Poland: Participating electronically in shareholders’ meetings and general assemblies
Polish joint-stock companies and limited liability companies have undergone a kind of electronic revolution, which has been long awaited but until now delayed. The necessity to enable efficient and uninterrupted services in the face of a pandemic has forced the Polish legislator to take quick action. Thanks to new solutions, persons and entities constituting the management bodies of commercial companies will be able to actively participate in the operations of those bodies by means of electronic communication, i.e. remotely. This rule will also apply to shareholders’ meetings and general shareholder assemblies.
As in the case of every change in the law, numerous questions and doubts may arise in the initial phase of application of the new solutions, both from the companies themselves and from the members of their bodies. What are the potential problems?
OBLIGATION TO ADOPT REGULATIONS
After introducing the opportunity to participate in shareholders’ meetings and general assemblies by means of electronic communication, the legislator left it up to the supervisory board (and if there is no supervisory board, to the shareholders of a limited liability company) to determine in the form of regulations the precise policies for participating in the meeting in line with this procedure. This provision makes the practical possibility of remote participation in shareholders’ meetings or general assemblies dependent on the adoption and validity of such regulations in the company.
Should it thus be assumed that every capital company is obliged to adopt such regulations? The answer seems to be yes. If the aforementioned policies are not specified, there may be considerable difficulties in conducting the meeting, i.e. verifying the authorisation of the participants and their participation in the meeting (e.g. by specifying the platform and technical requirements). As a consequence, under new legislation, every capital company should immediately ensure the adoption of the relevant regulations.
NO OPPORTUNITY FOR SHAREHOLDERS TO CAST THEIR VOTES
In connection with remote participation by shareholders in meetings of governing bodies, the question arises of what happens in a situation in which, for technical reasons (not attributable to the shareholder), a shareholder does not effectively exercise their voting rights or does not gain full access to important information presented during the meeting. In practice, regulations include provisions stating that the company is obliged to provide a system (usually delivered by an external entity) enabling participation in the meeting and the shareholder should ensure on their part that they comply with all technical requirements for the use of the system.The risk associated with the use of electronic communications to participate in a shareholders’ meeting or a general assembly and exercising the right to vote is entirely on the side of the shareholder and the company bears no responsibility for that risk.
Does such a clause effectively protect the company from possible liability towards the shareholder? That question is certainly difficult to answer at the moment. It would be difficult to hold the company liable for interruptions in the IT system used for holding the remote meeting as long as an external entity with the appropriate qualifications and the capacity to provide the necessary infrastructure was used. However, if the company does not exercise due diligence as regards the preparation of the meeting (e.g. decides to make use of their own IT resources with no experience in the organisation of such events, hires a contractor without the required competencies and tested systems) then it should be held liable, for instance for the lack of opportunity for shareholders to participate in the meeting.
Another problem is the lack of opportunity for shareholders to exercise their voting rights remotely. In the case of remote participation in a meeting and the lack of opportunity to cast votes in this way (for technical reasons), the shareholder might be deprived of the right to bring an action for the annulment of a resolution they were unable to vote for.
The Commercial Companies Code lists a limited number of parties with locus standi in this area. According to Article 250 and Article 422(2) of the Commercial Companies Code, these include:
(a) the management board, the supervisory board, the audit committee and their individual members;
(b) a shareholder who voted against the resolution and, following its adoption, requested that their objection be recorded;
(c) a shareholder who, without valid reason, was not allowed to participate in the meeting;
(d) a shareholder who was not present at the general meeting, where the general meeting was wrongly convened or where the resolution concerned a matter not included in the agenda.
Will a shareholder in the situation described above be considered to have the power to bring an action to the court? The answer is not clear. The present wording of the legislation seems to exclude such a possibility. A shareholder who intended to vote against a resolution, but did not cast a vote for technical reasons, will not be considered a party entitled to bring an appeal based on Article 250(2) or Article 422(2)(2) of the Commercial Companies Code. In this case, the condition of voting against the resolution by the shareholder will not be met (the shareholder did not cast a vote at all, for technical reasons). Moreover, in such a situation the shareholder could not be considered as not being allowed to participate in a meeting without a valid reason (because they participated in the meeting, even though they did not cast a vote). This means that a participation of a shareholder in a remote meeting may always be connected with some risk on their part and a certain restriction of their rights, which they will have to accept in order to be able to participate in the remote meeting.
In this situation another question arises: given the lack of legislative regulations, is such a restriction of the shareholders’ rights acceptable? With no clear provisions in that respect, there are no grounds for such restrictions.
Everything indicates, therefore, that there is a gap in the legislation resulting from an oversight on the part of the legislator. The consequences might be dangerous for the companies and their shareholders, and might in future be a source of disputes that will be hard to resolve. The German legislator regulated that issue in a clear way, excluding the possibility of appealing against the resolution in cases where the shareholder’s rights were breached as a result of technical issues, unless the company acted with gross negligence or intent (and the company regulations may introduce more stringent liability criteria). It is worth mentioning that this provision was valid before the introduction of special provisions in connection with COVID-19.
HOLDING A SHAREHOLDERS' MEETING OR A GENERAL MEETING WITHOUT FORMALLY CONVENING IT
In companies with a smaller number of shareholders, it would be convenient to be able to hold remote board meetings, including meetings taking place without being formally convened (obviously this concerns companies with at least two shareholders who cannot act by proxies). The question arises, however, of whether this procedure is permitted for meetings held under Article 240 and Article 405 of the Commercial Companies Code. The regulations state that participation in a shareholders’ meeting or a general meeting using remote communication is to be decided by the person convening the meeting.
Who would make such a decision in the case of meetings held without being formally convened? It can be assumed that in such a situation, the decision to use remote communication should be agreed upon by all shareholders, which would allow such meetings to be held remotely.
Another solution could be a further clarification of this issue in the rules of procedure, extending the rules for participation in remote meetings to informal meetings. But then the question arises of who should provide the necessary infrastructure to conduct such a meeting. Is it the company or all/individual shareholders? The interpretation of this rule now seems to lead to the view that remote participation in a shareholders’ meeting or general meeting is excluded for meetings held in accordance with Article 240 and Article 405 of the Commercial Companies Code. There are many doubts that arise if such a possibility is accepted, and the risks associated with it could be difficult to resolve under the current regulations. It is a pity that this issue has not been resolved as in the German regulations, which directly indicate that the decision to hold a remote general meeting is taken by the management board (even if such a possibility is not foreseen in the Articles of Association) with the consent of the supervisory board.
It can be assumed that remote participation in meetings of corporate executives will remain a permanent solution, as the new rules have not been limited to the duration of the COVID-19 pandemic. While the concept itself has advantages, the current rules seem to have been prepared without any further analysis of all related aspects. Of course, a quick reaction to the difficult situation is welcome, but it should have been possible either to refer to the regulations in force in other countries or to consider, for example, clarifying the rules and principles of such meetings (e.g. following the example of the French regulations, where detailed rules are defined by regulations). Although this is not an ideal solution, it would at least provide the opportunity to regulate certain issues that are already being questioned today. As things stand, it will be necessary to develop good practice and, over time, case law will also be able to contribute answers to the questions and doubts that arise today, only some of which are addressed in this article.
Any questions? Please contact: Ludomir Biedecki, Sylwia Goryl
Practice group: Corporate/M&A