What are the risks to be considered when conducting digital shareholders’ meetings and general meetings of shareholders?

20.03.2020 What are the risks to be considered when conducting digital shareholders’ meetings and general meetings of shareholders?

In relation to the measures implemented for combating the spread of the COVID-19 virus and the resulting difficult economic situation, members of management boards have most certainly experienced a higher workload when managing their companies and representing them in everyday matters.

However, the highest-level management of companies – the possibility to adopt resolutions either in a shareholders’ meeting or a general meeting of shareholders, depending on the legal form of the company, is just as important. As we know, shareholders in private limited companies are the persons who are entitled to decide on the most important questions in relation to the company, for example electing the members of the management board. Shareholders in public limited companies can also be considered to constitute the highest management level of a company. Both shareholders in public limited companies and private limited companies may inter alia need to make changes to the capital structure of the company as the economic situation deteriorates.

The measures currently implemented by the state cannot be interpreted such as to assume that physically gathering inside a room in order to hold meetings is prohibited. However, avoiding such gatherings may be necessary considering the protection of public health and taking into account the general recommendation to work from home if possible.

When it comes to the possibilities provided in the Commercial Code, the holding of a digital meeting has been expressly provided for only for publicly traded companies, and only if the articles of association of the company provide for such a possibility. This is justified, considering the number of shareholders and the somewhat different nature of a publicly traded company. However, the Commercial Code does not regulate the possibility of holding a digital meeting for regular public limited companies and private limited companies.

Even though the legitimate holding of a digital meeting cannot be deemed impossible for public limited companies and private limited companies, several requirements must be complied with when holding a meeting in such a manner.

Pursuant to legislation, a general meeting is held at the registered office of the public limited company unless otherwise prescribed in the articles of association. Therefore, any deviation from this requirement could constitute a material violation of the procedure for calling a meeting, which could bring about the nullity of a resolution. The issue may above all arise in companies where shareholders have conflicting views and the possibility of disputing a resolution in such a manner could be used in bad faith.

When participating in a digital meeting, participants must be granted all the same rights they would have when physically participating in a meeting. These rights include, for example, the right to actively participate in the meeting by being granted a say and the right to present objections. Likewise, similarly to publicly traded companies, the possibility of holding a digital meeting must be prescribed in the articles of association of the company. If this is not possible, an approval in a format that can be reproduced in writing should be requested from all shareholders in a private limited company or shareholders in a public limited company by which they warrant and represent their agreement and willingness to participate in a digitally held meeting. The wording for the respective provisions in the articles of association or the approval granted by the shareholders should also be carefully considered. Any possibilities to interpret these in different manners should be avoided, thereby avoiding the risk of any disputes.

Technical obstacles must also be taken into consideration, above all by ensuring a sufficiently reliable system as to avoid any connection interruptions. When encountering a connection interruption, the meeting should be put on hold until the connection has been restored and all the shareholders participating in the meeting have access. Otherwise, this risk could materialise and bring about a shareholder whose right to participate is hindered disputing the validity of a resolution. Considering that rumours of various digital platforms already being overburdened are spreading in the media and elsewhere, it could become a major obstacle when holding a meeting.

Therefore, holding a digital meeting must be considered possible where legislation is concerned, and it should be favoured in light of the established measures, but companies should carefully consider the exact process of holding such meetings.

Article written by lawyer Maris Vutt