News Update Corporate M&A

On 24 April 2020, temporary legislation from the Ministry of Justice and Security (the "Emergency Act") was enacted due to the coronavirus (COVID-19) outbreak. The Emergency Act has now been extended to 1 February 2023 due to the ongoing consequences of COVID-19. This News Update gives an overview of the corporate law-related provisions of the Emergency Act.

The Emergency Act provides for, among other things:

• the facilitation of electronic decision-making by temporary derogation from the legal and statutory provisions concerning holding physical meetings of legal entities;
• extension of the period for preparing annual accounts by the management board instead of by the general meeting;
• a temporary limitation on the 'presumptions of proof' for directors' liability in case of bankruptcy if filing the annual accounts is delayed as a result of COVID-19.

The Emergency Act provides rules for the general meeting ("GM") of B.V.s, N.V.s, associations, cooperatives and mutual insurance associations. For these legal entities and for foundations, the Emergency Act also provides rules for meetings of the management board and the supervisory board. In addition to temporarily easing the rules, the Emergency Act also aims to provide legal entities and shareholders (as well as other persons entitled to attend meetings) with legal certainty regarding necessary decision-making. The Emergency Act even provides for a number of easing rules with retroactive effect.

Facilitating electronic decision-making

The Emergency Act allows management boards to decide that a GM can only be accessed by electronic means of communication and that shareholders and other persons entitled to attend the GM do not have physical access. This is a deviation from the rules in the Dutch Civil Code that prescribe that a GM should always be held at a certain physical place. As an extension of this, management boards may decide that speaking at the GM and exercising voting rights can only be done electronically. Finally, management boards may resolve that votes may be cast before the GM (by electronic means or in writing).

When convening the GM, it must be stated that participation and voting can only take place by electronic means (and, if desired, that voting can take place before the GM). If the GM has already been convened, the management board may still decide to hold the GM digitally no later than 48 hours before the start of the GM. This will be made known to the shareholders in the same way as the GM itself was notified.

Holding a GM exclusively by electronic means is subject to two firm conditions:

• the shareholders can follow the GM by electronic means; and
• the shareholders have been given the opportunity to ask written or electronic questions about the items on the agenda no later than 72 hours before the GM (or a shorter period to be set by the management board).

In addition, two soft conditions apply which, in the event of non-compliance, do not affect the validity of the resolution. These conditions, which the board must make every effort to comply with, are as follows:

• the questions asked in advance shall be answered no later than during the GM and these answers shall be posted on the website of the legal entity or made accessible to the shareholders via an electronic means of communication; and
• the participants in the GM must be able to ask questions during the GM electronically, for example via email or a chat function, or otherwise, unless this cannot reasonably be required in light of the circumstances.

The answers to the questions asked in advance are intended to enable shareholders to consider the answers when exercising their voting rights. It is conceivable, for example, that the management board will post these answers on the company's website before the GM circulates an email with the questions and answers asked, so that all shareholders can take note of them. At the GM, the chairman decides how to facilitate further questions, e.g. who may submit questions, whether or not to answer thematically or to close a discussion.

The Emergency Act distinguishes between one-sided means of communication with which the GM can be followed electronically and two-sided means of communication with which the GM can be both followed and attended. One-sided communication means email, a website or an audio or audio/video stream. Two-sided communication means interacting electronically with the GM, i.e. a group telephone call, video call (e.g. Webex or Zoom) or an audio-visual meeting application. Both types of communication are suitable for merely following the GM electronically, but only two-sided means of communication are suitable for participating in the GM electronically. It is up to the management board, in view of the interests involved and available opportunities, to choose an appropriate means of communication. With larger numbers of participants in the GM, such as at the GM of a listed N.V., two-sided communication will often be too complicated and an audio or audio/video stream will usually be chosen. In the Explanatory Memorandum to the Emergency Act it is explained that a faltering connection or any other reason preventing a shareholder from participating optimally in the GM does not affect the legal validity of the resolutions passed.

The management board of any legal entity may decide that voting at the GM can only take place by an electronic means of communication, which includes one-sided or two-sided communication. Legal entities may also decide that shareholders can only vote by granting a proxy or a voting instruction prior to the GM to a representative designated thereto by the legal entity. We assume that in case of voting at the GM all persons entitled to vote must be identified by the electronic means of communication used. For smaller GMs, for example, this can be done by means of video calls. For larger GMs, for example, identification numbers on proxy cards could be used, enabling shareholders to dial in to an audio or audio/video stream.

Meetings of the management board and the supervisory board

Management boards may also meet electronically instead of physically, subject to the consent of all managing directors. The same applies to meetings of the supervisory board. Pursuant to the Emergency Act, it is possible to deviate from any statutory provisions about holding physical meetings.

Physical meetings are important for determining a company's fiscal place of business. In addition, tax rules may apply which require that board meetings are physically held in the Netherlands ("substance requirements"). The Ministry of Finance has not yet issued guidelines on how to deal with these substance requirements if it is not possible to hold physical meetings in the Netherlands.

Postponing the N.V.s Annual General Meeting

The board of an N.V. may also postpone the period for holding the annual GM by a maximum of four months. It appears from the Explanatory Memorandum that if the articles of association of another legal entity set a period for holding the GM, the GM for this legal entity can also postponed by the management board for a maximum of four months.

Extension of the period for preparing the annual accounts

For each legal entity, the period for drawing up the annual accounts may be extended by the management board up to a total term of no more than ten months after the end of the financial year. As a result, the extension authority of the general meeting expires. The obligation to publish the annual accounts within twelve months after the end of the financial year remains in full force.

Listed companies cannot extend the period for drawing up the annual accounts. The legislator considers the postponement of the annual accounts by listed companies not necessary, because it would have too far-reaching an impact on their position on the capital market. It is possible, however, that the Dutch Authority for the Financial Markets will be lenient in enforcing the obligations for listed companies under the Dutch Financial Supervision Act if this is necessary due to COVID-19.

Easing of penalties for late filing

If the annual accounts of a company are not published within twelve months of the balance sheet date, this will - in the event of bankruptcy - be regarded as manifestly improper management and is presumed to be a major cause of the bankruptcy. Under the Emergency Act, these presumptions of proof do not apply if the management board can demonstrate that the failure to publish is due to the consequences of COVID-19. This for example can be done by providing a statement of a doctor. This easing does not apply with regard to the accounting obligation under Article 2:10 of the Dutch Civil Code.

Entry into force of the temporary rules and retroactive effect

The Emergency Act entered into force on 24 April 2020. All the rules apply retroactively from 16 March 2020, except the regulation on presumptions of proof when annual accounts are filed late. As noted in the beginning of this News Update, the Emergency Act will apply until 1 February 2023. The regulation on presumptions of proof in the event of late filing of annual accounts expires on 1 September 2023, because directors' liability in bankruptcy can be invoked for up to three years.

The Dutch Minister for Legal Protection (Minister van Rechtsbescherming) has announced a measure to avoid the possibility that a legal entity loses the option to hold a partially or exclusively electronic meeting during the meeting's notice period. The temporary measure facilitating electronic decision-making will only lapse after a public announcement of this is made at least two months before the intended expiration date.

For any questions about this News Update kindly contact Paul de Vries or Kyoko Tollenaar.