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The general rule established in the Spanish Companies Act (Ley de Sociedades de Capital – LSC) is the holding of meetings of the management body or partners’/shareholders’ meeting through the attendance of their members or representatives, where the term “attendance” seems to incorporate, without specifically saying so, physical presence.
This is confirmed by the fact that, exceptionally, article 182 of the LSC refers to the case of joint-stock companies and shareholders’ meetings, in order to allow shareholders to attend the meeting by electronic means (without actually indicating by which means), providing that the identity of the attendee is guaranteed. Furthermore, the law requires that this mode of participation is set forth in the company bylaws. Given the conditions and the limitation to joint-stock companies, it must be understood that the legislator made this article an exception to the general rule, which does not detract from the fact that the meeting is held in person, although some members may attend by electronic means. This is meant to cover the numerous cases of companies with a considerable number of shareholders who are unable to travel to the meeting, although their participation is healthy for this body. Clearly, article 182 does not set forth the holding of meetings by electronic means, but the attendance of the shareholder of conventional meetings by electronic means.
On the other hand, the LSC does not mention a similar formula for board of directors meetings, although it is precisely due to this loophole that it is necessary to think about the viability of establishing a provision in the bylaws for their regulation.
This legislative hesitance may be qualified as outdated if we take into account the state of technology in communications and remote connectivity, even in 2010, when the LSC was enacted. It is surprising that this question was not addressed in the successive amendments of the LSC made since then, as the presence of technology today is omnipresent. Paradoxically, article 173 of the LSC does provide for the summons of the meeting via publication on the company’s website. Thus, there is in fact, in this area, a certain imbalance which should be corrected in the interest of the smooth operation of companies.
There are many reasons for supporting the legal regulation of the holding of partners’/shareholders’ meetings and meetings of the collective management body in a decentralised and electronic form. First of all, practice shows that companies have been holding board meetings by videoconference for some time, although the law does not mention the possibility to do so, although they do not have an official character. The possibility to hold meetings by electronic means avoids travelling expenses, allows flexibility for coordinating schedules and promotes the active participation of partners/shareholders (and board members). This does not mean that the general rule should be the virtual meeting, but rather this technical solution offers a wide range of possibilities which facilitates conducting meetings, in clear benefit to the company.
One of the effects of the regulations issued by the government in relation to the state of alert, decreed on 14th March 2020, relative to the Covid-19 pandemic is home confinement. The decree was passed at the time of year when many board of directors meetings are held for drawing up annual accounts and also shareholders’/partners’ meetings for approving annual accounts and taking important decisions. The confinement came to paralyse, in fact, a considerable part of these organs, especially the board of directors, so it became necessary to take urgent measures. Thus, Royal Decree Law 8/2020 of 17th March came to establish that, although company bylaws did not expressly so state it, during the state of alert (in force at the time of writing this article) the online holding of board of directors’ sessions or partners’/shareholders’ meetings are allowed, whether it be through a multiple telephone conference or videoconference. In this case, the online meeting is not an exception to the rule, rather the very dynamics of the state of alert convert it into the default form of holding meetings while the state of alert remains in force.
What requirement should this type of meeting fulfil?
(a) Regarding the technical resources, they may be held by videoconference or multiple telephone conference.
(b) All participants must have the technical resources required for taking part in the meeting.
(c) The secretary must recognise the identity of all of the participants.
(d) The secretary must send the minutes of the meeting to the participants as soon as the session or meeting ends.
In any case, the session or meeting shall be understood to have been held at the registered office of the company.
The legislator declares this measure to be provisional, as it is borne out of urgency, as the application thereof is bound to the duration of the state of alert. For once, the expression “in Spain the only thing that is permanent, is that which is provisional”, normally has negative connotations of improvisation, may on this occasion have the desired effect, if finally the measure is adequately incorporated into company legislation. Conceptually, the formula is useful and in step with the times, and contributes to the better organisation of corporate bodies, especially when we consider the board of directors. We may remember that article 245 of the LSC obliges the board of directors to meet at least once each quarter, which in practice is incompatible with the reality of many boards wherein their members reside in different parts of the world. The sessions by electronic means would resolve this situation and furthermore would free us from minutes which are artificially produced without having carried out the session of the board in person; in this way the law would be brought in line with reality and would solve an irritating problem.
Likewise, there is something to be said with regards to the implementation of the measure, the wording of article 40 of Royal Decree Law 8/2020 seems a little precipitate, and generates doubts and problems. One of those is the system of authentication or identification of the participants, with special attention paid to the board of directors, where very important and confidential matters are dealt with and decided upon; a possible impersonation or the intervention of non-authorised third parties may have very serious consequences. It is objectionable, due to the risk and uncertainty, that the telephone multiconference is an appropriate means for carrying out the sessions, given that they do not allow for facial identification nor the reasonable confirmation that the participant in the board meeting is taking part individually and without duress. The task being imposed by the law upon the secretary of the meeting or the board session is very difficult or practically impossible, particularly when the relations between shareholders or board members are belligerent and the use of fraudulent methods may render the meeting itself invalid or cause it not to be held, if the fraud is detected in time.
Another doubt arising regarding the formula for the online holding of sessions of the board of directors is whether it is applicable to its executive commissions or only to full board meetings.
Likewise, the guarantee of confidentiality in board sessions is worrying. The passive intervention of non-authorised third parties in online sessions may provoke the leak of classified and confidential information, such as strategic plans and business secrets. It is necessary to establish security measures for the sessions which reduce the risk of undesired interventions (“hacking”) by third parties. The law describes the importance of identifying the attendees, but does not mention anything regarding security in the sessions.
The online system requires certain technical help to reduce or eliminate such risks, as would be the case of the obligatory use of gateways with secure access to the meetings or board sessions, through the verification of a digital signature. This would, in part, free the secretary from the excessive responsibility imposed by the legislator regarding its duty to identify participants. ¿Where is the bar set for due diligence when performing this function?
The same happens regarding the sending of the minutes: RDL 8/2020 states that the secretary shall send the minutes by e-mail to each of the attendees immediately. It would be desirable to determine the need for encrypting the contents or whether to provide for the possibility that the partner/board member may consult the contents of the minutes in a section of the corporate website, through a coded and restricted access.
In a nutshell, if finally the formula for the online holding of board meetings and partners’/shareholders’ meetings is transposed into company legislation, it would seem necessary that it should be accompanied by technical measures or parameters aiming at reasonably giving them security and confidentiality, paying particular attention to the identity of the participant, and their participation, which should be voluntary, individual and under conditions for exercising their rights with the full use of their sole discretion. The opposite may lead to fraud and conflicts, with a contrary effect to what is intended to be gained with the implementation of this solution.
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Barcelona, 29th May 2020