Simplified decision-making procedures for companies during the COVID-19 epidemic
Following the implementation of the curfew restrictions, some doubts arouse whether shareholders are entitled to attend personally at shareholders’ meetings. In response to this uncertanity and also to simplify decision-making, a new government decree has been enacted and is effective from 11 April 2020 that provides generally applicable flexible rules on companies’ decision-making procedure with respect to and during the COVID-19 epidemic (Government Decree No. 102/2020. (IV.10.)) (hereinafter: Decree).
1. Aim and scope of the Decree
The aim of the Decree is to temporarily forbid personal meetings and to provide for alternative decision-making methods (i.e. written decision-making, or holding meetings through electronic devices) even if such methods were not previously regulated in the governing documents of the companies.
The new ruleset extends to all types of decision-making bodies, including general shareholders’ meetings as well as management meetings (e.g. meetings of the board of directors), and supervisory board meetings.
All legal persons regardless of their corporate form are within the scope of the Decree (e.g. companies as well as associations and foundations), however the Decree does not apply to those legal persons, which already implemented prior to the outbreak of the epidemic sufficient regulation on written decision-making, or holding meetings through electronic devices, and consequently are able to operate without breaching the curfew restrictions.
2. Alternative decision-making methods
If a legal person has been impeded by the curfew restrictions, meaning that it cannot hold meetings through electronic devices, or pass written resolutions as per its current governance rules, it may proceed in line with the following (temporary) rules:
According to the Decree, the meetings of the decision-making bodies may not be held in person, even if the meeting was already convened. Instead, the decision-making body
- may hold meetings by way of using electronic communication devices; or
- may pass written resolutions.
The above rules on using electronic devices or written decision-making instead of normal meetings apply even if the company’s articles of association does not regulate such decision making methods. In this case, it is the obligation of the company’s management to determine the technical provisions and to communicate them to the shareholders, taking into consideration certain minimum requirements set out in the Decree (e.g. draft resolutions should be circulated to the shareholders in advance, shareholders shall be identified at the beginning of an electronic meeting, etc.). Depending on the exact number of shareholders, the ruleset provides further guidance.
3. Decision-making power assigned to management
If the alternative decision-making methods are of no help for securing the continued operation of a company for whatever reason, the company’s management may take over the following decision-making competences from the general shareholders’ meeting under certain limitations provided for in the Decree:
- approval of the annual financial statements;
- decision on dividend payment;
- decisions falling within the competence of the general shareholders’ meeting, provided however that passing a decision is required to (a) maintain the lawful operation of the company; or (b) to manage a situation, which evolved due to the state of emergency, or (c) to make an economic decision that cannot be delayed.
However, the management’s decision-making power is limited in multiple ways. On the one hand, the Decree itself lists certain matters, which are excluded from the management’s decision-making power (e.g. amending the articles of association, decreasing the registered capital of the company, or terminating the company without legal successor). On the other hand, shareholder(s) holding individually at least 25% of the votes, with 51% of all votes, or a shareholder having majority influence or qualified majority influence in the company may individually prevent (veto) the decisions of the management in any of the above listed matters by way of written objection.
Furthermore, the supreme body may amend or annul the decisions made by the company’s management upon the upcoming meeting of the supreme body convened until the 90th day following the termination of the state of emergency. The management is liable for damages caused to the company resulting from the management activities during the pandemic situation in accordance with the provisions on liability applicable for breach of contract.
4. Automatic extension of management’s mandate
The Decree extends the mandate of the management members until the 90th day as of the end of the state of emergency; however this rule does not apply to those persons of the management who were withdrawn from their positions.
Should you have any further questions regarding the above subsidy, please contact us.