The Temporary Act provides, among other things, for temporary derogation from certain provisions of Dutch statutory law and the articles of association, in order to:
- facilitate virtual meetings (through livestream, audio or video);
- extend the period for preparing annual accounts by the management board (instead of the general meeting of shareholders); and
- limit the 'presumption of proof' for directors' liability in case of bankruptcy if filing of the annual accounts is delayed as a result of the COVID-19 outbreak.
Why are these measures needed?
Dutch legal entities, including public limited liability companies (N.V.) and private limited liability companies (B.V.), must generally hold at least one physical general meeting of shareholders (GM) during the course of a financial year, which is usually held sometime in April-June. However, many legal entities are finding themselves in the predicament of being unable to hold such physical meeting as a consequence of the ban on public gatherings.
Virtual shareholders meetings
The Temporary Act allows the management board to decide that the GM is exclusively held by electronic means of communication, such as a livestream (audio or video) or through the sort of virtual platform used for webinars. The shareholders and other persons entitled to attend such meeting must be able to access and monitor the proceedings at the meeting. The management board may also decide that any votes cast before the meeting is held, by electronic means or in writing, are considered to be cast in the meeting.
The convocation notice for the meeting must state the conditions for the use of electronic means of communication.
Conditions for virtual only shareholders meetings
The management board may decide that the GM can only be accessed by electronic means of communication and that shareholders will not have physical access. The shareholders and other persons entitled to attend the meeting must be able to:
- follow the GM by electronic means; and
- raise questions, in electronic form or in writing, regarding the items on the agenda of the GM up to 72 hours prior to the meeting (or shorter period set by the management board).
The management board needs to respond ultimately during the GM to any prior questions raised, and shall make such responses available through electronic means of communication (website, e-mail, chat). The management board must also endeavour to enable participants of the meeting to raise (real-time) questions at the GM unless this cannot be reasonably arranged in the given circumstances (taking into account the necessary infrastructure). The Temporary Act provides that non-compliance with the right to ask questions will have no effect on the validity of the shareholder resolutions taken. The explanatory notes provide that the same applies to shortfalls in the electronic transmission of the meeting.
The explanatory notes of the Temporary Act distinguish between the use of a one-way and two-way electronic means of communication. One-way communication (email, website, audio or audio/video stream), being the minimum method of communication for holding a meeting electronically, enables the participants to monitor the proceedings at a GM only. The two-way communication (conference call, video call using Skype, Microsoft Teams or Webex, for example) also enables the participants to engage with the management board and other participants, making it possible to interact real-time at the meeting. Both types of communication are suitable for participating in the GM electronically. It is up to the management board to choose an appropriate means of communication.
Extending the deadline to prepare the annual accounts
The Temporary Act allows the management board to extend the period for preparing the annual accounts of Dutch public and private companies by a maximum of five months. This authority to extend the time period already accrued to the general meeting of shareholders, under statutory law. Where the management board has resolved to such extension, the general meeting no longer has the authority to extend the period (meaning there is no accumulative extension). The obligation to publish the annual accounts within twelve months after the end of the financial year remains in full force.
Postponing the GM of a Dutch public company
Pursuant to the Temporary Act, the management board of a Dutch public company (N.V.), which is required to hold its GM within six months after the end of its financial year (unless it is a public listed company, see below), may extend this period with an additional four months. Generally, in this meeting the annual accounts are adopted.
It is possible to postpone the GM to adopt the 2019 annual accounts (which ended on 31 December 2019) until after 30 June 2020, therefore up to 31 October 2020, unless extended.
Annual accounts and half year reports of listed companies
The Temporary Act does not provide for provisions to extend the timelines for preparing the annual accounts and half year reports of listed companies. In the light of the current circumstances though, the Dutch Authority for the Financial Markets (AFM) may be lenient in its enforcement in case a listed company is not able to prepare and publish its accounts in time.
Directors' liability for bankruptcy and late publication of annual accounts
If the annual accounts are not published within twelve months after the end of the financial year and the company goes bankrupt, Dutch law regards this as manifestly improper management by the management board and presumes that improper management to be a major cause of the bankruptcy. Pursuant to the Temporary Act, this presumption of proof will no longer apply if the management board substantiates that the reasons for its failure to timely publish the annual accounts is due to the consequences of COVID-19.
These provisions of the Temporary Act will expire on 1 September 2023 since directors' liability may be invoked up until three years after bankruptcy. The easing of the presumption of proof of improper management will not apply in respect of the financial reporting obligation of the management board, which remains in full force.
Retroactive effect and duration
Upon entering into force, the Temporary Act will have retroactive effect as of 16 March 2020 and will lapse on 1 September 2020, unless it is extended by another Royal Decree (up to a maximum two month period).
Dutch civil law notary during the COVID-19 outbreak
Dutch law requires that certain legal acts are implemented by means of a deed with the appearance and signing by a person before a Dutch civil law notary, such as the power of attorney granted by the person to establish a right of mortgage for the benefit of a third party (volmacht verleend door hypotheekgever bij authentieke akte), in the Netherlands. The Temporary Act provides that if a party to a notarial deed is unable to appear in person (or to be represented) before the civil law notary, the civil law notary may sign the deed with the appearance arranged by using a two-way electronic means of communication (audio and visual) instead (and without counter-signature). This is only permitted if there is no other option available and when it is clear that the person is located and present in the Netherlands. The use of electronic means of communication needs to be recorded explicitly in the notarial deed.
Your usual Osborne Clarke contact is available to discuss any aspects or questions you may have.