Germany Update: The new regulations for the virtual Annual General Meeting

The virtual Annual General Meeting for shareholders was initially a temporary arrangement for the time of the coronavirus pandemic. The regulations expired on 31 August 2022. On 7 July 2022, the Bundestag passed the law on the introduction of virtual general meetings of stock corporations (BT-Drucks. 20/2653) and thus permanently created the possibility of virtual holding. My colleague Michael Usselmann reported on the previous government draft in the blog post of 16 March 2022. The main amendments to the Act have been in force since 27 July 2022 and apply at the same time to the KGaA, the SE and the Mutual Insurance Association (VVaG):

Requirement for a statute-regulation

The linchpin of the new regulations is the newly inserted § 118a AktG: According to this, the Articles of Association of the Company can either provide for a general provision or authorize the Executive Board to provide that the meeting is held without the physical presence of the shareholders or their proxies at the place of the Annual General Meeting (virtual Annual General Meeting).

The possibility of holding a virtual general meeting does not exist by law, but must be created on the basis of a statute-regulation for the respective company. However, a transitional regulation is provided for Annual General Meetings convened up to and including August 31, 2023: According to this, the Executive Board may continue to decide, with the consent of the Supervisory Board, to hold the Meeting as a virtual Annual General Meeting until the end of the transition period without the corresponding basis of the Articles of Association (§ 26n EGAktG).

The provisions of the Articles of Association regarding the authorisation to hold virtual general meetings must also be limited to a maximum period of 5 years after registration. The time limit is justified by a strengthening of shareholder rights: Shareholders should be able to decide on the virtual format again at regular intervals.

No limitation of the agenda

Contrary to what was provided for in the government draft, the law no longer contains any restrictions on the agenda. The virtual Annual General Meeting can thus cover all resolutions of a face-to-face meeting. In the future, Annual General Meetings can therefore be held equally both as a face-to-face event, as a hybrid or as a purely virtual meeting.

Requirements for virtual holding, shareholder rights, contestation of resolutions

For the holding of the virtual Annual General Meeting, however, the following requirements must be observed by law:

• the entire meeting shall be broadcast by video and sound;
• the exercise of shareholders’ voting rights shall be made possible by means of electronic communication, in particular by electronic participation or electronic postal voting, as well as by issuing proxies;
• shareholders who are connected electronically to the meeting must be granted the right to submit motions and election proposals by means of video communication at the meeting;
• shareholders must be granted a right to information pursuant to Section 131 of the German Stock Corporation Act (AktG) by means of electronic communication;
• shareholders shall also be granted the right to submit comments by means of electronic communication;
• finally, the shareholders involved must be granted the right to speak at the meeting as well as a right to object to a resolution of the general meeting by means of video communication.

In detail, however, restrictions apply:

In the case of virtual holding, the Executive Board may stipulate, among other things, that questions from shareholders on specific agenda items must be submitted by electronic communication no later than three days before the Meeting (Section 131 (1a) AktG). The scope of the submission of questions may be appropriately limited in the convocation, e.g. to a certain number of characters. The Company must make duly submitted questions available to all shareholders before the Meeting and answer them no later than one day before the Meeting. The regulation is ultimately intended to relieve the assembly itself.

If questions had to be submitted before the Annual General Meeting, shareholders will only be granted a more far-reaching right to ask questions with regard to facts that have arisen only after expiry of the deadline for submitting questions. A right of inquiry exists only to all answers given by the board before and in the meeting. The chairman of the meeting may also stipulate that the right to information, the right to demand and the right to ask questions may only be exercised at the Annual General Meeting by means of video communication.

With the right of shareholders to submit comments on the agenda items provided for for the first time, the legislator wants to take into account the fact that communication at a virtual general meeting is sometimes different from that at the time of holding in presence. Comments must be submitted no later than 5 days before the meeting and made available to the other shareholders (§ 130a AktG).

In order to ensure a technically trouble-free process, the Company may reserve the right in the convening of the Annual General Meeting to check the functionality of the video communication between the shareholder and the Company at the Meeting and before the speech and to reject it if the functionality is not ensured (§ 130 (6) AktG).

Finally, an appeal to a resolution can only be based on the violation of shareholders’ rights caused by a technical malfunction if the company is accused of gross negligence or intent. However, the Articles of Association may provide for a stricter standard of fault (§ 243 (3), (4) AktG).

Participation of board members, the chairman of the meeting and other persons

The members of the Executive Board are to participate in the virtual meeting at the location of the Annual General Meeting. The same applies to the members of the Supervisory Board, provided that their participation may not take place on the basis of a corresponding statutory provision by means of video and sound transmission.

The chairman of the meeting and, if the annual financial statements and, if applicable, the consolidated financial statements are to be audited by an auditor, the auditors, must attend the place of the annual general meeting; there is therefore an obligation in this respect. A proxy nominated by the Company may participate at the place of the Annual General Meeting.

Making documents available

If it is stipulated by law that documents are to be made accessible at the Annual General Meeting, the documents must be made available to shareholders who are electronically connected to the Annual General Meeting during the period of the Meeting via the Company’s website or via a third-party website accessible to them. This applies in particular with regard to the annual and, if applicable, consolidated financial statements, the management report, the proposal of the Executive Board on the appropriation of retained earnings and the report of the Supervisory Board to the shareholders, among others.

If the Management Board has made use of the option of restricting shareholders’ right to ask questions to the extent that questions can only be submitted in advance by means of electronic communication, the Management Board report is obliged to publish seven days before the Annual General Meeting.

Result:

The possibility of being able to access the virtual Annual General Meeting as an option even outside of pandemic times is to be welcomed without reservation. The regulations now in force largely approximate the virtual Annual General Meeting to the Face-to-Face Meeting. The requirement of a provision for the Articles of Association as a basis for authorisation places the decision as to whether the virtual Annual General Meeting can in principle be used in the hands of the shareholders. Already the explanatory memorandum to the law stated that the possibility of virtual participation has led to increasing numbers of participants and to a better preparation of shareholders for the Annual General Meeting. From the legislator’s point of view, the fact that questions can also be submitted in the run-up to the Annual General Meeting has contributed to a better quality of answers. Overall, it is therefore to be hoped that the flexibility gained for companies and shareholders with the virtual Annual General Meeting will not lag behind the presence format in terms of the quality and benefits of the Annual General Meeting.

Companies that wish to continue to consider the virtual holding of the Annual General Meeting should already have an eye on the necessary agenda item for the amendment to the Articles of Association required under Section 118a of the German Stock Corporation Act (AktG) with regard to the authorization to hold a virtual Annual General Meeting in order to be able to fall back on this option even after the end of the transitional regulation. To what extent and for which companies the now regulated concept of the virtual Annual General Meeting, for example with regard to the opportunities for shareholder participation, has proven itself and is suitable in practice, must then be shown.

As a side effect, the format offers the opportunity for cost savings on the part of both society and shareholders and may also lead to a reduction in the ecological footprint. Finally, the permanent introduction of the virtual Annual General Meeting continues to take into account the increasing digitization of all communication.

By MELCHERS, Germany, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact germany@transatlanticlaw.com

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 42 Brook Street, London W1K 5DB, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.