The country found itself in a new reality in a matter of days. Declared pandemic by the World Health Organization in connection with the COVID-19, introduced quarantine and imposed restrictive measures affected all areas of life without exception.
General Shareholders' Meetings Found Themselves Under the Quarantine
During February-March, joint-stock companies traditionally prepared to hold their annual general meetings which should take place by April 30 inclusively as required by law. But that is not how it turned out. On March 11, the Cabinet of Ministers of Ukraine announced a nationwide quarantine and imposed series of restrictive measures across the country. These restrictive measures made it impossible for most of joint stock companies to enforce the mandatory rule of law.
In particular, they prohibited any mass events involving more than ten people during quarantine until April 24. There are high chances this period might be extended.
In Search of Counteraction
Around 5,000 joint-stock companies having together about 300,000 shareholders had the same question from the first day the ban was introduced: How to hold annual general meeting and not to break quarantine rules? It should be noted that the ban did not affect those joint-stock companies in which the number of voting shareholders is up to five. Why is it five when the restriction starts from ten? Because, apart from the shareholders, additional five persons should be present at the meeting: the chairman and the secretary of the meeting, as well as the members of the counting commission (usually three persons). Consequently, only five available “seats” are left for the shareholders themselves. Of course, if not to recourse to creative formats of holding a meeting, when the shareholders take turns to enter the room, vote and leave; and, thus, simultaneously (!) not more than ten people are inside.
However, we recommend refraining from experiments, which involve a large number of people. Firstly, it creates an additional risk of spreading a dangerous disease. Also, minutes of a general shareholders' meeting will witness the presence of people above the permitted limit, and it can give rise to sanctions under the law on “quarantine” restrictions.
In November 2019 the draft law No.2493 was registered at the Parliament. This document, which was developed by the National Securities and Stock Market Commission (the “Commission”), aims to reform corporate legislation and provide for, among others, remote participation of shareholders in the general meeting. However, the Parliament “got stuck” on the land issue, and it has not considered the draft law No.2493 yet. The current law on joint-stock companies obviously did not consider “quarantine” restrictions. Nearly three weeks, nobody could answer the question "what to do?".
"Vaccine" is Found
On March 30, the Parliament passed the draft law No.3275 On Amendments to Certain Legislative Acts aimed at Providing Additional Social and Economic Guarantees in connection with the Spread of Coronavirus Disease (COVID-19). Among other things, the law changes corporate legislation. In particular, it supplements the final and transitional provisions of the Law "On Joint-Stock Companies" with the provisions on the special procedure for holding annual general meetings in 2020.
What Does the Law Offer?
Under the revised wording of the draft law as of March 29 (the final wording of the law will be available only after it returns with the signature of the President) the annual general meetings at financial year-end 2019:
- are allowed to be held within three months after the end of the quarantine; or
- remotely in the manner and within the period of time specified by the temporary procedure for the remote holding of general meetings.
It also provides that the Commission should approve such a temporary procedure. The procedure will take effect under the simplified procedure – without registration with the Ministry of Justice. The Commission already has some drafts of the new procedure. According to the information from the authors, the temporary procedure should appear in April. It is already known that the Central Depository will play an essential role in the maintenance of remote meetings.
The law also allows joint-stock companies to publish their annual financial statements within five business days following the general meetings.
Other Countries' Experience
In general, the actions of the Commission correspond to the actions of regulators of other countries. Some foreign jurisdictions have made changes to corporate legislation by allowing shareholders to meet remotely (even if not provided for in the articles of association) and/or postpone a general meeting. Among the first European countries are Austria, France, Germany, Latvia, Italy, Philippines.
Joint-stock companies of Switzerland, Georgia, and Israel will not be able to reschedule the planned general meetings. However, corporate legislation of these countries allows holding annual general meetings remotely.
Stock market regulators in Australia and Thailand have announced their "no action" position on upcoming annual general meetings that need to be postponed. The sanctions will not apply to those companies that choose to hold their general meetings online, even though this form is not provided by the domestic legislation and companies' articles of association.
What Exactly JSC Need to Do?
The supervisory board of a joint-stock company considers the issues related to the appointment and procedure of the general meetings. Although the law does not expressly provide that the supervisory board may cancel or postpone the general meeting of shareholders, the Commission considers that such a function is covered by the general competence of the supervisory board.
Thus, after the President signs the law, the supervisory boards of the companies could:
- decide to cancel/postpone the general meeting to another date due to restrictive measures in force in the country; and
- communicate this decision to the shareholders through the depository system.
To take the opportunity to hold the meeting remotely, the supervisory boards will also need to make a respective decision and communicate it to the shareholders.
To summarize, there are several basic recommendations for joint-stock companies:
- if you have up to five shareholders in your joint-stock company and there is an urgent need in the general meeting – you can hold your shareholders' meeting per standard procedure without violation of the quarantine restrictions;
- if you have more than five shareholders and have no time to delay - you should wait for the approval of the temporary procedure to hold remote meetings and hold them remotely; or
- if you are ready to postpone - wait for the end of the quarantine and hold shareholders' meeting within three months after the quarantine.