The object of this article is to analyse the new developments introduced by Royal Decree-Law 11/2020 of 31st March, in questions primarily related to the system of operation of commercial companies and other legal entities.
First of all, we shall take a look at the meetings of the bodies which govern corporate life: the management organ and the shareholders meeting (and other comparable situations, in the case of legal entities, which are not companies).
In this aspect it is established that, during the state of alert, and even in cases where the company bylaws do not provide for this possibility, meetings of management organs and shareholders meetings may be held (a scope that was previously unclear) by videoconference or multiple telephone conference. The means of telephone conference is a new development. In any case meetings held by telematic means or by telephone must fulfil a series of requirements:
(i) that all of the members of the management organ have the necessary means at their disposal,
(ii) that the secretary of the body recognises the identity of the participants of the meeting, and
(iii) this is duly stated in the minutes, which shall be sent immediately to the email address of each of the participants.
We see that this is an attempt to extend to the maximum the range of possibilities so that the confinement obligations and lack of contact among people does not prevent the normal development of company life; however, many doubts arise regarding the system established for guaranteeing the identity of the participants; this imposes considerable responsibility upon the secretary and we must think of practical viability in the case of telephone conferences: possible identity fraud, intervention of non-authorised persons etc.
It is further clarified that the meeting shall be understood to have been held at the registered office of the company, in spite of partners and directors being able to attend the meetings when in different countries. In the absence of a better criteria, this seems to be correct.
Secondly, regarding the formulation of annual accounts, the obligation to formulate is suspended until the end of the state of alert, and shall be resumed again for another 3 months as from such date. Nevertheless, the formulation and audit of annual accounts during the state of alert is valid. It should be noted that this is not a matter of a mere suspension, but the start of a new term of 3 months. This shall allow companies who may have formulated their annual accounts before the declaration of the state of alert to modify them in order to take into account the economic impact of the state of alert on the annual accounts.
The term for the annual accounts audit report (whether obligatory or voluntary) shall be understood to be extended for 2 months as from the end of the state of alarm in cases where the annual accounts for the 2019 financial year had been formulated during the effect of the state of alert.
The shareholders meeting for approving the annual accounts shall meet indispensably within 3 months following the finalisation of the term for formulation. Therefore, this rule is prioritised above the general rule that the accounts must be approved within the first 6 months of the financial year, since, in some cases, with the extension of the deadline for formulation, the general approval period may be exceeded, that is to say, the first six months after the end of the financial year.
If the summons of the general meeting had been published before 14th March, but the date upon which the meeting was held was later, the management body may modify the place and time set for the meeting or revoke the summons via an announcement published with minimum notice of 48 hours on the company website or in the Official State Gazette (Boletín oficial del Estado), if the company does not have a website. Should the summons be revoked, the management organ must convene within the month following the date upon which the state of alert is lifted.
Another important development introduced by RDL 11/2020 is related to the possibility of modifying the allocation of profit. In this way, company directors, who, having formulated their accounts, summon the shareholders meeting for approving the accounts and the allocation of profit, as from 18th March, may substitute the proposal of allocation of profit contained in the annual report for another.
This modification must of course be justified by the management organ, based on the situation created by COVID-19; we understand that it is the result of an unforeseen situation which may make the allocation initially intended for profits vary, and they may be allocated for other purposes not previously taken into account, such as, changing the distribution of dividends for reserves.
As well as this justification, in the event that the company submits its accounts to audit, they must be accompanied by a written document issued by the auditor which states that their opinion would not have been modified if the new proposal had been known at the time of signing.
In the event that the shareholders meeting had already been summoned with an agenda reflecting the proposal for the allocation of profits, the management organ may remove the proposal for the allocation of profits from said meeting agenda, although the decision to do so must be published before holding the meeting summoned.
Therefore, the meeting is allowed to approve the annual accounts, and leave the approval of the allocation of profits for a later meeting, which may be filed with the Commercial Registry via a complementary certificate.
With regards to winding-up, it is possible to suspend until the end of the state of alert the holding of the shareholders meeting, which must decide upon winding-up either by full right or due to statutory causes, that have arisen before or during the mentioned state of alarm. Grounds for winding-up due to the fulfilment of the statutory term of duration are excluded, in which case the winding-up shall not take place until 2 months have passed as from the end of the state of alert.
It should be emphasised that directors shall be relieved of their responsibility for company debts contracted during the state of alert if grounds for legal or statutory winding-up had arisen during this period.
Finally, companies involved in insolvency proceedings may benefit from the dismissal procedure ERTE (Expediente de Regulación Temporal de Empleo) due to force majeure and technical, economic, organisational and production grounds, which are regulated in decree 8/2020 of 17th March, and all which that entails: reduction of deadlines, application of employment regulations, etc. without prejudice to certain particularities.
Vilá Abogados
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3rd April 2020
