Due to the possible practical issues of the measures adopted by the Government, as well as the new communications in commercial matters, from AVQ we want to follow up on everything that affects the normal functioning and management of the company such as the ordinary activities of the administrative and governing bodies.
On Thursday 26th March, the Spanish National Securities Market Commission and the Spanish Association of Registrars issued a communication regarding the annual accounts and the proposal for the application of the results of commercial companies, in the context of the health crisis arising from the COVID19.
Therefore, in accordance with the information published and in relation to the aforementioned communication, we proceed to detail the issues raised in substance.
Taking into account the legislation applicable to commercial companies (LSC) and the measures adopted by the executive in this exceptional scenario, this communication allows the following alternatives to be chosen in order to reformulate the accounts or, if this reformulation is not deemed necessary, to proceed.
[Warning: this report is for information purposes only and does not constitute a legal opinion under any circumstances]
_
1. Possibility of reformulating the accounts
1.1 When can reformulation be considered?
In all those cases where the administrative body considers it necessary. Likewise, the proposal for the application of the result included in the report may be modified.
1.2 What if the General Meeting for the approval of the annual accounts has already been called and I want to reformulate the annual accounts?
In these cases, the Board of Directors must not convene the meeting for reasons of force majeure (as explained in our previous note in line with Article 40.6 of Royal Decree Law 8/2020 of 17 March).
1.3 What is the subjective application of this measure?
The press release sheds light on this aspect and determines that the precept cited in the previous question (40.6 of Royal Decree Law 8/2020 of 17 March) is applicable to listed and non-listed companies.
2. If the decision to restate the annual accounts is not taken
2.1 Can I amend the proposed appropriation of earnings without having to restate the annual accounts?
Yes.
Entities with non-called general meetings can replace the proposal for the application of results contained in the report on the annual accounts already drawn up, with a new alternative proposal adjusted to the health crisis situation, which must be approved by the administrative body.
2.2 What are the special features of this alternative proposal?
In order for the board to be able to submit this alternative proposal for approval, the administrative body must justify the new context and, where necessary, the approval by an auditor. The latter must indicate that the change does not affect his audit opinion, if he had known at the time of signing the new proposal.
2.3 And what are your specialties in the case of listed companies?
Both the new proposal and the auditor’s report must be made public as supplementary information to the annual accounts as soon as they are approved, on the company’s website and on that of the CNMV as Other Relevant Information (OIR) or, if required in the specific case, as Inside Information (IP).
- The annual accounts have been drawn up and a general meeting has been called to approve them.
3.1 If I do not wish to make an alternative proposal or reformulate the annual accounts, am I obliged to approve the proposal for the application of the result stated in the report?
No. The communication gives the administrative body the possibility of choosing to propose the deferral of the decision on the application of the result (PAR) contained in the notice of the meeting, to a later meeting to be held within the period legally established for holding the ordinary meeting (period extended by articles 40.5 and 41.1 b) of RDL 8/2020).
3.2 What is the difference between entities that have a meeting called and those that do not have a meeting called?
Entities that already have a General Meeting called and there are proxies and votes already conferred or cast in favour of the proposal included in the call, may only propose the delay of the decision on the proposal to apply the result. Consequently, the new meeting called may include a proposal for the application of results different from that included in the notice of the first meeting, since the purpose of the postponement in the decision is precisely to be able to adapt it to the new context.
The choice of this option would also require the same requirements for justification: the auditor’s letter and publicity as indicated in the previous section. The decision to postpone must be published no later than the date of the meeting called and the complementary information before the new meeting called for this purpose.
3.3 What is the accounting perspective of the postponement of the decision on the proposed appropriation of earnings?
The net accounting result will be used to cover losses or to cover the remainder (Results Pending Application, account 120 of “Remaining” in the General Accounting Plan).
3.4 How do we record this deferral in the certification of the administrative body for the purposes of the deposit of accounts?
The certification of the administrative body must state that the proposal for the PAR has not been approved (see Article 378.5 of the Regulation of the Commercial Registry on the certification of non-adoption of a corporate resolution). Both the non-approval of the PAR, and the reason for non-approval, must be recorded in line with the provisions of Article 378.5 of the Commercial Registry Regulations.