M&A COVID-19Wire XIX
1. Corporate Law
a) Virtual General Meeting of Stock Corporations
On 28 February 2021, an amendment to Section 1 of the COVID-19 Law will come into force. It aims to extend the rights of shareholders in virtual general meetings and will initially apply until the end of 2021:
- The shareholders have no longer only the opportunity, but also the right to ask questions by means of electronic communication.
- The management board has no longer discretion whether it answers questions, but only how it answers them. Thereby, the management board must answer all questions (as at general meetings in presence), unless it exercises its right to refuse to give information.
- Questions of shareholders can be submitted by electronic communication up to one day before the general meeting (previously two days).
Motions or election proposals which are to be made accessible pursuant to Sections 126 or 127 of the German Stock Corporation Act are deemed to have been made at the general meeting (so-called “legal fiction solution”) if the shareholder is duly authorised and registered for the general meeting. This enables the shareholders to exercise the right to propose motions and nominations in accordance with Sections 126 and 127 of the German Stock Corporation Act, irrespective of whether a general meeting is held in presence or virtually.
b) Virtual Shareholders’ Meeting of a GmbH
The COVID legislation has made it easier to pass shareholder resolutions of GmbHs by circulation (read more about the circulation procedure here and see our podcast). Please note that according to a decision of the Regional Court of Stuttgart (44 O 52/20 KfH), the simplified procedure for circular meetings does not apply if the articles of association of the company provide for unanimity for the circular meeting. However, virtual shareholder meetings of GmbHs (e.g. through telephone and video conferences) have not been incorporated into German corporate law.
The holding of a virtual shareholders' meeting (or a combined meeting with partly present and partly virtually connected shareholders) in the GmbH requires an explicit regulation in the articles of association of the company. It is advisable to include corresponding regulations in order to ensure the ability of the shareholders' meeting to act even in times of crisis. Thereby, the option to hold virtual meetings can be limited to an important reason only to cover extraordinary situations as a pandemic or be under the approval of a certain quorum of the shareholders' meeting. However, if the law provides for a presence meeting (e.g. Section 49 German Limited Liability Company Law) the holding of a virtual meeting or a circulation procedure is not recommended due to legal uncertainties.
2. Insolvency Law
With law dated 15 February 2021 the obligation to file for insolvency effective 1 February 2021 until 30 April 2021 for companies that have applied for financial assistance from 1 November 2020 to 28 February 2021 have been suspended as part of the government assistance programs to mitigate the effects of the COVID-19 pandemic.
However, the suspension of the obligation to file for insolvency requires that the reason for insolvency is based on the effects of the COVID-19 pandemic. In addition, a suspension of the obligation to file for insolvency does not apply to those companies for which there is evidently no prospect of the requested assistance or the requested assistance is insufficient to eliminate the state of insolvency.
3. German Tax Law
a) Extension of Tax Loss Carry Back from EUR 5 million to EUR 10 million
On 3 February 2021, the German Federal Government agreed on further tax measures. A new draft bill (German) dated 9 February 2021 provides for an extended carry back of corporate income tax losses accrued in 2020 and 2021 from currently EUR 5 million to EUR 10 million per year.
Note: A carry back would still be limited to the immediately preceding financial year and not be available for trade tax purposes.
Corresponding to the tax loss carry back it is also intended to increase the maximum amount of the reduction of advance tax payments for the financial year 2019 and of the preliminary carry back of tax losses into the financial year 2019. This would help companies to strengthen their liquidity by respective refunds of advance tax payments.
b) Implementation of improved write-down of Digital Assets on hold
On 19 January 2021, the German government decided that a depreciation period of one year shall apply to certain digital assets. As a consequence, the costs for these assets would already be tax-deductible in the year of the acquisition or production. The respective rule was intended to be implemented promptly by a circular of the German Federal Ministry of Finance (MoF).
However, there are legal reservations regarding an implementation by a MoF circular. It is not yet clear whether the German legislator will take any action.
4. COVID-19 Pandemic and Legal Proceedings
Since the beginning of the COVID-19 pandemic, companies took proceedings against the closures of businesses. The trials of bigger companies concentrated on the limitation to 800 m². During the second lockdown, companies are taking again legal action against the restrictions and as a result, lawsuits are currently piling up from numerous retailers against the extension of the lockdown. Mid of February, a big fashion retailer which sees itself infringed in its ownership rights and its right to be treated equally compared to supermarkets with clothing departments, has broken the ground by filing several applications for interim proceedings concerning the reopening of its stores in different federal states. Its appeal in Baden-Wuerttemberg (Higher Administrative Court of Mannheim, Az. 1 S 398/21) has already been rejected with reference to the predominance of the protection of health.
At the same time, a further fashion company has filed an appeal for interim proceedings to the Higher Administrative Court of Mannheim referring to – despite having established hygiene and physical distance regulations in retail shops – the ongoing unequal treatment compared to hairdressers, which are allowed to reopen as of 1 March 2021, provided that they observe the hygiene and physical distance concepts.
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