Governance of Luxembourg companies
Given the impact of the COVID-19 pandemic, the Luxembourg Government, pursuant to article 32(4) of the Luxembourg Constitution, declared the state of emergency on 18 March 2020 for an initial period of three months, which has been confirmed by a law dated 24 March 2020.
Considering the restrictions imposed by the Luxembourg Government and more particularly containment measures with the view to attempt stopping the spread of COVID-19, physical meetings are no longer practically possible, thus impacting significantly corporate governance of Luxembourg companies.
Therefore, the Luxembourg Government enacted a Grand-Ducal Regulation dated 20 March 2020 introducing measures concerning the holding of meetings in companies and other legal persons (the Regulation).
Rules regarding the convening and holding of meetings for corporate organs as well as shareholders’ meetings are provided in the law dated 10 August 1915 regarding commercial companies, as amended, as well as the law of 24 May 2011 on the exercise of certain rights of shareholders in listed companies (the Laws).
For various reasons, including amongst other tax substance, sound corporate governance or regulatory purposes, holding of physical meetings was the rule and only in restricted cases, provided in the Laws and with a necessary specific disposition in the articles of association of companies, option was granted to hold video conference meetings or similar.
However, given the current context, it was of paramount importance to provide for measures enabling companies (listed or private) and other legal persons to hold their general meetings and other corporate bodies meetings without having to be physically present; hence protecting health and safety of management bodies members and shareholders.
General meeting of shareholders
To this end, the Regulation provides that a company may, regardless of the expected number of participants in its general meeting, hold any general meeting without a physical meeting, and require its shareholders or members and other participants in the meeting to attend the meeting and exercise their rights exclusively:
by voting from a remote location in writing or electronically, provided that the full text of the resolutions or decisions to be taken has been published or communicated to them;
through a proxy holder appointed by the company; or
by video conference or other telecommunication means permitting their identification.
The same rule apply to bondholders’ meetings.
With the same logic, the other corporate bodies (boards of directors, board of managers, supervisory board, management board), shall be allowed to hold their meetings without having to travel and by physically present:
by written circular resolutions; or
by video conference or other telecommunication means permitting the identification of the members of the corporate body participating in the meeting.
Additionally, the protecting measures enacted by the Regulations shall offer strong protections to Luxembourg companies in the context of the COVID-19 pandemic; therefore, the Regulations provides for two supplementary provisions aimed at ensuring legal certainty, by:
creating a legal fiction while clearly asserting that management board members and shareholders participating through the above explained means will be considered present for the purposes of determining the quorum and majorities; and
providing the rules enacted by the Regulation shall apply regardless of any contrary provision in the articles of association of the relevant company and regardless of the number of participants.
Annual General Meeting
Pursuant to the rules set in the Laws, at least one annual general meeting must be held at the registered office of the company once a year, which must be held within six months of the end of the financial year. Therefore, considering the current COVID-19 crisis, the Regulation further provides from a pragmatic standpoint that, notwithstanding any provision to the contrary in the articles of association, a company is authorised to convene its annual general meeting for the later of the following dates:
a date within six months after the end of its financial year, and
a date within a period ending 30 June 2020.
The company is authorised to take this decision for any meeting convened for 30 June 2020 at the latest. Any company which has already convened its meeting and which takes such a decision shall publish it and, where applicable, notify it to its shareholders or members or other participants in the form in which it had convened such meeting or by publication on its website no later than the third business day before the meeting.
Entry into force
The Regulation entered into force on 20 March 2020 date of its publication in the Official Journal of the Grand Duchy of Luxembourg.
Obviously, the normal approach for board members consisting in meeting at least each quarter per year and adopting a long-term benefit view of the company in every decision does no longer apply in these circumstances. The COVID-19 pandemic significantly changes the dynamic and directors will be required to meet much more often and take decision on short term basis to maintain or simply save the business activities. In such sense, ILA is aware of the difficulties directors will have to go through and strongly encourages its members to take benefit of the new measures taken by the Luxembourg Government in terms of holding meetings in order to exercise their duties in a safe and secure manner.
Written by ILA Legal & Regulatory committee.