Spotlight on the new provisions in operation – Work in progress
Virtual General Meeting of Private Companies: Waiver of the Independent Proxy – Teleological Navigation between Legislative Model and Fall from Grace
According to art. 701d para. 2 CO and art. 704 para. 1 no. 15 CO, the articles of association of private companies may provide that the appointment of an independent proxy (Independent Proxy) may be waived at a virtual general meeting.
Behind these linguistically unfortunate legal provisions of the waiver of the Independent Proxy for private companies, (probably) one of the four following regulatory approaches are hidden:
1. Legislative Model Case:
The articles of association provide the board of directors the option to waive the appointment of an Independent Proxy in the (electronic) convocation of the virtual general meeting.
This interpretation results from the combination of the wording in each of art. 701d para. 1 CO (“…and the board of directors designate an [Independent Proxy]”) and art. 701d para. 2 CO (“…the articles of association may provide that the designation of an [Independent Proxy] be dispensed with.” (our emphases).
An exemplary approach: it provides a structural logic to the relevant provision of the articles of association or to the articles of association containing such provision, works technically with regard to the procedures before and during the general meeting, and causes the fewest implementation headaches in other respects.
2. Practical Normal Case:
The task of the board of directors resulting from the legislative model case (to decide on the waiver and to communicate it in the invitation) is not included in the (extended) list of non-transferable and inalienable duties of the board or directors pursuant to art. 716a CO.
The general meeting may therefore, more so as it is authorised to grant the power to waive the Independent Proxy to the board of directors, also decide on this waiver itself.
Usually the shareholders will do so in advance and permanently, i.e. by means of a corresponding provision in the articles of association. This waiver shall be effective until the relevant provision of the articles of association is amended accordingly.
This approach will probably turn out to be the standard. Small and medium-sized enterprises (SMEs), and group-internal companies in particular, want to resolve this issue once and for all without the necessity to call the board of directors every year. If so, the best solution is a waiver by a resolution of the general meeting, in the articles of association.
3. An “Accident” Left to Chance:
On superficial reading, the wording of the law seems to imply that the general meeting resolves on this waiver (with a two-thirds majority) on a case-by-case basis at the respective general meeting. This case is, of course, possible. In practice, however, this is more like an “accident”: then the board of directors would have already invited the shareholders, either on the off chance without – or unnecessarily with – the appointment of an Independent Proxy. With regard to the realities of company law in practice, it is almost inconceivable that the shareholders resolve in favour of a waiver with respect to the general meeting that follows their resolution (and the related convocation).
The resolution of the board of directors on the waiver of the appointment of the Independent Proxy can become somewhat like a poker game. Whoever leaves the poker table as a loser will not do so well at the general meeting, with the consequence being that shareholders may challenge the resolutions of this general meeting.
4. Legislative Fall from Grace:
The law (in art. 701d para. 2 CO) cannot mean: that the waiver of the appointment of the Independent Proxy requires a pre-existing provision in the articles of association, if the waiver is resolved by the shareholders (and not by the board of directors which is authorized to do so). It would be structural nonsense to require that the general meeting can only resolve on a waiver if it has previously set forth a corresponding basis for this waiver in the articles of association; for the simple reason that the shareholders can do both at any time anyway. However, this would not be the first structural fall from grace of the legislative authority. As an example: the authorisation in the articles of association of the shareholders to convert registered shares into bearer shares (or vice versa) by the general meeting.
A wickedly weird approach. Even if the amendment of the company law does not exactly turn out to be a legislative paradise, it will probably not want to require the most blatant statutory senselessness.