned their Articles with the 2016 amendments of the Companies Law which raised the relevant threshold from twenty-five to sixty shareholders.
During the shareholder meeting, shareholders normally have the right to pose questions on the agenda. In order to facilitate this during the remote voting process, the company could consider allowing shareholders to submit questions in writing in advance of the meeting. It is also worth noting that, according to the Companies Law, shareholders are entitled to inspect certain documents, including the annual accounts, the management report and/or the auditor’s report at the registered office of the company, in advance of the annual general meeting. As the possibility of a shareholder travelling to and inspecting such documents at the registered office is currently heavily restricted by emergency measures put in place in order to tackle the Coronavirus situation, it would be prudent to consider whether such documents may be made available to shareholders in a more easily accessible manner.
In listed companies, the absence of physical meetings makes it a challenge for the board to engage with shareholders. Listed companies should therefore increase their shareholder engagement efforts and give their shareholders the opportunity to ask questions to, and connect with, the management or the board. In the U.S., Proxy Advisory Firms, representing the shareholders of listed companies, have already expressed that concern and will recommend voting against proposals made by the board where the board is planning to hold a virtual-only shareholder meeting and the company does not give its shareholders the same rights and opportunities to participate as they would at an in-person meeting. Luxembourg companies listed on the NYSE will have to take these positions into consideration when organising their shareholder meetings. Luxembourg companies listed on other regulated markets will have to reflect on these considerations to ensure proper shareholder engagement and the approval of the resolutions proposed by the board to the company’s shareholders.
Importantly, the application of any remote voting or meeting attendance (whether pursuant to the Companies Law or the Regulation), with respect to either board or shareholder resolutions, should also be assessed from a tax perspective.
Can the company hold its meetings outside of Luxembourg?
The holding of board or shareholders meetings outside of Luxembourg may have consequences on the nationality of the company, as well as significant tax consequences.
According to the Companies Law, in order for a company to have Luxembourg nationality, such company’s central administration (administration centrale) needs to be exercised from Luxembourg.
While the location of the central administration of a company is a factual matter, several criteria have to be taken into consideration to determine the location of such central administration. Typically, such criteria includes the place where the management decisions are taken and the place where shareholder meetings are held.
The Companies Law includes certain useful presumptions in this respect, by providing that meetings held by video conference and other permitted telecommunication means are deemed held at the registered office of the company. These, often overlooked, provisions of the Companies Law may prove very useful in times where physical meetings are no longer an option.
Ultimately, if, due to personal circumstances, managers / directors cannot attend meetings or participate in decision-making in a manner that would not be detrimental to the nationality of the company, the shareholders may need to consider making certain replacements or additional appointments at the level of the board.
Extended deadlines for the approval and filing of the 2019 annual accounts
The topic of holding shareholder / board meetings is particularly relevant in the context of the general statutory obligation incumbent on most Luxembourg companies to have their annual accounts approved by the general meeting within six months after the closing of the financial year and filed, within one month thereafter, with R.C.S. Luxembourg.
With respect to the annual general meeting, the Regulation foresees that all companies, contrary to what has been stipulated in their Articles and despite the provisions in the Companies Law, are authorised to convene their annual general meeting within a period which ends on the later of the following dates:
- six months after the end of the financial year; and
- 30 June 2020.
Under the Regulation, companies that have already called their annual general meeting are given the right to postpone such meeting until 30 June 2020 at the latest. Any company that wishes to take advantage of this right or the other provisions of the Regulation regarding attendance at the meeting, should publish their decision and notify its shareholders or any other participant to the meeting in the same form in which it had convened its meeting or by publication on its website up to three working days before the initial date of the meeting.
The Luxembourg Business Registers have also announced that they have allowed companies an additional administrative period of four months for filing the 2019 annual accounts. This means that for 2019 annual accounts filed up until 30 November 2020, companies are not subject to late filing charges.
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