Authors: Stefan Müller, Gordana Nisevic
Subject Area: Corporate and Commercial Law
Holding of annual shareholders' meetings in times of COVID-19
The COVID-19 pandemic confronts many companies with the difficult task of holding an annual shareholders' meeting in compliance with the current hygiene regulations. Aware of the challenges involved, the Swiss Federal Council has therefore allowed for virtual shareholders' meetings to be held. Find out more about the various options available to companies and how companies should proceed.
On 13 March 2020, the Federal Council adopted Ordinance 2 on Measures to Combat Coronavirus (COVID-19) (COVID-19 Ordinance 2) (the "Ordinance"), which, in accordance with Article 6b (previously Article 6a), permits the holding of virtual shareholders' meetings. The corresponding order must be communicated to shareholders in writing or published electronically at least four (4) days prior to the date of the shareholders' meeting. The measures pursuant to Article 6b were extended until 10 May 2020, with this extension and the amended Ordinance coming into force on 27 April 2020. In principle, Article 6b applies to all shareholders' meetings, i.e. also to resolutions of shareholders' meetings that require notarization. However, in circumstances where notarization is required, it is advisable to consult the appointed notary in advance of such resolutions to be taken.
The statutory periods of notice and formal requirements as set forth by the Swiss Code of Obligations are not affected by the Ordinance, i.e. the shareholders' meetings must still (as a rule) be convened at least twenty (20) days in advance to such shareholders' meeting to take place in the form specified in the Articles of Association. However, companies may request their shareholders not to physically attend the shareholders' meeting and to exercise their voting rights by one of the following two (2) means instead, irrespective of whether the Articles of Association provide a basis for such a request:
1. in writing or electronically; or
2. by an independent proxy.
It has not yet been fully clarified how exactly one has to proceed with Option 1 or which variations are to be considered. In the opinion of the authors, the following variations are possible:
Option 1: Several variations are available under Option 1 which include (a) advance voting by letter using regular mail services, (b) advance voting by e-mail (whereby this means that the signed voting card or proxy is sent by e-mail; advance voting by e-mail alone would not be valid), (c) obtaining the proxies of all shareholders in order to be able to hold the annual shareholders' meeting as a universal meeting (which was already available as an option prior to COVID-19) or (d) connecting shareholders via telephone or video conference or by means of other adequate communication or live transmission options. The following points must be ensured in the case of the options pursuant to letter (d): (1) the shareholder must be able to be identified, which in the case of a video transmission can be done by presenting his identification document or in the case of a telephone conference by requesting specific personal information (e.g. date of birth, number of shares, place of birth, etc.), (2) the transmission is direct, i.e. the shareholder can participate in the discussion, (3) the application must properly function and its functionality must be regularly checked during the shareholders' meeting, and (4) the used application must be easily accessible to the shareholders. Resolutions of the shareholders' meeting in violation of the above points (1) to (4) are contestable under the rules of the Swiss Code of Obligations.
Option 2: The voting rights are exercised by a designated independent proxy. According to the law, the independent proxy is appointed by the shareholders' meeting in the case of listed companies and elected by the Board of Directors in the case of non-listed companies (unless otherwise stipulated). Here too, the Ordinance provides for a simplification in that the independent proxy can be appointed directly by the company in both alternatives (irrespective of any legal or statutory provisions to the contrary).
In principle, companies are free to choose one of the two (2) options. However, for companies with a larger group of shareholders or listed companies, Option 2 will probably be more practicable, while for non-listed companies or companies with a smaller group of shareholders, Option 1 might be more suitable.
Although Article 6b of the Ordinance is a discretionary provision, the authors believe that Article 6b must be followed for a group of shareholders of more than five (5) persons and that shareholders must be asked to exercise their voting rights in accordance with one of the above options. Although Article 7c para. 2 of the Ordinance prohibits gatherings of more than five (5) persons in public places, this prohibition should nevertheless be abided by for gatherings of more than five (5) persons in closed rooms as well. Furthermore, Article 6 para. 1 of the Ordinance prohibits public and private events, which also includes shareholders' meetings. From the point of view of the authors, it would make no sense to assume that shareholders' meetings are an exception to Article 6 para. 1 and would therefore be permissible. Article 6 para. 1, Article 6b and Article 7c para. 2 are to be interpreted jointly and not in isolation of themselves.
If the shareholders' meeting has already been convened, shareholders must be notified of the corresponding order or instruction of the procedure for exercising voting rights at least four (4) days prior to the shareholders' meeting taking place and the legal or statutory periods of notice (generally twenty (20) days) need not be observed. However, the respective provisions and formal requirements of the Articles of Association must be observed.
If the shareholders' meeting has not yet been formally convened, it must be convened in accordance with the legal and statutory period of notice (generally twenty (20) days) and the corresponding instructions on how to exercise voting rights must be explained.
In both cases, it is advisable to refer to the special provisions of the Ordinance.
If the date of the shareholders' meeting is after 10 May 2020, but the invitation is sent out before that date, companies can make use of this provisions of the Ordinance and exclude personal attendance as set forth in the Ordinance. It is advisable for the company to indicate that it will inform the shareholders accordingly if the situation changes before the shareholders' meeting.
However, the above provision of the Ordinance should be interpreted with caution in order to avoid the risk of abuse of rights as far as possible. One of the highest precepts of the Swiss Code of Obligations regarding shareholders' meetings is the personal right of shareholders to attend, participate and propose motions directly at shareholders' meetings; any violation of this precept results in the nullity of the shareholders' meeting.
In order to keep this risk as low as possible, it is advisable to keep the time span between the dispatch of the invitation before 10 May 2020 and the date of the shareholders' meeting after 10 May 2020 as low and reasonable as possible. In the view of the authors, this is sufficiently taken into account if this time span is a maximum of thirty (30) days. A longer period of time between the invitation and the date of the shareholders' meeting could give the impression that the exceptions limiting the shareholders' right to participate are being extorted in an abusive manner. In any case, it would also be advisable to connect shareholders via telephone or video conference or other adequate communication or live transmission options and not only to order their participation in writing.
Holding of annual shareholders' meetings after six (6) months
The legal requirement that the annual shareholders' meeting be held within six (6) months of the end of the financial year is a rule of procedure. If the annual shareholders' meeting is held in the second half of the year, the annual shareholders' meeting is nevertheless valid and its decisions cannot be contested because the rules of procedure have not observed.
The regulations of the Ordinance apply to the following companies
The special provisions of the Ordinance apply to all companies: stock corporations, limited liability companies, general partnerships, limited partnerships, associations and cooperatives.
With regard to limited liability companies, however, it should be noted that, based on Article 805 of the Swiss Code of Obligations, these companies may already pass their shareholders' resolutions in writing by law, provided that no shareholder requests oral consultation.
Disclaimer: The information contained in this document is intended for general information purposes only and does not constitute legal or tax advice. This content is not meant to replace individual advice from competent professionals in a specific case.