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Actuality

State of Alert. Measures to make companies more flexible, as provided for in Royal Decree Law 8/2020 of 17 March

Author: Begoña Romero-Requejo y Tamara Marín

We now proceed to address the issues in the corporate sphere implemented by the aforementioned Royal Decree-Law 8/2020 of 17 March, on urgent extraordinary measures to deal with the economic and social impact of COVID-19, in force following its publication in the Official State Gazette on 18 March. Specifically, this article will address the following issues:

  1. Extraordinary measures applicable to private law legal entities.
  2. Extraordinary measures applicable to the operation of the governing bodies of listed companies.
  3. Suspension of the expiration period of the entries in the register.
  4. Term of the duty to apply for a public tender.

[Warning: this report is for information purposes only and does not constitute a legal opinion under any circumstances]

  1. Extraordinary measures applicable to legal persons governed by private law

   1.1 During the quarantine period, what happens to the meetings of the governing and administrative bodies? Can I hold the sessions telematically, even though it is not provided for in the Articles of Association?

Yes,

During the alarm period, the new Royal Decree-Law 8/2020 (hereinafter the “Royal Decree-Law”) allows the governing and administrative bodies, without the need for a statutory provision, to hold their sessions via videoconference provided that authenticity and bilateral or plurilateral connection in real time with image and sound of the remote attendees is ensured.

Does the above measure only affect commercial companies?

No, it affects associations, civil and commercial societies, the governing council of cooperative societies and the board of trustees of foundations, as well as the delegated commissions and other obligatory or voluntary commissions that these may have set up.

Where will the meeting be held?

At the registered office of the legal entity.

   1.2 As regards the agreements of the governing and administrative bodies, can they adopt their agreements in writing and without a meeting?

Yes, provided that the meeting of the governing body or administrative body is held during the state of alert.

In accordance with the provisions of the Royal Decree-Law, during the alarm period and despite the fact that this measure is not regulated in the Company’s Articles of Association, the governing and administrative bodies of legal entities are allowed to adopt their resolutions by means of a written vote without a session. Furthermore, it is established that the decision to adopt this measure will correspond to the president or when requested by at least two members of the body.

Does the above measure affect only commercial companies?

No, as in the previous section, the measure affects associations, civil and commercial companies, the governing board of cooperative societies and the board of trustees of foundations, as well as the delegated commissions and other compulsory or voluntary committees that these may have set up.

How should the resolutions adopted by these bodies be collected?

As established by the Royal Decree-Law, the formalities established in the Regulations of the Commercial Registry must be maintained, regardless of whether or not they are commercial companies, i.e. any of the legal entities mentioned in the previous point.

Where will it be understood that the resolutions have been adopted and on what date?

At the registered office and on the date of receipt of the last of the votes cast.

   1.3 What about the formulation of the annual accounts?

The Royal Decree-Law has suspended the period for the formulation of the annual accounts provided for in the LSC until the end of the state of alert, resuming it for another three months from that date. Consequently, the calculation of the three (3) month period will begin the day after the end of the state of alert.

However, in our opinion, the Royal Decree-Law should not be interpreted as prohibiting the formulation of the annual accounts during the state of alarm, since any businessman who can and decides to formulate the accounts should be able to do so, provided that the holding of the meetings and adoption of resolutions are adopted in accordance with the applicable legislation, guaranteeing the rights of all the members of the administrative body. We therefore consider that the additional period provided for in the Royal Decree-Law should be understood as an extension that implies an extension of the period of the obligation to formulate the annual accounts and that, therefore, it is not a question of prohibiting this obligation until the end of the state of alarm and the new period established by the Royal Decree-Law has elapsed.

What happens if I have already formulated annual accounts prior to the date of the declaration of the state of alert and I am obliged to audit the accounts?

The deadline for the accounting verification of these accounts is extended by two months from the end of the state of alert.

   1.4 And with the ordinary general meeting for the approval of the annual accounts?

The Royal Decree-Law has established that the deadline for holding this ordinary meeting will necessarily be within three months of the end of the period for drawing up the annual accounts.

   1.5 What happens if I have already published the notice of the general meeting before the declaration of the state of alarm and the day of the meeting is after that declaration?

The Royal Decree-Law gives us the possibility to exercise one of these two options:

  1. Change the place and time of the meeting by means of a notice published at least forty-eight hours in advance on the company’s website (if it has one) or in the BOE.
  2. To revoke the resolution to call the meeting by means of a notice published at least forty-eight hours in advance on the company’s website (if any) or in the BOE. If this option is chosen, the company’s board of directors must issue a new call within one month of the date on which the alarm condition ended.

If I have required a Notary to attend my General Shareholders’ Meeting, could I attend telematically?

Yes, the Royal Decree-Law provides that Notaries may use remote communication means in real time to adequately guarantee the fulfilment of the notary’s function to take the minutes of the meeting.

   1.6 What about book legalization?

Despite the fact that the Royal Decree-Law does not expressly provide for the legalization of books, it can be interpreted that the general suspension of the ordinary deadlines is also applicable, so it will be understood as extended for two (2) months from the end of the state of alert.

   1.7 Can I exercise my right of separation as a partner of a company during the state of alarm?

No, the Royal Decree-Law has established that, even if there is a legal or statutory cause, in capital companies the partners cannot exercise their right to separation until the end of the state of alarm, as well as any extensions thereof.

What happens if a member of a cooperative society leaves during the state of alarm?

When a member leaves a cooperative society, in accordance with the provisions of Law 27/1999 of 16 July on Cooperatives, the member will be entitled to reimbursement of his or her social contributions. However, during the period of the alarm state, the reimbursement of these contributions is extended until 6 months have passed since the end of the alarm state.

   1.8 What happens if a company’s term has expired while the state of alert is in force?

According to the LSC, in this case the company would be dissolved with full rights, but during the state of alert the Government has decided that the companies will not be dissolved with full rights until two months have passed since the end of the state of alert.

And what happens if, before the declaration of the state of alert or during the validity of this state, there is a legal or statutory cause for dissolution?

During the state of alert, the two-month legal period for calling the general meeting of partners, counting from the moment that legal or statutory cause for dissolution arises, is suspended until the end of said state of alert.

Will the administrators be liable for the company’s debts if there is a legal or statutory cause for the dissolution of the company?

If the cause for dissolution (whether legal or statutory) has occurred during the period of the state of alert, the directors will not be liable for the company’s debts incurred during the period of the state of alert.

  1. Extraordinary measures applicable to the operation of the governing bodies of listed companies

The measures detailed below will be implemented throughout 2020.

The term of the following obligations of the issuer is extended:

  • The obligation to publish and submit the annual financial report to the CNMV may be fulfilled up to six months from the end of the financial year. In other words, the deadline is extended by two months.
  • The obligation to publish and submit the audit report on the annual accounts to the CNMV may be fulfilled up to six months from the end of the financial year. In other words, the period is extended by two months.
  • For the publication of the interim management statement, the period will be extended to four months from the end of the financial year. In other words, the deadline is extended by one month for the first and second half of the financial year.
  • For the publication of the half-yearly financial report the deadline shall be extended to four months following the end of the financial year. In other words, the period is extended by one month.

The obligation to publish and submit its annual financial report to the CNMV and the audit report of its annual accounts may be fulfilled up to six months from the end of the financial year. This period will be extended to four months for the publication of the interim management statement and the half-yearly financial report.

   2.1 What about the obligations of the administrative and management bodies?

In this regard, and as we mentioned in point one of this information note, extraordinary measures are also introduced for listed companies and the mandatory Ordinary General Meeting, and the period for holding the meeting is extended to four more months, which can be held within the first ten months of the financial year.

   2.2 Can we avoid having to attend in person?

The measures taken by the Government are implementing telematic means as an alternative to situations of risk of contagion to avoid attending in person,

whether or not it is regulated in the company’s own statutes throughout the year 2020.

What if the call was already published before the entry into force of Royal Decree Law 8/2020?

It can also be held telematically provided that a supplementary announcement is published at least five calendar days before the date scheduled for the meeting.

   2.3 What happens if I cannot hold the meeting telematically or in person because of the measures imposed?

If the meeting is properly convened, the venue may be changed within the same province, taking into account the transfer that attendees must make, in order to establish a reasonable period of time.

And if it cannot be held?

If none of the above cases can be met, despite the fact that the Law on Corporations does not expressly regulate the cancellation of the meeting, these extraordinary measures provide for the possibility of issuing a new call to the meeting with the same agenda and the same publicity requirements as the meeting not held, at least five days before the date set for the meeting to avoid it being postponed and to allow it to be held online.

How is this new call communicated?

Both the change of venue and the new call may be communicated by means of a supplementary notice approved by the administrative body, provided that the possibility of participating in the meeting is offered by each and every one of these means:

  1. telematic assistance;
  2. representation conferred on the Chairman of the Meeting by means of distance communication and
  • early voting through distance communication media.
  • What are the peculiarities of the telematic celebration?

 It must be accompanied by reasonable guarantees to ensure the identity of the person exercising his or her voting rights and will be considered to be held at the registered office, regardless of the location of the Chairman of the Meeting, by audio or video conference.

  • What about the resolutions of the Board of Directors and the Audit Committee?

Similarly, as in the previous sections, although nothing is said in the Articles of Association, these resolutions will be valid when the directors have the means and the Secretary recognises their identity, and this exception must be reflected in the minutes and in the certification of the resolutions, having been held at a single meeting at the company’s registered office.

  1. Suspension of the period of expiry of entries in the Register

   3.1 Which registry entries are affected by the suspension?

All those entries that may be cancelled due to the passage of time. Such as presentation entries, preventive notes, mentions or marginal notes, among others.

   3.2 For how long?

During the validity of the state of alarm and, where appropriate, any extensions that may be agreed. Therefore, they will be resumed the day after the end.

   3.3 So, how should I calculate the expiry time?

The initial day of calculation (dies a quo) of the expiry period will remain the same, i.e. the date of entry itself, while what modifies this extraordinary measure is the final day of calculation (dies ad quem).

  1. Duty to apply for the competition

   4.1 What about the obligations of debtors who are in a situation of insolvency?

The measure in this regard affects the legal duty to apply for a declaration of bankruptcy.

How?

  • A debtor who is in a state of insolvency is not obliged to apply for a declaration during the period of the state of alert.
  • Nor will those who have notified the competent court of what is known as the “pre-insolvency proceedings”, even if the deadline for doing so has expired, have such an obligation.

    4.2 And if the insolvency has occurred before the state of alert, the pre-insolvency has not been reported and the period of legal duty to apply for the declaration of the insolvency ends during the state of alert?

In this case, it is possible to apply for a declaration of bankruptcy within two months of the end of the state of alert.

How does this affect the legitimacy of the duty to apply for a declaration?

Once the state of alert has ended, the debtor has two months to file for voluntary bankruptcy. During the state of alert, the judges will not accept for processing the necessary applications for bankruptcy that were submitted during the state of alert, nor those submitted during the two-month period after its completion, giving priority to the applications for bankruptcy requested by the debtor himself.

And during the two months following the state of alert?

In these cases, the Royal Decree Law 8/2020 will not be in force, so the insolvency situations will be regulated again by the Insolvency Law. This implies that they will no longer have the privilege of preference and summary that the state of alarm granted to the requests for declaration of voluntary bankruptcy by the judges.

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[In our opinion, the Royal Decree-Law establishes remedies for entities that cannot comply with their commercial obligations during the alarm period, granting an extension of the deadlines and thus facilitating compliance with such obligations after the alarm state.  Without prejudice to those entities that can comply with their legal duties, they can do so during this time of exceptionality].