The physical presence at a meeting of your corporation, a necessity?

Is it required that the directors or the shareholders of a corporation need to be physically present at its registered office in order to validly deliberate?

The organization of the general meeting often entails practical issues since in many corporations the shareholders do not reside in the same country as where the registered office is located. The directors sometimes face similar difficulties to meet, they have to deliberate as much as required by the interest of the corporation.

Are the alternatives to a “meeting with physical presence”, such as the meeting where voting rights are exercised in writing or the meeting by alternative communication technologies allowed?

It is often stipulated in the articles of incorporation how the board of directors, respectively the general assembly is convened and how the meeting is conducted. Nonetheless, certain legal provisions have to be taken into account.

The board of directors meets at the location indicated on the invitation, unless the articles of incorporation state otherwise. It is advisable to hold the meeting in Belgium at an accessible location. In other words, the board of directors is free to hold meetings at any location.

Article 521 of the Company Code (C.C.) expresses the principle of collegial structure within the board of directors. It regimes a joint deliberation by the directors. However, this article does not imply that all the directors have to meet at the same place. Nevertheless, a simultaneous interaction between all members has to be possible, for example by video or teleconference. This is stimulated by the corporate governance code. Principle 2.8 of the "Code Daems" prescribes that the board should meet sufficiently regularly to discharge its duties effectively and provides as guideline: the company should consider organizing board meetings using video, telephone or internet-based means. It is advisable to integrate this possibility in the articles of incorporation

In exceptional cases, article 521 § 2 C.C. provides the possibility of written decisions. This possibility is only allowed provided that two cumulative conditions are fulfilled, namely (i) the urgent necessity and the interest of the corporation, and (ii) the articles of incorporation need to allow this option explicitly. If those conditions are fulfilled, the directors can take decisions in writing unanimously. Decisions, that cannot be taken in writing, and unanimously, are generally taken by simple majority.

Thus, concerning the meetings of the board of directors, a consensus can be found regarding the fact that the board can validly meet, even if the different members are not gathered in the same room.

The same consensus concerning the general assembly does not exist. In the light of the modernization of company law, different initiatives have been brought forward in order to simplify the distance voting at general assemblies.

First, article 552 C.C. states that the annual meeting (which decides on the annual accounts) is held at the municipality on the date and time as prescribed by the articles of incorporation. This provision requires that the meeting takes place physically.

Secondly, the possibility exists for the shareholders to take decisions, that relate to the competence of the general assembly, unanimously and in writing, with the exception of any decision that has to be validated by an authentic deed. This article imposes some restrictions. The first is clear; every decision that demands the intervention of a notary, requires the actual gathering of the shareholders. Furthermore, the notion “unanimously” is not specified by the law and therefore misses an exact interpretation. Currently, it can be assumed that decisions taken in writing are possible when every shareholder participates and no one votes against the proposal.

In addition, the law foresees that the articles of incorporation can allow the shareholders to vote by correspondence. The postal ballot has to mention the voting system and the possibility to abstain.

A new law has been voted as a result of which shareholders will be able to participate "from a distance" to the general assembly (government bill Doc 53 421, adapted by the Chamber of Representatives; the Senate has not requested to examine the proposal adopted by the Chamber). This law is the transposition of Directive 2007/36/EC on the exercice of certain rights of shareholders in listed companies. When this law enters into force, the new article 538bis C.C. will state that the articles of incorporation can allow the shareholders to participate by electronic means. Concerning the compliance of the conditions regarding to the presence and majority, shareholders who take part by electronic means will be considered to attend the meeting at the location where the general assembly is being held.  Voting without attending the general assembly in person by electronic means will be subject to constraints necessary for the verification of identity and the security of electronic communications. How the verification procedure will occur has to be established in the articles of incorporation, as well as the conditions on the use of the electronic means. The corporation will have a substantial freedom to implement how the shareholders can participate by electronic means, hence it can choose the solutions which connect best with its actual situation and it can take the relevant technological evolutions into account. The possibility to hold a general assembly with shareholders who are present by electronic means does still enforce the requirement to hold a physical meeting. The bureau, board of directors and statutory auditors are obligated to be physically present.

The philosophy behind this directive was clear. Significant proportions of shares in corporations are held by shareholders who do not reside in the country in which the corporation has its registered office. Non-resident shareholders should be able to exercise their rights in relation to the general assembly as easily as shareholders who reside in the country in which the company has its registered office. Furthermore, effective shareholder control is a prerequisite to sound corporate governance and should, therefore, be facilitated and encouraged.

When above described new articles enter into force, many corporations, including the non listed companies, will have to adapt their articles of incorporation in order to improve their functionality and render distant voting possible through the modern communication technologies. This way of meeting will even be possible for meetings that require an authentic deed.

27 January 2011

Leo Peeters - Lynn Pype

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