As a result of the German Government’s recent measures in the face of the Covid-19 pandemic, the decision-making process for German limited liability companies (Gesellschaft mit beschränkter Haftung, “GmbH”) through in-person shareholder meetings has been severely restricted by federal and state laws. Until recently, except in very limited circumstances, in-person shareholder meetings were mandatory.
Due to the increase in the number of infections, state governments have recently announced a tightening of the social distancing rules by banning social gatherings again. Shareholders residing abroad cannot easily attend meetings due to travel restrictions and bans, curfews and border controls. The German legislature reacted quickly to the potential economic consequences of a second wave and passed the "Law on measures in corporate, cooperative, association, foundation and residential property law to combat the effects of the Covid-19 pandemic" (Gesetz über Maßnahmen im Gesellschafts-, Genossenschafts-, Vereins-, Stiftungs- und Wohnungseigentumsrecht zur Bekämpfung der Auswirkungen der COVID-19-Pandemie, “COVMG”) which has eased some of the restrictions in relation to the passing of GmbH shareholder resolutions at an in-person shareholder meetings.
The German Limited Liability Companies Act 1892 (Gesetz betreffend die Gesellschaften mit beschränkter Haftung, “GmbHG”) sets out a number of matters which must be decided by the company’s shareholders and cannot easily be agreed by other relevant deciding bodies such as the board. Generally, shareholder resolutions are passed in in-person shareholder meetings with all shareholders present. The shareholders have the opportunity to exercise their voting rights as a key shareholder right within the framework of a duly organised procedure and thus participate in the decision-making process of the company by discussing and exchanging views.
For reasons of practicality, German law explicitly provides for the possibility of decisions being taken by written procedure. The holding of an in-person shareholder meeting is not required if all shareholders consent in text form to the subject of the resolution to be made or by the written casting of votes. The consent can be given by fax, telegram and, in particular, by email – a handwritten signature is not required.
However, this exception is very limited because if only one shareholder does not consent to the respective request or the written procedure either by refusing to give consent or simply not responding, then an in-person shareholder meeting will be required. The German legislature clearly did not consider shareholders residing abroad or holding a shareholder meeting via a video and/or telephone conference when introducing the GmbhG in Germany in 1892.
Now, GmbH shareholder resolutions can be passed in text form or by the written submission of votes without the consent of all shareholders pursuant to Section 2 of the COVMG. It is no longer mandatory for shareholders to be physically present at a meeting in order to pass a shareholders’ resolution. Under Section 2 of the COVMG, a GmbH’s managing directors can determine the written procedure without the approval of all shareholders.
However, there are limits to the scope of the new regulations. Section 2 is initially only applicable to shareholder meetings and resolutions that take place in 2020. The regulations apply to all GmbHs regardless of their number of shareholders. The Federal Ministry of Justice and Consumer Protection may extend the regulations by statutory order (without the consent of the Bundesrat) until 31 December 2021 at the latest, if this appears necessary due to the continuing effects of the Covid-19 pandemic.
The consequences of the pandemic are ongoing and cannot yet be precisely determined. Some countries have recently recorded their biggest daily increase in Covid-19 cases since the pandemic began. Companies still have to prepare for risks that are difficult to calculate and administration, including holding in-person shareholder meetings, is challenging in these circumstances.
For GmbHs that do not provide for digital meetings/written shareholder resolutions in their articles of association, the changes introduced by the COVMG should provide welcome assistance for their administration and decision-making. In view of the effects of the pandemic, this is also a modern way of allowing numerous shareholders to participate and interact at meetings. Further advantages are the costs and the organisational efforts saved by eliminating the need for face-to-face meetings together with environmental aspects.
Nevertheless, the COVMG could go further. Although a GmbH may amend its articles of association to provide for shareholder written resolutions (outside of in-person meetings, e.g. by internet or telephone), provisions in articles of association that expressly permit shareholder meetings via video conference are unusual. In the case of new or amended articles of association, we recommend that provisions be included that allow for flexible methods such as electronic meetings since the COVMG is limited in time.