How not to break the law and quarantine: advice for joint stock companies by MaxYm Libanov

Recommendations to Joint Stock Companies – How to Hold Annual Shareholders Meeting without Breaking the Quarantine and Requirements of the Law “On Joint Stock Companies” by Maxym Libanov, the Commissioner of the NSSMC.

For companies that are established and operate in the form of joint stock companies, March-April is the most important period of the year. At this time joint stock companies summarize the results of the year, distribute profits, prepare an annual report, publish information on the results of work for the year, etc.

By April 30, according to the Law of Ukraine “On Joint Stock Companies”, they must hold an annual meeting of shareholders who will review and approve the results of the previous year’s work, and open their annual report. This date is fixed in the law itself, and can only be changed by amending the law.

The issue of holding general meetings and disclosing annual information is now relevant to more than 5,000 joint stock companies and about 300,000 shareholders whose shares give voting rights at the meeting. Many of these companies have already set a date for the meeting and have posted notices of their meeting as required by law. But the coronavirus pandemic has changed the usual order of things.

According to the restrictive measures introduced by the Cabinet of Ministers, if a joint-stock company tries to hold a shareholder meeting and more than 10 people meet in one room (subject to the chairman, secretary and members of the counting committee), it will be a violation of quarantine. The Verkhovna Rada imposed administrative and criminal liability for its violation.

How can the state help joint-stock companies in the current situation: to allow them to delay the holding of shareholders’ meetings (so that they can do so after the quarantine is over) or to allow them to be held remotely to minimize the risk of coronavirus spread.

It was with this proposal that the NSSMC  appealed to the MPs. We have proposed to the Verkhovna Rada to allow the joint stock companies to hold an annual meeting for 2019 results within three months after the quarantine is officially completed.

And if, due to restrictive measures of holding general meetings in full-time form it would still be impossible, we propose to allow general meetings to be held remotely. With respect to disclosure requirements, the annual report must be disclosed no later than five days after the date of the general meeting of shareholders.

The package of these amendments to the laws should be considered at an extraordinary session of the Verkhovna Rada. We look forward to setting a date for this meeting.

As these changes are anti-crisis and are associated with counteracting the spread of the coronavirus, they must be promptly signed by the Speaker and President immediately after a successful vote.

These amendments to the legislation stipulate that the NSSMC will promptly develop and approve a temporary procedure for holding shareholders’ meetings remotely. We are already working on this document, no one is waiting for the Verkhovna Rada to vote in favor of the law.

I think it will take us two weeks for this interim order to go through the whole procedure. We proposed to amend the law to simplify the entry into force of the new temporary order. First of all, it is said that it will not be subject to registration with the Ministry of Justice.

After approval of the provisional procedure at the NSSMC meeting and its publication on our site, we will inform the issuers through the official channels of the new procedure and the change of terms of holding of meetings and disclosure of annual information.

Certainly, we understand that any legal proposal proposed in such a provisional order will have weaknesses and, unfortunately, can be challenged in court.

In the risk zone, first of all, will be joint-stock companies that have a potential corporate conflict. However, it is impossible to propose a more stable legal framework in such a short timeframe and subject to point changes to the law.

So what do joint-stock companies do in this situation?

Under current law, matters relating to the appointment and approval of procedural time limits are within the competence of the supervisory board. Therefore, the Supervisory Board should decide to cancel / postpone the meeting of shareholders. Although such a “function” of the supervisory board is not directly provided for by law, it follows logically from its sphere of competence.

What specific actions can the Supervisory Board take after the adoption of the proposed anti-crisis amendments by the Verkhovna Rada:

– Using traditional channels of communication with shareholders – through the depository system – to inform them that the general meeting is canceled or postponed to another date due to the fact that restrictive measures are in force in the country.

– If a joint stock company wants to hold an annual meeting remotely, it is also obliged to notify all shareholders through the depository system of changing the procedure for holding meetings.

– If a joint-stock company can hold an in-person meeting during the quarantine period without violating sanitary and epidemiological restrictions (ie, the ban on collecting more than 10 people in one room), it can, of course, do so. The regulator will have no objections. But if the regulator of the shareholders meeting minutes becomes aware of the breach of the sanitary and epidemiological requirements of the quarantine, we will be obliged to inform the law enforcement agencies.

 Of course, this year is unlikely to be easy for many companies. And the simplifications we offer are unlikely to solve all corporate problems. Unfortunately, not all joint stock companies will be able to use the option of postponing the meeting of shareholders.

With regard to state-owned companies, given the current budgetary problems, the state as a major shareholder is likely to be interested in the immediate distribution of profits over the past year.

That is why we strive to work as far as possible with all interested parties in a temporary procedure for holding shareholders’ meetings remotely, and we will be very grateful to the legal community for constructive cooperation and assistance in the work on the document.

The text was prepared as a result of a speech by Maxym Libanov during an online meeting of the Corporate Law and Stock Market Committee of the Ukrainian Bar Association. This text reflects the author’s personal view of the matter and is not an official position of the National Securities and Stock Market Commission.

Source of information: The Page