How Hungarian listed companies may operate during the period of the emergency

Government measures implemented to combat the coronavirus pandemic also made decision-making processes of Hungarian companies listed on stock exchange rather complicated. From the perspective of companies and their shareholders the timing of these measures is especially unfortunate, as annual general meetings, where last years’ annual reports and the payment of dividends are discussed, are normally held in April. Kapolyi Law Firm examined how the newest government decrees published during the Easter Holiday affect, among others, the convening of general meetings, the payment of dividends and how to continue to purchase own shares while maintaining shareholder’s control.

According to current provisions, it is prohibited to host indoor events with over 100 attendees, which affects several companies publicly listed on the Budapest Stock Exchange (“BSE”). A further decree generally prohibits the hosting of events and holding of meetings, and it does not mention the convening of companies’ governing bodies or attending them in person as an exception. To ensure that the operation of business associations, including the ones publicly listed on BSE, remains relatively uninterrupted in light of current circumstances, the government issued a decree[1] over the Easter Holidays on the provisions concerning the operation of partnerships and capital companies during the state of emergency. The decree sets forth special provisions for the corporate bodies (general meeting, board of directors, supervisory board, audit committee) of publicly listed companies (plc). The most pressing issues are presented by Kapolyi Law Firm’s Senior Attorney, Dr. Gábor Horváth.

When can the general meeting be convened?

While the newly released decree does not refer to it expressly, it follows from the previously imposed ban of hosting and attending events, that the meetings (sessions) of publicly listed companies’ corporate bodies may not be held by participation in person. Instead of the general meeting acting as the main governing body, the management of the company (the board of directors or executive board) is entitled to decide on all issues that otherwise belong to the competence of the general meeting.

How the governing bodies of publicly listed companies’ can consult or be held?

The corporate bodies of publicly listed companies (board of directors, executive board, supervisory board, audit committee) and further corporate bodies established by law or the Articles of Association may hold meetings through electronic communication devices, or through other electronic devices which permit the identification of attendees. Alternatively, corporate bodies may conduct written consultations, and make decisions in writing. In lack of relevant, approved procedures for the above, the rules and process of the meeting and decision-making is determined by the chairman of the body which must be communicated to the involved members. Written consultations and decision-making may also take place through electronic messages (i.e.: through email).

How can the company’s annual report be approved?

Dr. Gábor Horváth emphasises that plc.’ invitations to the annual general meeting, the related submissions, the proposals for resolutions as well as further documents must be published on the plc’s websites as before, even if they were not yet published on the date when the decree entered into force. He, nevertheless, added that the deadlines for publishing the above has been shortened: the invitation must be published at least 21 days prior to the general meeting, while submissions, proposals for resolution and other documents must be published at least 8 days prior to the general meeting. The plc. may differ from the content of the invitation by way of notice published on its website if the invitation has already been published by the date when the decree has entered into force. The decree does not set forth any deadline for the publication of this notice; therefore, in Kapolyi Law Firm’s opinion the company is obliged to publish it immediately upon becoming aware of such changes. The plc.’s management is entitled to make decisions on any and all matters listed in the published agenda – including the amendment of the Articles of Association –, the approval of annual report, the utilisation of the after-tax profit as well as on issues that belong to the competence of the general meeting, are necessary for the maintenance of the plc.’s lawful operation and the management of the emergency situation, as well as on urgent matters belonging to the scope of and for providing reasonable and responsible management. The management is also entitled to decide on the issues listed on the published agenda differently as of recommended in the published proposals for resolutions. (However, the management can only decide on the annual report if the supervisory board’s report for the approval thereof is already presented). It remains compulsory for resolutions passed by the management acting within the competence of the general meeting to be published. The plc.’s management is obliged to pass a resolution on the plc.’s annual report prepared on the basis of the Accounting Act until 30 April 2020 and if the plc.’s business year differs from the calendar year, then by the end of the fourth month following the balance sheet date of the relevant business year. Concurrently, the management may decide on the utilisation of the after-tax profits, including the payment of dividends. However, if shareholders holding at least 1% of the votes initiate the convening of the general meeting (see below for more details), dividends may only be paid if the annual report and the payment of dividends have been subsequently approved by the general meeting. It is important to note that the auditing of the annual reports may also be done if the plc.’s management decides thereon. Nevertheless, the plc.’s management may only decide on the annual report, if the supervisory board has already approved it in its report.

Shareholder’s control is maintained, however, in certain cases decisions can only be made after the cessation of the emergency period

Shareholders maintain control over the operation of the management acting in the competence of the general meeting, meaning that shareholders holding at least 1% of the votes may request the subsequent convening of the general meeting with the aim of the subsequent approval of resolutions passed by the management. Kapolyi Law firm’s expert highlighted that this right may be exercised within different (limitation) periods depending on whether the subsequent approval of a resolution concerns the amendment of the Articles of Association, the annual report, the utilisation of after-tax profits or further resolutions of the general meeting. In case of the initiation of the convening of the general meeting, the invitation must be published within 45 days after the cessation of the emergency period. If the emergency has already ceased at the date of receipt of the shareholder’s request, the invitation must be published within 45 days of receiving the shareholder’s request. If the general meeting does not subsequently approve the amendment of the Articles of Association, it will be repealed on the day following the date of the general meeting. Nevertheless, if a subsequent resolution of the general meeting amends or repeals a previous resolution, it does not affect the rights and obligations that arose before to the amendment or repeal.

Purchase of own share

If the general meeting authorised the plc.’s management to decide on purchase of own share, and the authorisation expires during the emergency period, the duration of the authorisation will be extended until the date of the first general meeting held after the cessation of the emergency period, unless the management already decided on the subject of the authorisation within its own competence.

The management of changes in the personnel of the publicly listed companies’ governing bodies

Dr. Gábor Horváth, Senior Attorney at Kapolyi Law Firm stated that according to a further temporary rule shall the term of appointment of a member of a plc.’s governing bodies or the appointment of its permanent auditor expire during the emergency period (even if their appointment expired after the announcement of the emergency, but before the publication of the decree and no other person has been appointed to replace them), their mandate will remain effective until the date of the first general meeting held after the cessation of the emergency period and they are obliged to continue to perform their duties. Exceptions arise if the appointment of said person ceases due to the death, recall or removal by the decision of the authority exercising prudential supervision, or if the plc.’s management makes the necessary decisions in its own competence. If during the period of the emergency the number of members in the abovementioned bodies decreases bellow the number set forth by law or the Articles of Association, or if a member is unable to act due to the coronavirus pandemic, the remaining members are entitled to pass resolutions. In this case, the rules on the quorum of the said body shall be determined by the number of members available to decide. Even in this case, resolutions must be passed by simple majority; however, even one member is entitled to pass resolutions if all the other members of the relevant corporate body are unavailable.

[1] 102/2020. (IV. 10.)