News Update Corporate M&A
30 April 2020
On 24 April 2020, a bill on temporary provisions in connection with the coronavirus (COVID-19) outbreak (the "Emergency Act") entered into force. The legislative proposal has been adopted by the legislator without any changes. Please find below an overview of the provisions of the Emergency Act that are of interest for listed companies.
- extending the period for drawing up the annual accounts by the board instead of by the general meeting;
- limiting the evidentiary presumption regarding directors' and officers' liability if the deadlines for filing the adopted annual accounts are not met;
- facilitating holding a general meeting ("General Meeting") using electronic means by derogating temporarily from the provisions of the law and the articles of association on holding physical general meetings of legal persons.
The Emergency Bill amends the provisions of Book 2 of the Dutch Civil Code on certain points, while various obligations for listed issuers have been included in the Financial Supervision Act ("Wft"). In this News Update, we will explain some of the consequences of the Emergency Bill for Dutch public limited liability companies ("NVs") which have shares listed on a regulated market within the meaning of the Wft ("listed companies").
Extending the period for drawing up annual accountsAn NV must draw up its annual accounts within five months after the end of the financial year. The General Meeting can extend this period by a maximum of five months. The Emergency Bill provides that the board, instead of the General Meeting, will be able to decide on an extension by five months.
Listed companies must make their annual accounts generally available within four months after the end of the financial year and have no possibility to extend. On 27 March 2020, the European Securities and Markets Authority ("ESMA") issued guidance that, in view of the current special circumstances in connection with the coronavirus outbreak, national supervisors should apply the deadline rules less strictly to the extent that any delay is caused by the effects of the coronavirus. At the same time, it is emphasised that listed issuers must keep their investors informed of the expected delay in publication and that the requirements of the Market Abuse Regulation remain fully applicable.
The Emergency Bill does not provide for an extension of the period for drawing up the annual accounts for listed companies. The legislator indicated that the majority of listed companies have already completed their work on their annual financial reports. According to the legislator, postponing the publication of the annual accounts by listed companies would also have far-reaching consequences for their position on the capital market. The legislator has indicated that the Dutch Authority for the Financial Markets ("AFM") can show leniency in enforcement. Since both the ESMA and the AFM provide room for postponement on the condition that the market is clearly informed about this, it would have been appropriate if this possibility to postpone had been enshrined in law. The Emergency Bill also does not provide for an extension of the period for drawing up the semi-annual figures.
Postponing the annual meeting of an NVUnder the Emergency Bill, the board of an NV will be able to extend the period for holding the annual General Meeting, which is six months after the end of the financial year or a shorter term if stipulated in the articles of association, by a period not exceeding four months. The annual General Meeting can thus be postponed until after 30 June, if this is more suitable than holding a General Meeting by electronic means. This rule will also apply to listed companies.
Limiting the evidentiary presumption regarding directors' and officers' liability in the event of late filingIf the board of directors of an NV fails to publish the adopted annual accounts on time, this is - in the event of a bankruptcy - regarded as manifestly improper management and presumed to be a major cause of the bankruptcy. Under the Emergency Bill, failing to publish the adopted annual accounts, or publishing them late, is not regarded as a manifestly improper performance of duties if the board can demonstrate that the failure to publish or the late publication is due to the consequences of the coronavirus. This relaxation does not apply to the accounting obligation in Article 2:10 DCC.
A listed company will be deemed to have complied with the publication obligation if:
- it sends the adopted annual accounts to the AFM within five days after adoption;
- it immediately notifies the AFM if the annual accounts have not been adopted within six months after the end of the financial year;
- the management report and the other information referred to in Article 2:392 DCC are sent to the AFM at the same time as the annual accounts.
If the board of a listed company postpones the deadline for holding the annual General Meeting under the Emergency Bill and informs the AFM in a timely manner that the annual accounts have not been adopted within six months after the end of the financial year, the limitation of the evidentiary presumption regarding directors' and officers' liability will also apply to listed companies. This applies provided that the board can demonstrate that the failure to comply with the publication obligation is due to the consequences of coronavirus.
Facilitating electronic decision-makingThe Emergency Bill offers the board the possibility to decide that a General Meeting is only accessible by electronic means and that shareholders and other holders of meeting rights have no physical access to the meeting. In line with this, the board can decide, even if the articles of association do not provide for this possibility, that participating in the meeting, speaking at the meeting and exercising voting rights are only possible by electronic means. Finally, the board can decide that votes may be cast before the meeting (by electronic means or in writing).
Most listed companies have already provided in their articles of association (i) that each shareholder is entitled to participate in and speak at the General Meeting, and exercise its voting right using an electronic means of communication and (ii) that votes cast prior to the General Meeting are equated with votes cast at the time of the General Meeting. However, entirely virtual General Meetings are currently not possible in the Netherlands, since the law assumes that the General Meeting is a physical meeting. The Emergency Bill will offer this possibility.
Holding a General Meeting exclusively by electronic means will be subject to two conditions:
- the shareholders must be able to follow the General Meeting electronically; and
- the shareholders are given the opportunity, until 72 hours before the meeting or a shorter period set by the board, to ask questions in writing or electronically about the subjects on the agenda.
There will be two additional soft conditions, non-fulfilment of which does not affect the validity of the decision-making. These conditions, which the board must try to fulfil, are the following:
- the questions asked before the meeting must be answered no later than at the meeting, thematically or otherwise, and these answers must be placed on the website of the legal person or be made available to the shareholders via an electronic means of communication; and
- the participants in the General Meeting must be able to ask questions during the General Meeting by electronic means, for example via email or a chat function, unless this cannot reasonably be required in light of the circumstances.
The Emergency Bill distinguishes between one-way means of communication by which the electronic meeting can be followed electronically, and two-way means of communication by which the meeting can be followed and participated in. The Emergency Bill requires that participants must be able to passively/one-way follow the General Meeting by electronic means, for example via an audio or video stream. Although the available technical infrastructure probably also makes it possible to participate in the meeting and vote at it, there is no obligation to make this possible. The Emergency Bill leaves this choice to the company. It is also possible that shareholders can only vote by giving a proxy or voting instruction, before the General Meeting, to an authorised representative designated for this purpose by the company.
According to the explanatory memorandum to the Emergency Bill, a faulty connection or any other reason why a shareholder cannot participate optimally in the electronic meeting does not affect the validity of the decisions taken.
It must be stated in the notice convening the meeting that the General Meeting is only accessible by electronic means. The Emergency Bill provides that, if the convening notice has already been issued, the board can change how the meeting is held, for example by changing it into an exclusively electronic meeting, and can change the venue of the meeting until 48 hours before the start of the meeting.
Articles 5:25k and 5:25ka Wft provide that listed companies shall state the venue, the time, the agenda and the right to attend the meeting in the notice convening the meeting and on the website, at the latest on the 42nd day before the meeting. The Emergency Bill only refers to the Dutch Civil Code and provides no room for derogation from these provisions in the Wft. If an issuer violates these Wft provisions, the AFM can give it an instruction, and not an order subject to a penalty or an administrative fine. However, since the Emergency Bill allows for an entirely electronic meeting, in which case the venue of the meeting is not or no longer relevant for the shareholders, we expect that the AFM policy will also show leniency on this point.
The answers to the questions asked in advance are intended to enable the shareholders to take these answers into consideration when exercising their voting rights. It is conceivable, for example, that the board places these answers on the website of the company before the meeting or sends an email with the questions asked and the answers, so that all shareholders can take note of these. At the meeting, the chairman decides how to facilitate asking further questions, for example, who will be allowed to submit questions, whether questions will be answered thematically or otherwise and whether and when a debate on these questions will be closed.
Entry into force of the temporary rules and retroactive effectIt is not yet known when the Emergency Bill will enter into force, but we expect that this will be soon. The bill has now been presented to the House of Representatives and must be adopted by both the House of Representatives and the Senate. We expect that the House of Representatives will vote on the Emergency Bill this week. The Minister has indicated that, in addition to the fight against the coronavirus, it is very important that society continues to function as normally as possible.
The Emergency Bill provides for retroactive effect from 16 March 2020 for all of the above rules, with the exception of the limitation of the evidentiary presumption in the event of late filing of the annual accounts. For the time being, the rules will apply until 1 September 2020, unless an extension is necessary in connection with the ongoing consequences of the outbreak of coronavirus. The provisions regarding the evidentiary presumption in the event of late filing of the annual accounts will expire on 1 September 2023, because an investigation of the directors' and officers' liability in the event of a bankruptcy can extend to three years.
For more information, see also our News Update "Dutch Emergency Act enables electronic decision-making and postponement of annual account liabilities during the coronavirus pandemic".
We are closely monitoring the progress of the bill. Do you have a specific question? Please do not hesitate to contact one of our experts below.