How can corporate decisions be made during the pandemic?
Government decree about holding members’ meetings during the state of emergency
Restrictive measures imposed due to the coronavirus pandemic pose companies to many difficulties. The current situation requires not only financial considerations, but the need for seamless legal operation of the companies also calls for the use of solutions that are not often used otherwise. In our article we briefly overview what decision-making alternatives does the current Hungarian legal system offer to avoid personal contact.
Holding events and gatherings has been prohibited in Hungary since mid-March in general, and the convening of the main bodies of companies has not been named as an exception in the relevant government decree.
As from April 11, a new government decree is in force regulating how to hold members’ meetings and general meetings during the state of emergency. The new government decree overrides the relevant provisions of the Civil Code and founding documents of companies and other legal entities in certain aspects. The decree deals with how decision-making bodies, such as general meetings, members’ meetings and boards of trustees can make decisions during the limited curfew implemented in the course of the state of emergency.
Who is affected by the regulation?
The decree applies to both legal and non-legal entities. So, the scope of the ones affected includes, among others, general partnerships and limited liability companies, and public limited companies, cooperatives, associations and foundations. However, the government decree does not apply if the decision-making body is not prevented from taking a decision in compliance with the rules on meeting restrictions. Nevertheless, the provisions of the decree may be applied even in such cases on a voluntary basis.
Is there a case where the decision-making rules under the government decree apply even if the meeting could otherwise be held under the movement restriction rules?
Yes, if the number of members of the decision-making body is not more than five and decision-making can be made in the manner specified in the government decree. In the case of a decision-making body with more than five but not more than ten members, the majority of members with a majority of votes may request the management to initiate decision-making under the rules of the government decree, while in case of a decision-making body of more than ten members, the management can initiate it on its own.
How should the meeting be held under the regulation?
There are two ways. Either the meeting may be held with the participation of the members by electronic devices, or a decision may be taken in writing without holding a meeting on the initiative of the management, even if the articles of association does not provide for these possibilities and conditions.
Decision making without holding a meeting
Hungarian company law provides an opportunity for companies – excluding public limited companies – to make decisions without holding a meeting. Decision-making without holding a meeting serves as a possible alternative for the members to vote from home, as it does not require personal appearance. It is important to emphasize, however, that this is a written decision-making process in practice (for example voting by letter or email), so it is not the same as holding a meeting by electronic communication devices.
The decision-making may be initiated by the management by sending a draft of the resolution to the members. Members shall be given a period of at least fifteen days to send their votes to the management unless it is otherwise provided in the articles of association. In decision-making without a meeting, the decision-making process is effective if at least as many votes are sent to the management as would be necessary for a quorum if the members would hold the meeting.
Holding meetings by electronic communication devices
Company decisions can also be made online. In this case, participation shall be provided by means of an electronic communication device which allow the identification of members and mutual, uninterrupted communication between members. If the articles of association do not provide the rules for meeting held by electronic devices the management is entitled to establish these rules and communicate them to the members. The management must determine the electronic devices and IT applications that can be used and, if the management does not know the members (representatives) personally, the method of proving their identity.
Before the meeting, it is recommended to make a “test call” with the members of the company so that everything can be done smoothly during the decision-making process and the meeting can be held validly. Meetings can also be held on the nowadays popular applications like Skype, Zoom, Microsoft Team or Jitsi. It is important that the decisions taken and everything which was said at the meetings should be recorded so that they can be recalled later. All this means that there is no need to make a written record, it is only important that what is said on the meetings should be recallable in the future.
In conclusion, the current Hungarian legal system, in particular the new government decrees offer companies a number of choices how members should avoid personal contact in their decision-making. The new government decree also defines the cases when the management may decide on certain matters within the competence of the general meeting, the members’ meeting, regulates the operation of the executive bodies separately, and also contains additional rules concerning public limited companies. We will analyze these issues in our next publication.