Royal Decree No 4: Introducing flexibility without losing sight of the rights of shareholders

Due to the COVID-19 pandemic and the measures taken to prevent the spread of the virus, various questions have been raised regarding the organisation of board and shareholder meetings.

In this regard, on 9 April 2020, Royal Decree No 4 containing various provisions on co-ownership and on companies and associations in the framework of the fight against COVID-19 (the "Royal Decree") was published in the Moniteur belge/Belgisch Staatsblad. The Royal Decree, which applies to all legal entities governed by the Code of Companies and Associations, introduces much-needed flexibility and provides legal entities with a number of options, without losing sight of the rights of shareholders. 

The provisions of the Royal Decree apply to shareholder and board meetings scheduled to be held - or for which the convocation notice was or should have been sent or published - between 1 March and 30 June 2020. This deadline may be extended by royal decree. It should be noted that application of the Royal Decree is optional. Legal entities that choose not to apply the provisions of the Royal Decree must nonetheless comply in full with the rules of the Code of Companies and Associations (the "CCA"). Application of an arrangement provided for by the Royal Decree is only justified if the organisation of a shareholder meeting in accordance with the CCA would not be possible due to safety concerns resulting from the COVID-19 pandemic. This contribution provides an overview of how board and shareholder meetings can be organised during the pandemic. 

Board meetings 

The CCA does not specifically mention the possibility to hold board meetings by video conference or teleconference. Due to the nature of board meetings, it was believed that deliberations and decision-making were only possible in the context of a physical meeting. However, as a result of technological advancements, it is now possible to hold board meetings without all of the directors being physically present at the same location, and more and more legal scholars agree that meetings held by video conference and even teleconference are as valid as physical meetings. 

The Royal Decree supports this point of view. More specifically, it states that board meetings can be held by video conference or teleconference even if the company's articles of association do not provide for, or even prohibit, this possibility. Unanimous written decision-making is also possible, even if prohibited by the articles of association. In the event a notarial instrument is required, only one director needs to be physically present at the notary's office or, alternatively, the board (deciding by a majority) can grant a special power of attorney to an individual to represent it before the notary. This can be a person working with the notary. The power of attorney can be granted orally during the video conference. The notary may require confirmation in writing, in which case an email should suffice, but it is advisable to check with the notary as some may require a written power of attorney.

Shareholder meetings 

It should be noted that it remains possible to organise physical shareholder meetings during the pandemic, albeit subject to various rules relating to social distancing, which could prove difficult for companies with many shareholders to implement. Luckily, the Royal Decree provides for several alternatives. Please note that these options should only be applied if holding a shareholder meeting in accordance with the CCA is not possible due to safety and containment measures.

First option: voting remotely or by proxy 

Voting before the meeting and/or the use of proxies

The board may oblige participants in the shareholder meeting to vote (i) remotely before the meeting or (ii) by proxy through a proxy holder designated by the company. If a shareholder has already appointed its own proxy holder, the shareholder's vote or abstention will be taken into account if the proxy granted to the proxy holder contains specific voting instructions (without the proxy holder having to be present at the meeting). 

The Royal Decree temporarily allows the provisions on distance voting, such as those found in Article 7:146 of the CCA for public limited companies (NV/SA), to be extended to legal entities for which no such statutory or internal provisions exist, insofar as the management body so decides. In addition, the management body can require that proxies be granted to a specific person or persons, it being noted that, in order to be valid, a proxy should contain specific voting instructions for all items on the agenda. In this way, the right to choose a proxy holder is restricted. It is therefore possible to oblige shareholders to grant a proxy to a specific person or persons and thus prohibit their attendance at a physical meeting. Furthermore, the proxy holder(s), the members of the presiding committee, the directors and the statutory auditor can all take part in the general meeting remotely, through teleconference or video conference, meaning that, in practice, no one has to be physically present at the meeting.

From a practical point of view, the voting form should be drawn up in accordance with the requirements of the CCA. For public limited companies, the form should be prepared by the management body and include the information listed in Article 7:146 CCA, sent to shareholders by mail or electronic means of communication, and made available on the company's website. 

For listed companies, voting forms and proxies must reach the company no later than the fourth day prior to the meeting. Unlisted entities should apply the relevant provisions of their articles of association or, in the absence of any provisions to this effect, Article 7:146 CCA mutatis mutandis. For unlisted entities, the documents should be returned no later than the day preceding the general meeting, notwithstanding the possibility for the entity to apply the deadline applicable to listed companies. An e-mail with a scan or photo of the form or proxy attached will be deemed sufficient.

a. Remote participation

Even without an authorisation to this effect in the articles of association, a legal entity can make available an electronic means of communication, as defined in Article 7:137 CCA, to allow shareholders to be directly, continuously and simultaneously informed of discussions at a general meeting. Due to the specific nature of shareholder meetings, it is required that this electronic means of communication allow the board to verify the identity of the shareholders or their representatives participating in the meeting in order to ensure that unauthorised individuals do not take part, a task which will be more difficult if there are a large number of shareholders. 

Based on the explanatory memorandum to the Royal Decree, it may be inferred that "electronic means of communication" means an electronic tool that can be used for large meetings and has a feature that permits the board to (i) make sure that all shareholders or their proxy holders can log in to the meeting and actively participate (i.e., everyone must be able to share his or her views) and (ii) prevent unauthorised persons from participating (i.e., authentication or access verification is required). For a public limited company (NV/SA), private limited company (BV/SRL) or cooperative company, a video conference or teleconference with a sufficiently small number of participants who can be identified during the call does not qualify as such an electronic means of communication requiring, under normal circumstances (outside the application of the Royal Decree), an authorisation in the articles.

b.Right to ask questions

The Royal Decree restricts the right of shareholders to ask questions. For example, the board can decide that questions can only be asked in writing and can require that questions be submitted no later than four days before the general meeting.

The board can answer shareholder questions in writing at the latest on the day of the general meeting, prior to the vote. Listed companies must publish the answers on their website. The board may also answer questions orally if it chooses to have the shareholders participate via teleconference or video conference or if it broadcasts the general meeting. However, in this case, since the shareholders have already cast their votes or granted a proxy with voting instructions, the board's answers will often not have any influence on the vote. In this way, the right to ask questions has been significantly eroded. This issue can be resolved through the use of appropriate software, which allows shareholders to change their voting instructions after the Q&A.

c.Convocation formalities

The usual convocation formalities still apply. Listed companies are however exempt from the obligation to send the convocation notice and other documents by mail. Unlisted entities are exempt from the obligation to send the documents by mail or make the documents available at their registered office. The notice and accompanying documents may be sent to the shareholders by e-mail.

Companies that have already called their annual general meeting can still modify the conditions for the meeting and the voting procedure without having to redo the convocation formalities. However, in this case, they must inform shareholders of the changes in the most efficient way possible (e.g. via their website or by e-mail). Listed companies must announce the changes in a press release and on their website no later than six days before the meeting.

Second option: postponement of the meeting 

Companies may opt to postpone their general meeting, even if it has already been called, provided the shareholders are correctly informed of this choice. Listed companies must notify their shareholders via their website and in a press release published at least four days before the scheduled date of the meeting. Unlisted entities may do so on their website or by e-mail, letter, etc. When using this option, the entity will be granted a ten-week extension for a number of statutory deadlines, such as the obligation to hold the general meeting within six months from the close of the financial year and the obligation to file the annual accounts with the NBB within seven months from the close of the financial year. A postponement is not permitted if the alarm bell procedure applies, meaning the company's net asset value is negative or will imminently become negative, or when the meeting was called at the request of 10% of the shareholders or the statutory auditor. It should be noted that a postponed meeting requires a new convocation notice, in relation to which the usual formalities apply.

In general

When organising a shareholder meeting using the options provided for by the Royal Decree it is important to ensure that the rights of shareholders are respected to the greatest extent possible. In other words, the Royal Decree permits shareholder rights to be restricted only insofar as such restrictions are justified by the safety measures imposed due to the COVID-19 pandemic or for containment purposes.