PLCs and Serious Loss of Capital

March 25, 2020 | Blog

There is hardly any sector or industry that has not been affected by the coronavirus crisis. Building projects have been stopped, high-street shops have shut their doors, and stock exchanges have been chalking up substantial losses. In these financially challenging times, directors and officers are under increased pressure to keep up corporate governance standards, as they are at risk of being held personally liable by shareholders, creditors, the company itself, or, in fact, a bankruptcy trustee. In our earlier contribution “Coronavirus COVID-19: How your business can weather the storm”, we attempted to provide guidance for directors & officers. In this blog, we will address the obligation of public limited companies [naamloze vennootschappen] to convene an extraordinary general meeting in the event of serious loss of capital, which we will refer to as the “capital loss meeting” [verliesvergadering] for short.

Within three months after the management has considered it plausible that the shareholders’ equity of the PLC has decreased to an amount equal to or less than one half of the paid and called up part of the capital, a general meeting shall be held to discuss the measures to be taken, if necessary.  This meeting may coincide with the annual general meeting. The board of supervisory directors is also authorised to convene a capital loss meeting, as are any persons or corporate bodies authorised under the articles of association. If neither management nor the board of supervisory directors convenes a capital loss meeting, every shareholder is entitled to seek judicial authorisation to convene such meeting. Under certain circumstances, not convening a capital loss meeting may be a factor contributing to the conclusion that there is good reason to cast doubt on the company's proper management, which may give rise to an inquiry.

Whether the capital loss meeting is organised as part of the annual general meeting or not, the matter of due representation at a capital loss meeting s subject to the general rules for shareholders’ meetings. Consequently, the rules for convocation and setting the agenda must be followed to the letter, and only resolutions of the management relating to an important change in the identity or the character of the company or the undertaking require the shareholders’ approval. Even in times of crisis, setting the company strategy remains the - exclusive - power of the management, subject to the supervision of the supervisory board.

Given the latest government measures, convening a shareholders’ meeting in persona will be practically impossible. However, where the company's articles so allow, Dutch law offers the option of convening and holding the meeting by electronic means of communication. The basic idea that a shareholders’ meeting is conducted in persona stands, however, and shareholders must be given the opportunity to attend a shareholders’ meeting in person. For these and other reasons, you would be well-advised to have an expert assess your articles of association, which may then need to be adjusted to reflect the current situation.

Obviously, a capital loss meeting should not stop management from continually monitoring operational risks and liquidity projections. Drafting emergency response plans and taking measures where necessary are recommended actions. Please be referred to our contribution “Coronavirus COVID-19: How your business can weather the storm” for other issues that may need your attention.

If you have any queries prompted by this or earlier contributions, please do not hesitate to contact us. AKD has set up a taskforce specifically designed to provide swift and efficient answers to any questions you may have in the wake of the uncertainty caused by the coronavirus outbreak.

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