by Mélissa Kdyem, Corporate department – Senior Associate, Clifford Chance
Tools (re)discovered in light of the COVID pandemic.
Before the Covid-19 pandemic, people travelled from all over the world to Luxembourg in order to attend board or shareholders’ meetings where substantial decisions were discussed, considered and adopted. Needless to say that many Luxembourg stakeholders commute from various neighbouring countries in order to work within the Grand Duchy of Luxembourg.
In light of the current pandemic conditions, for more than a year, new habits have been adopted in working arrangements and how decisions are adopted. Among these, the most important are ensuring stable internet connections and good mobile phone coverage.
The purpose of this paper is to provide an overview of the tools available to Luxembourg commercial companies on decisions adopted remotely.
At the beginning of the lockdown in 2020, Luxembourg “interim” regulations were introduced to ensure that commercial companies remained operational during those uncertain times. Indeed, it was crucial for companies to remain able to take decisions quickly and to monitor their business remotely.
Between 20 March 2020 and the date of this paper, a series of temporary measures have been adopted in Luxembourg regarding corporate approvals without a physical presence being required at the registered office, so as to ensure both the safety of participants and the business continuity of companies and other entities. The application of these measures was extended by the legislator, pursuant to the law of 23 September 2020, implementing measures concerning the holding of meetings in companies and other legal entities, as amended from time to time, (the “2020 Law“), which will have effect until 31 December 2021.
Most of the provisions contained in the 2020 Law already existed under the Luxembourg law on commercial companies dated 10 August 1915 as amended from time to time (the “1915 Law“). Nevertheless, the 2020 Law provides for the application of certain provisions irrespective of to whether or not they are authorised or excluded by the articles of association of the relevant company.
We now propose to present some useful options being rediscovered further to the 2020 Law that one may deem necessary to be included in the articles of association of the relevant entity. However, it should be borne in mind that even if such tools allow for flexibility, the substance requirement shall be carefully considered when using them.
Although we will focus on commercial companies as defined under article 100-2 of the 1915 Law, it is worthwhile noting that the scope of the 2020 Law was extended to a vast range of entities including non-profit associations and foundations.
The 1915 Law already contains several options for shareholders to express their vote on agenda items without being physically present at shareholders’ meetings. Shareholders’ meetings are an important element of a company’s business. Indeed, review and approval the annual accounts at the annual general meeting (“AGM“) is the time to analyse the company’s financial situation for the past financial year and to grant a discharge to the management on the performance of their duties. Extraordinary general meetings of shareholders (“EGMs“) may also be the occasion to take substantial decisions regarding the growth or restructuring of the company, whether via the injection of fresh cash from existing or new investors or by merging with another entity, either to simplify the structure or create synergies. In this respect, shareholders can discuss and exchange their views on the EGM’s agenda. When shareholders’ views are similar, the resolutions to be adopted may be considered as a mere formality, but that may not be the case in the absence of unanimity among the shareholder. For example, the direction the company’s business should follow (in particular regarding the appointment of managers/directors) may not be of unanimous consent. In the latter case, AGMS and EGMs regain their primary goal as being a democratic forum for shareholders to be able to meet and express their opinions, ask questions and discuss.
Although telecommunications technology is still evolving (without precluding further improvements and functions that will appear in coming years), as of now it is not per se required to be physically present at a shareholders’ meeting for one to express her/his/its vote, as a videoconference facility can be used (with or without video). Indeed, a shareholder of a public limited liability company (“SA“) or a private limited liability company (“SARL“) can attend a shareholders’ meeting via a videoconference facility, if permitted in the articles of association.
The other option remains for the shareholders to appoint a proxyholder to represent them at the AGM/EGM and this person will vote in accordance with the instructions so received from the shareholder.
In the context of COVID-19, physical meetings should be the exception rather than the rule. In this regard, the 2020 Law authorises the holding of shareholders’ meetings without the requirement for people to meet in person. To do so, companies have the choice of using:
- voting forms (written or in electronic format) so long as the full text of the resolutions had been shared with shareholders or published;
- a proxyholder designated by the company in order for the latter to exercise the shareholder’s rights;
- videoconference or other means allowing the participants to be heard and to hear each other simultaneously.
One of the strengths of the 2020 Law was to authorise the use of participation by such means notwithstanding the requirements of the articles of association (whether forbidden or authorised). As above-mentioned, outside of the 2020 Law, in order to use a videoconference facility or voting forms, the articles of association shall authorise these means explicitly.
Another point to note is that, under the 2020 Law, companies have the power to designate the proxyholder of the shareholder. However, for listed companies, shareholders still have the option to appoint a proxyholder other than that designated by the company. Such proxyholder would then vote at the shareholders’ meeting remotely (i.e. either via voting forms or videoconference or similar means, depending on the company’s choice(s) for holding the meeting).
In addition to shareholders’ meetings, the 2020 Law also regulates the adoption of board decisions remotely.
Within a calendar year, a company generally organises more board meetings than AGMs or EGMs. In principle, board meetings must be held as often as the company’s business so requires. Indeed, the company should be managed by the collegiate body of the directors/managers. For doing so, board members must meet and discuss in person, exchange their views, ask questions, and express their opinion as regards the agenda items to be considered. The board will adopt decisions regarding the company’s strategy, the measures to be implemented to comply with the strategy so retained.
One should also be reminded that minutes of board meetings shall be drafted carefully in order to reflect the actual discussions, especially where one or more directors/managers have expressed different opinions or raised relevant questions. When substantial decisions are adopted, it is recommended to provide as much detail as possible regarding the underlying rationale to proceed with the contemplated transaction or strategy, as well referring to and expanding upon how such transaction is within the corporate interest of the company.
To be pragmatic, the 1915 Law already contains provisions allowing management to adopt decisions:
- via written resolutions, if expressly authorised by the articles of association;
- remotely via the attendance of one or more persons via videoconference if not otherwise provided for in the articles of association (i.e. if the articles of association are silent or if not explicitly forbidden therein, videoconference can be used);
- for those not able to be present, to be represented by another board member appointed pursuant to a proxy form (note that one current manager/director can represent only one other, no third party can act as the proxyholder of a manager or director).
We note that the 1915 Law authorises the use of written resolutions for board decisions provided that the articles of association explicitly allow them, as opposed to the use of videoconference being applicable if not excluded by the articles of association. One could interpret this as an implicit preference of the Legislator for meetings as opposed to written resolutions. Indeed, in the latter case, managers and/or directors do not have the ability to debate and discuss in person.
Within the conditions of the pandemic and in light of, among other things, travel restrictions, maintaining the ability of companies to make decisions is of the upmost importance. Management needs to monitor carefully the company’s business and take appropriate decisions in a timely manner as “interim” regulations and government decisions continually change because of the evolution of COVID-19.
Actions to be taken?
The 1915 Law aims to equip commercial companies with alternatives for board decisions to be adopted even in the absence of one or more directors or managers at the meeting. Under normal circumstances, the use of videoconference / written resolutions may be of a particular interest in urgent circumstances, or if one or more directors or managers is or are not able to travel to Luxembourg as they are located abroad. However, some companies and tax advisers are reluctant to use these means in order to avoid any possible challenge to the substance of the residence of the Luxembourg entity and, as a consequence, its tax treatment. In this context, the articles of association may simply prohibit the use of such means or limit their use to strict conditions. If the extraordinary measures had not been adopted during previous months in Luxembourg as per the 2020 Law, the management of the entities that cannot use videoconference or written resolutions could have been affected by such limitations. Indeed, boards of directors and managers are often composed of persons located abroad and/or professionally resident in Luxembourg but living in France, Belgium or Germany. Assuming the articles of association prohibit the use of videoconference and written resolutions, and with lockdown/travel restrictions, the decision-making process could have been be paralysed given that for many companies some or all of their directors/managers could not travel to Luxembourg. The only alternative would have been to amend the articles of association. However, amending those requires an EGM to be held in front of a Luxembourg notary and convene a shareholders’ meeting, such action being within the board’s power.
The 2020 Law has the merit of being pragmatic, as it neutralised the limitations contained in the 1915 Law regarding what was or not allowed under the relevant articles of association. As previously mentioned, the 2020 Law will cease to have effect on 31 December 2020 (subject to future extensions if imposed by the then prevailing conditions caused by COVID-19). Nevertheless, in order to avoid such difficult, potential dead-locks, and as business shall continue despite virus, we recommend that the articles of association of the Luxembourg entities be amended to allow for such flexibility … just in case.
The adoption of shareholders’/board decisions remotely should be used sparingly and when the context so justifies. As we know, “expect the unexpected” may summarise the various challenges that management faces in the day-to-day business of the company. In this regard, we believe (subject to appropriate advice from your advisers) that the articles of association should allow for the adoption of shareholders’ and board decisions remotely with or without conditions, such as the urgency of the matter, or the requirement to have one or more persons physically present at the registered office.
 Article 450-1 (3) of the 1915 Law.
 Article 710-21 (2) of the 1915 Law.
 Article 450-1 (3) of the 1915 Law.
 Article 710-21 (3) of the 1915 Law.
 Article 1 (1) of the 1915 Law.
 Article 444-3 (1) of the 1915 Law for SA and article 710-15 (2) of the 1915 Law for SARL.
 Article 444-4 of the 1915 Law for SA and 710-15 (3) of the 1915 Law for SARL.