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COVID-19 related aspects to be considered by Co.

COVID-19 related aspects to be considered by Co.

There is no doubt that the coronavirus crisis has presented companies with enormous economic and organisational challenges, with it being impossible to foresee how long these effects will last. 

Therefore, with art. 32 of the Second COVID-19 Act, Federal Law Gazette I no. 16/2020, Austrian legislators ordered a series of facilitating measures for companies. These provisions have been updated or extended by art. 35 of the Fourth COVID-19 Act, Federal Law Gazette I no. 24/2020 (‘COVID-19 Companies Act’). 

These provisions not only provide a necessary remedy in the light of the general stalemate caused by the shutdown, in which legal deadlines for the performance of certain acts and measures have been extended or the possibility of holding virtual meetings of corporate bodies required by law has been extended. It is already becoming apparent that these provisions will change living company law far beyond the Corona crisis. While in the past holding a general meeting by means of a video conference was still considered a completely exceptional phenomenon, there is now much to suggest that video conferences will become a common way of holding such meetings in the future. If only because of the low costs involved.

The following topics are of particular relevance in this respect:

Extension of time limits for holding meetings of company bodies. The prohibition of meetings triggered by coronavirus has made it largely impossible to hold the meetings that are required under company law (in particular with regard to the auditing and approval of annual financial statements).

Both stock corporations (AG) and limited liability companies (GmbH) must approve their annual financial statements during an annual general meeting (AGM) or general meeting (GM) within the first 8 months of the financial year (cf. section 104 para. 1 Stock Corporation Act; section 35 para. 1 no. 1 Limited Liability Companies Act). 

Section 2 para. 1 and para. 3 of the COVID-19 Companies Act has now extended this period to 12 months. This deadline extension applies irrespective of the duration of the measures initiated under the COVID 19 Measures Act and is intended to put companies on a more secure footing in terms of planning. This extension also applies to meeting the deadlines stipulated in a company’s articles of association (section 2 para. 4 of the COVID-19 Companies Act).

In this context, it is worth considering postponing meetings. This can be justified because avoiding personal contact and preventing the spread of coronavirus are valid reasons. 

Extension of the deadline for submission to the Supervisory Board and submission of documents to the commercial register. A corporation’s legal representatives must prepare the accounting documents for the previous financial year within the first 5 months of the financial year and submit them to the supervisory board (section 222 para. 1 Commercial Code). This deadline may now be exceeded by a maximum of 4 months if it is impossible to meet the statutory deadline due to the coronavirus crisis (section 3a para. 1 COVID-19 Companies Act).

The original period of 9 months after the balance sheet date (section 277 para. 1 Commercial Code) was also extended to 12 months as far as the submission of the annual financial statements to the Commercial Register Court goes (section 3a para. 2 COVID-19 Companies Act). 

Virtual meetings. Legislators introduced the concept of ‘virtual meetings’ to make it even easier to hold the meetings required under company law. The Federal Ministry of Justice specified the requirements for a virtual meeting in a regulation (COVID-19 Companies Regulation, Federal Law Gazette II No. 140/2020) and issued explanatory notes on the subject.

A virtual meeting is a kind of video conference where all the participants can speak and vote. According to section 2 para. 1 COVID-19 Companies Regulation, this is permissible if the partners or shareholders can participate in the meeting from any location by means of a two-way audio and video connection. Not more than half of the participants can be connected to the meeting via an audio connection only (e.g. by telephone) (section 2 para. 2 COVID-19 Companies Regulation). 

This provision is particularly useful for AGMs, which see a larger number of participants. However, the shareholders must speak and vote in a different way: they can send their questions or motions for resolutions to the company electronically within a certain timeframe during the meeting, for example, or use special software programs to conduct the vote. In addition, the AGM can be broadcast with audio and/or video (Section 102 para. 4 Stock Corporation Act) or a vote can be taken by letter (Section 127 Stock Corporation Act)

It is important that the participants are told about the virtual meeting, and the necessary organisational and technical requirements, in good time. For stock corporations, it is sufficient if this information is made available 21 days before the AGM (section 108 para. 3 to 5 Stock Corporation Act; section 3 para. 3 COVID-19 Companies Regulation). If the convening of a general meeting was published before the announcement of the COVID-19 Companies Regulation (before 8 April 2020), providing this information just 14 days before the meeting is sufficient (section 5 para. 2 of COVID-19 Companies Regulation).

If a notary needs to be involved (e.g. section 120 para. 1 Stock Corporation Act and section 49 para. 1 Limited Liability Companies Act) this can also take place within the framework of a video conference (section 90a Notaries Regulation).

Profit distribution in light of the coronavirus crisis. Keeping a company’s profits within the enterprise rather than distributing them to the shareholders, with the aim of ensuring longer-term liquidity and even the company’s survival, is currently a hot topic.

Companies must observe the principle of full dividend distribution in this regard. In line with this, the balance sheet profit available for distribution must actually be distributed. This is done via a resolution on the appropriation of profits, whereby the shareholders decide on the (non-)distribution of profits and on the method of distributing the balance sheet profit. 

The shareholders must vote against a distribution of the balance sheet profit if:

  • The company’s interests in retaining the profit massively outweigh the interests of the shareholders in distributing it because, for example, the company’s ability to survive is at stake (Supreme Court 31 January 2013, 6 Ob 100/12t). In the coming months, this aspect should be taken into account in any decision on the appropriation of profits. 
  • The distribution of profits is inadmissible pursuant to section 82 para. 5 of the Limited Liability Companies Act, as a result of the principle of creditor protection. 
  • This is particularly relevant if the shareholders become aware that the company has suffered losses or reductions in value in the period between the end of the previous financial year and the approval of the annual financial statements, with these losses or reductions having led to a significant reduction in the company’s assets that is not likely to be merely temporary.
  • The difference between the original balance sheet profit and the loss incurred in the meantime may be distributed to the shareholders, with a ‘disbursement block’ applying to the remainder.
  • A shareholder acts in breach of trust, e.g. because they are aware of the above circumstances and still vote in favour of the distribution of the balance sheet profit.

A resolution reached in this way is contestable (section 41 Limited Liability Companies Act) and, in most cases, also meets the criteria relating to a prohibited return of contributions, meaning that the company’s management or executive board become personally liable for the damage caused by the inadmissible distribution of the company’s profits.

The individual case in question must always be taken into account to ensure that these matters are assessed conclusively.

Author:

Mag. Ronald Frankl, Managing Partner, Head of Corporate, M&A and Capital Markets and Head of Blockchain and Cryptocurrencies at LANSKY, GANZGER + partner

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