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COVID-19: TEMPORARY MEASURES TO HELP COMPANIES’ GOVERNANCE
Posted on 26 March 2020 in COVID-19 > Corporate & M&A

The recent COVID-19 outbreak has imposed unprecedented confinement measures and social distancing on people in Europe and around the world. These measures have a direct impact on each of us.

The Luxembourg Government declared a state of emergency due to the COVID-19 crisis on 18 March 2020, in accordance with article 32(4) of the Luxembourg Constitution. This decision was confirmed and prolonged by the Parliament on 21 March 2020 for a period of three months.

The current situation has and will impact governance of companies and other legal entities. The Luxembourg Government and administrations have taken a number of immediate and temporary measures to help those companies to face the current situation.

1. MEASURES REGARDING CORPORATE GOVERNANCE

On 20 March 2020, a Grand Ducal regulation introduced measures concerning the holding of meetings by companies and other legal entities (http://www.legilux.public.lu/eli/etat/leg/rgd/2020/03/20/a171/jo). In the context of the COVID-19 crisis, this Grand Ducal regulation derogates from the law of 10 August 1915 applicable to commercial companies, and is effective from 20 March 2020 until 30 June 2020, unless the state of emergency ends earlier.

This Grand Ducal regulation applies to all companies and other legal entities.

A. Shareholders’ meetings

A company may impose that at general meetings the shareholders’ rights may be exercised only via:

  • voting forms in writing or in electronic format (even if the articles of association do not allow this possibility, or prohibit it); or
  • proxies, but only to a special proxyholder chosen by the company, who will thus represent several shareholders, (even if the articles of association limit the number of proxies per proxyholder to one); or
  • video conference, conference call, or any other means of telecommunication that allows for the identification of the participants (even if the articles of association do not allow this possibility, or prohibit it).

Circular resolutions are still prohibited for shareholders’ meetings for public limited liability companies and for private limited liability companies with more than sixty shareholders.

These measures are optional, but if a company decides to impose them, they are mandatory for the shareholders. Where a company is managed by a board of managers, it is for the latter to decide whether or not to impose these measures.

B. Meetings of boards of directors, boards of managers, supervisory boards or other bodies of a company

Such meetings may adopt resolutions by way of:

  • circular resolutions (even if the articles of association do not allow this possibility, or prohibit it); or
  • video conference, conference call, or any other means of telecommunication that allows for the identification of the participants (even if the articles of association prohibit this possibility).

These measures are also merely optional, at least until another (future) state of emergency provision prohibits any physical meetings between managers in Luxembourg.

C. Date of the shareholders meetings

(i) Annual general meeting

Companies may convene their annual general meeting of shareholders, regardless of any contrary provisions in their articles of association, at the later of the following dates:

  • a date that is within six months after the end of the financial year; or
  • a date that is within a period until 30 June 2020.

Companies may choose to impose the above measure for any general meetings scheduled to convene on or before 30 June 2020.

If a company’s financial year does not match the calendar year but starts in the second half of the calendar year and ends in the second half of the following calendar year (e.g., 1 October to 30 September of the following year), it is now possible to hold the annual general meeting on or before 30 June 2020, instead of a date on or before 30 March 2020.

Companies whose financial year runs in accordance with the calendar year, and whose articles of association do not impose an annual general meeting in a shorter period than the legal deadline, will not be impacted by this optional measure.

(ii) Annual general meeting already convened

Even if an annual general meeting has already been convened, a company may still opt for any of the above measures but shall publish a new convening notice and notify its shareholders in the form in which the meeting was initially convened, or by publication on its website. at least three business days before the convened meeting.

2. OTHER MEASURES APPLICABLE TO COMPANIES

  • The Luxembourg Business Registers have implemented exceptional measures given the current state of emergency. In relation to filing of annual accounts for the financial year 2019, all companies now have an additional administrative period of 4 months to file the financial data with the Trade and Companies Register (i.e. until 30 November 2020), at the standard rate of 19 € (excluding VAT, registration fees and CNC administrative tax) without any penalty charges for late filing.
  • Due to the COVID-19 outbreak, late filing of VAT returns will not be administratively sanctioned. This tolerance applies until otherwise indicated by the VAT Administration.

3. PRACTICAL CONSIDERATIONS FOR HOLDING BOARD OR SHAREHOLDERS’ MEETINGS

The Grand Ducal regulation of 20 March 2020 will help to facilitate corporate meetings during the confinement period. However, certain questions remain:

  • Tax substance requirements? For Luxembourg registered companies that are branches or subsidiaries of international groups and in which there are many non-Luxembourg resident directors or managers, the location where meetings are held is important for tax substance purposes. This needs to be checked on a case-by-case basis.
  • Meetings held abroad? In addition to the Grand Ducal regulation of 20 March 2020, many articles of association of Luxembourg registered companies may provide for a temporary transfer of the registered office abroad or for the possibility to hold shareholders’ meetings or the meetings of the board of directors in another country in the event of force majeure. Due to exceptional circumstances, this option is still possible if none of the measures taken by the above Grand Ducal regulation are practicable, but tax substance analysis needs to be taken into consideration.
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