New provisional rules on deadlines for filing annual reports
On 18 March 2020, at 10:00 AM, a new Danish Executive Order entered into force which (subject to certain conditions) extends the deadline for filing annual reports. The new rules have been adopted to ensure that companies which, due to the COVID-19 crisis, are unable hold their annual general meeting in time for the annual report to be filed with the authorities do not exceed the specified time limit and thus risk adverse consequences.
The Executive Order grants an exemption from the current time limits, allowing companies to file their annual report no later than 8 weeks after lifting of the prohibition of large gatherings, events, etc. (the so-called "ban on gatherings"). Further details on the consequences of the prohibition for general meetings are available in our newsletter of 13 March 2020.
The right to postpone filing of the annual report applies only if:
- the general meeting (for the adoption of the annual report) has not already been held;
- the number of company owners (i.e. shareholders) exceeds 10, which is currently the maximum number of persons that are allowed to meet during the ban on gatherings; and
- the company is unable to hold the general meeting by electronic means, because its articles of association do not provide for that.
The above applies to companies that are subject to section 138 of the Danish Financial Statements Act, while e.g. financial undertakings, investment funds, alternative investment funds, etc. may apply to the Danish Financial Supervisory Authority for an exemption if it will be practically impossible or excessively difficult for them to meet the filing requirements. The Financial Supervisory Authority has announced that where financial undertakings have problems complying with administrative rules due to the COVID-19 situation, the Authority will grant exemptions when possible.
Condition that there are more than 10 owners, but...
For a company to apply for exemption, it must have more than 10 owners. However, also companies with fewer owners will often be in a situation where the number of participants who have a right or an obligation to attend the general meeting exceeds 10, because:
i. there must be a chairman to preside over the general meeting;
ii. the company’s management must be adequately represented;
iii. the auditor has a right to attend - and an obligation to do so if requested by just one shareholder, or if the company is listed on the stock exchange;
iv. all shareholders, or their proxies, have a right to be accompanied by an advisor
Thus, even companies with less than 10 owners which do not qualify for exemption may have problems filing the annual report on time, because they are unable to observe the requirement for maximum attendance at the general meeting.
Articles of association prescribing time limits
Many companies are required by their articles of association to hold the general meeting before a specific date or before the end of a specific month (e.g. before the end of April). These companies may still apply for exemption from the filing requirement as the Executive Order provides that the exemption applies notwithstanding that the articles of association stipulate a shorter time limit or an earlier date for holding of the general meeting. It means that the right to exemption, which is based on the Danish Epidemics Act, prevails over the company’s articles of associations when it comes to filing of the adopted annual report. However, neither the new Executive Order nor the Epidemics Act entitles companies to set aside the time limit for holding the annual general meeting prescribed in the articles of association. We expect that a bill will be introduced shortly granting such right.
Companies may still need to hold the general meeting as scheduled
Companies may need to hold the annual general meeting as scheduled for other reasons than observing the filing deadline. It would therefore be advisable to allow companies to hold general meetings by electronic means even if the articles of association do not provide for this. In this way, the general meeting can be duly held without violating the ban on gatherings. Such a change will require an amendment to the Danish Companies Act.
It may for instance be necessary to hold the general meeting at the time stated if:
- the authorisation for the board of directors to increase the share capital expires;
- a major shareholder needs a dividend payment (e.g. because of liquidity problems caused by the COVID-19 crisis); and
- one or more new members of the board of directors have to be elected - for instance where the chairman has to resign due to illness or for other reasons.
Approval of remuneration policies
Listed companies whose remuneration policy must be approved according to the agenda should note that if the proposed remuneration policy includes changes in respect of the current guidelines on incentive pay, then the company may start paying remuneration according to the new guidelines only when the general meeting has been held and the remuneration policy has been adopted. Thus, the listed company must continue paying remuneration to the management according to the existing guidelines until the adoption of a new remuneration policy.
Should the schedules annual general meeting be held or cancelled?
We recommend that companies which have not yet held their annual general meeting and which meet the criteria for obtaining an exemption from the filing requirements consider carefully what serves the company’s and the shareholders’ interests best - to hold the general meeting as soon as possible (provided that it is possible) or to postpone it. In this respect, it should be considered whether the general meeting can be held in a safe manner, e.g. by having the participants seated in different rooms to ensure that no more than 10 persons are together in the same room at any one time. For this purpose, the practicalities should be considered, including the minimum number of non-shareholder participants who have to be present in each room.
Kromann Reumert has set up a COVID-19 Task Force consisting of specialists, who are ready to assist you and your business in matters related to COVID-19.