General meeting of members and/or general meeting of shareholders: is it still possible to hold meetings during the corona crisis?
During this period of the year, many general meetings are scheduled to, amongst other things, approve or adopt the annual accounts. Because of the current corona crisis, many legal entities are facing a dilemma: the annual accounts must be approved or adopted, but it is uncertain whether or not the general meeting can take place. Dutch government has issued a ban on physical gatherings until the first day of June. There is an exception for “gatherings that are necessary to ensure the continued daily operations of institutions, businesses and other organisations (with a maximum of 100 people)”, as described in the news report of the central government (“Rijksoverheid”) dated the 24th of March 2020, but it is questionable whether this provides a solution for all situations.
In this article we will discuss some relevant questions concerning the general meeting. We will focus on the associations (“verenigingen”) (including cooperatives (“cooperaties”) and mutual insurance associations (“onderlinge waarborgmaatschappijen”)), where the general meeting is also referred to as the general meeting of members (GMM), and on public companies (NV’s) and private companies (BV’s), where the general meeting is often referred to as general meeting of shareholders (GMS). These questions are particularly relevant when there is a large number of members or shareholders. In those situations, adopting resolutions outside a meeting (written resolutions) is not possible for practical reasons.
As described below, there are possibilities to hold general meetings with a large number of people (over 100 persons), for example by using the possibility to exercise the voting rights by electronic means of communication or to use proxies to attend the meeting. These options might not provide a solution in every situation. If practical or other reasons prevent the possibility to hold a general meeting within the legal/statutory period, a legal “safety-net provision” may offer a solution. “Necessity knows no law” will also apply in this case, and has been laid down in Dutch law. This safety-net provision makes it possible to postpone general meetings.
It should be noted that this problem has also been brought to the attention of Dutch government and the introduction of emergency legislation in order to expand the possibilities to hold (or to postpone) a general meeting is being urged by several parties. Hopefully there will be more clarity on this matter soon.
1. Can the general meeting be held digitally/electronically?
A regularly asked question is the question whether a general meeting may be held digitally/electronically without holding a physical meeting. Unfortunately, this is not possible at this moment.
Dutch law (article 2:38 of the Dutch Civil Code) offers associations the possibility to provide in the articles of associations that a person, entitled to vote in a general meeting, may exercise the voting right by electronic means of communication.
Regarding an NV or a BV, the articles of association may provide that each shareholder is authorised to participate in, to address and exercise voting rights at the general meeting by an electronic means of communication (article 2:117a/2:227a of the Dutch Civil Code).
In all cases, it shall be required that the relevant members or shareholders:
- can be identified;
- are able to directly observe the proceedings at the general meeting; and
- are able to exercise the right to vote.
For the valid use of the electronic means of communication, it is not required that the member or the shareholder can also participate in the deliberations via the electronic means of communication at the meeting, i.e. can speak at the meeting.
However, if the articles of association provide for this possibility, this does not mean that no physical general meeting has to be held. It can be deduced from the Dutch legislative history that the legislator did not intend to abolish the requirement of a physical meeting with the introduction of the above-mentioned articles, but only wanted to make it easier for members/shareholders to participate in, to address and to exercise voting rights at the general meeting. Legal entities may offer the use of electronic means of communication as a facility to its members or shareholders, but cannot oblige their members or shareholders to use this facility.
The chairman of the general meeting must be physically present at the general meeting. In addition, members of the management board and members of the supervisory board (if installed) of an NV or BV are deemed to be present (article 2:117/2:227 of the Dutch Civil Code). Regarding associations, this is often included in the articles of association.
Because a physical general meeting is required, holding an 100% electronic meeting is currently not an option. However, holding a physical general meeting with a limited number of persons while the remaining persons who are entitled to attend the meeting participate electronically, would be an option which is in line with the current governmental measures (provided that the articles of association allow electronic participation). It is possible to (strongly) advise members or shareholders to use this electronic possibility, but again: it is not possible to oblige them to do so.
2. Does a proxy to attend a meeting offer a solution?
A proxy to attend a meeting is a power of attorney from a member or a shareholder to another person to attend the general meeting on behalf of the member or the shareholder.
Members of an association may give a proxy to another person who is entitled to vote, to vote on his or her behalf, unless the articles of association stipulate otherwise (article 2:38 paragraph 4 of the Dutch Civil Code). Usually, the articles of association contain a provision pursuant to which a proxy may also be granted to a member of the management board. Furthermore, we often see that a limit is set on the number of proxies that can be granted to one person.
Regarding an NV or a BV, all those persons entitled to attend general meetings can be represented at a general meeting by a person holding a written proxy (article 2:117/2:227 of the Dutch Civil Code). The proxy may also be granted to a person other than a person entitled to attend the meeting. Except in the case of an NV whose shares or depository receipts for shares are traded on a regulated market, the powers of shareholders to be represented may be limited in the articles of association. The authority of shareholders to be represented by a lawyer, civil-law notary, added civil-law notary or candidate civil-law notary, chartered auditor or auditor officer cannot be excluded.
It is important to check what the articles of association stipulate about the possibilities of granting a proxy to attend a meeting and the limitation on the number of proxies that can be granted to one person. It should be noted that learned writers have different opinions on the consequences of a vote by a proxyholder contrary to a voting instruction issued by the grantor of the proxy. This may lead to uncertainty if the question arises as to whether or not such a vote is valid.
A proxy to attend a meeting can be a solution to limit the actual number of persons present at the meeting.
3. Is it possible to postpone the general meeting?
According to Dutch law – and often also by virtue of the articles of association – associations, NV’s and BV’s are obliged to hold a general meeting not later than six respectively seven months after the end of the financial year. In that meeting the annual accounts must be approved or adopted. The periods, as mentioned above, can be extended, but this can only be done by a resolution of the general meeting. Since holding the general meeting is the problem, this might not be feasible.
Would it be a solution to postpone the general meeting despite the legal and statutory obligations? Dutch law and (often) the articles of association do not contain specific provision for this situation.
The general provision of article 2:8 of the Dutch Civil Code may provide a solution. The (unofficial) translation of this section reads as follows:
“1. A legal entity and the persons who by virtue of the law and the articles of association of that legal entity are concerned with its organisation must, in such capacity, conduct themselves in relation to each other in accordance with the dictates of reasonableness and fairness.
- A rule which binds them by virtue of the law, custom, the articles of association, by-laws or a resolution shall be inapplicable to the extent that, in the circumstances, it is unacceptable according to standards of reasonableness and fairness.“
The current corona crisis has enormous consequences for public health and society as a whole. Dutch government has now taken drastic measures. These measures might be further extended. In these present circumstances holding a general meeting might be in conflict with the current governmental measures. For the associations, NV’s and BV’s (a) that usually hold meetings with a large number of members respectively shareholders (more than 100), and (b) for which it will not be (fully) feasible to use the possibilities of electronical participation, it could be argued that holding a general meeting in these circumstances would be unacceptable. This means that, pursuant to article 2:8 of the Dutch Civil Code, postponing a general meeting must be deemed permissible.
If, due to the aforementioned circumstances, a legal entity would be forced act in deviation from the law and its articles of association, this deviation should be reasonable, i.e. this should be well founded. Furthermore, the deviation should be equitable, which means that the deviation should be fair, with due observation of all interests. It should be noted that all other legal and statutory provisions must be followed as far as possible. For example: the annual accounts must still be prepared in time and must be made available for the members of the association.
Do you have any questions regarding the above? Please do not hesitate to contact us.