Special edition LFA Covid 19 : Corporate law I Update May 4, 2020

This FAQ refers to positive law as provided for by legal and regulatory provisions on the one hand, and mentions on the other hand the specific arrangements put in place by the two Ordinances issued in application of Law No. 2020-290 of 23 March 2020 as an emergency response to the covid-19 epidemic:

– Ordinance n° 2020-321 of 25 March 2020 adapting the rules for meetings and deliberations of the shareholders’ meetings and governing bodies of legal persons and entities without legal personality under private law due to the covid-19 epidemic”.

– Ordinance n° 2020-318 of 25 March 2020 adapting the rules relating to the preparation, decree, audit, review, approval and publication of accounts and other documents and information that legal persons and entities without legal personality under private law are required to file or publish in the context of the covid-19 epidemic”.

The said Ordinances provide for a simplification and adaptation of the rules relating to the approval and publication of the annual accounts, the allocation of profits and the payment of dividends.  

Yes. In principle, the annual accounts must be approved by the shareholders’ meeting or the Sole Shareholder within 6 months following the end of the financial year. The accounts for the financial year ending December 31, 2019, should therefore be approved by June 30, 2020 at the latest. However, the deadline for approval of the accounts may be postponed. To do so, an application must be filed at the latest on the last day of the legal deadline for approval of the accounts, i.e. no later than June 30, 2020 for companies that have closed their accounts on December 31, 2019. The request must be addressed to the President of the Commercial Court of the district in which the Company’s registered office is located and must mention the reasons for the request for postponement. The reasons may include the material impossibility for the shareholders to meet or the impossibility to audit the accounts due to the health crisis. The date of approval of the financial accounts may be postponed for up to 6 months, renewable. In practice, it is very rare for the request for postponement to be rejected.

Ordinance no: 2020-318 provides for an automatic three-month postponement of the deadline imposed by law for approving the accounts. This automatic postponement applies to all legal entities closing their accounts between 31 December 2019 and the expiry of a period of one month after the date of cessation of the state of health emergency. In practice, this therefore applies to all companies that have closed their accounts by 31 December 2019.

One exception, however: the accounts of companies with a statutory auditor who issued his audit report before March 12, 2020 will have to be approved within the legal deadlines unless a postponement is authorized by the president of the Commercial Court.

Can the settlement of the provisional accounts be postponed?

Companies that ended or end their fiscal year or semester between November 30, 2019 and June 23, 2020 and realized a turnover of more than EUR 18 million at the end of their fiscal year and/or those with more than 300 employees may postpone the settlement of their provisional accounts by two months.

Should the Annual Meeting be postponed, all mandates expiring on a fixed date are extended until a shareholders’ meeting can be held.

Yes. Dividends can only be paid out after the accounts have been approved and the decision on the appropriation of income has been taken. Therefore, until the Annual Meeting has been held to approve the financial accounts and decide on the allocation of earnings, no dividend may be distributed. Alternatively, as long as the Annual Meeting is not in a position to meet to approve the accounts and decide on the allocation of earnings, it is possible, under certain conditions that must be verified beforehand, to decide on the distribution of an interim dividend. The Board of Directors, the Management Board, the Manager (Gérant) or the President of the company have the exclusive authority to decide whether or when to distribute the interim dividend and set the amount of distribution.

The Ordinances do no bring any amendment to those rules.

Bruno Lemaire, the French Minister of Economics and Finance, had declared at the end of March that French companies receiving financial support from the State in connection with the Covid-19 crisis would be prevented from distributing dividends. In particular, he declared that the distribution of dividends by companies benefiting from measures of deferral  of tax and social security contributions or from state guarantees for loans  would be subject to sanctions (e.g. : reimbursement of the cash advance with an interest penalty).

As regards, however, companies that implemented short-time working and were to receive corresponding aids from the French State, the French Minister only invited them to refrain from making dividend distributions. He did not announce any sanctions.  

On April 23, Bruno Lemaire renewed his statements during an interview and announced officially that companies that have paid dividends to their shareholders will be excluded from the financial aids granted by the government to deal with the coronavirus crisis.

Though the French Government issued numerous decrees in the context of the Covid-crisis management, no decrees have to date been published expressly concerning the distribution of dividends. 

As regards the deferral of taxes and social security contributions and state guarantees for loans, the website of the Ministry of Finance and Economy indicates in a FAQ section that a commitment to refrain from distributing dividends would be a precondition for the aid, such condition being, however, applicable to certain large companies only. The latter are defined as those employing (possibly as a group) more than 5,000 employees in France or having French sales in excess of 1,500,000,000€. There are a couple of exemptions, in particular for distributions required to comply with previous (pre March 27, 2020) commitments or to financially support a French group company in need. Aids for short-time working are not mentioned. 

In the absence of a text, the situation remains somewhat unclear, which should encourage companies which benefit from short term working aids to be cautious. It cannot be excluded that companies benefiting from such aids which decide to distribute dividends after March 27, 2020 will be subject to higher scrutiny as regards the conditions to be fulfilled for the aid, which are checked ex post the grant of the aid.

Adjustments to the accounts become necessary when an event occurs that is directly and predominantly related to the financial year ended. Otherwise, the event cannot be linked to the same financial year, and it is therefore not necessary to adjust the accounts. However, the said event must be mentioned in the management report in respect of significant events that have occurred since the end of the financial year. Certain statutory auditors have already requested that the health crisis be mentioned in the management report among the said events, and that the consequences of this be considered in the context of the future prospects that must be mentioned in the management report.

In principle, the videoconferencing procedure cannot be used for meetings of the Board of Directors for the preparation of the annual accounts, the management report, the consolidated accounts and the group management report.

Exceptionally, Ordinance no. 2020-321 allows all meetings of the Board of Directors scheduled between March 12, 2020 and July 31, 2020 to be held by means of an audiovisual or telephone conference. These means of telecommunication must enable the identification of participants and guarantee their effective participation. They should also ensure a continuous and simultaneous transmission of discussions.

Order no. 2020-321 also allows written consultation for Board of Directors’ meetings, provided that the principle of collegiality is preserved.

These changes are applicable without any clause in the Articles of Association or the company’s internal regulations being necessary for this purpose or despite any clause to the contrary.

In principle, should the articles of association authorize the holding of shareholders’ meetings by videoconference, the annual accounts of unlisted stock corporations (SA), simplified joint stock companies (SAS), limited partnerships (SCS or SCA), general partnerships (SNC) and civil companies (SC) may be approved by videoconference. The use of other means of telecommunication is also permitted, as long as it is provided for in the articles of association and that they enable the shareholders who participate in the meeting to be correctly identified.

Only limited liability companies (SARL) may not make use videoconference when approving their annual accounts.

Stock corporations the articles of association of which allow the shareholders to vote at meetings by electronic means of telecommunication must set up a website exclusively dedicated to this procedure and to which shareholders can only have access after identifying themselves using a code.

Ordinance no. 2020-321 exceptionally provides that, for all type of companies, all shareholders’ meetings held between March 12, 2020 and July 31, 2020 may be held by means of a conference call or audiovisual conference.

The telecommunication means set up must ensure continuous and simultaneous retransmission of the deliberations and allow the identification of participants.  As an exception, companies articles of association of which already set forth telecommunication means are subject to the rules that usually govern them.

For the purposes of calculating quorum and majority, members of shareholders’ meetings who participate by conference call or audiovisual are deemed to be present, even if the articles of association do not so provide or contain a clause to the contrary.

The shareholders and the auditor, if any, shall be convened by any means that ensures that they are effectively informed of the holding of the meeting.

For meetings already convened, the governing body may validly modify the procedures for holding the shareholders’ meeting up to 3 working days before the date of the deliberations.

In principle:

In unlisted stock corporations (SA), the approval of the accounts may take place by correspondence, without having to be authorized by the articles of association.

In simplified joint stock companies (SAS) and civil companies (SC), consultation by correspondence is possible if provided for in the articles of association.

For limited liability companies (SARL) and partnerships (SNC), the approval of the annual accounts requires a shareholders’ meeting. It cannot therefore be subject to a written consultation.

Ordinance no. 2020-321 provides, exceptionally, that where the law so permits, decisions of all shareholders’ meetings may be taken, between March 12, 2020 and July 31, 2020, by means of written consultation of their members, without any clause in the articles of association being necessary or despite any clause to the contrary.

In practice, therefore, the annual accounts of stock corporations (SA), simplified joint stock companies (SAS) and civil companies (SC) may in any event be approved by written consultation, provided that the written consultation takes place between March 12, 2020 and  July 31, 2020.

The Ordinances set forth no specific rules for the limited liability companies (SARL).

In principle:

In unlisted stock corporations with a board of directors, the directors may meet by videoconference or other means of telecommunication allowing their identification, provided that the articles of association do not prohibit this. In this case, the procedures for the Board of Directors’ meeting must be laid down in the company’s Internal Regulations.

In addition, the articles of association of stock corporations may provide for the possibility of written consultation of the directors on all decisions, except those relating to the annual accounts.

In stock corporations, simplified joint stock companies, limited liability companies, limited partnerships, civil companies and general partnerships, any meeting of shareholders or partners other than the annual meeting may be held by videoconference or by other means of telecommunication enabling the participants to be identified, provided, however, that the procedure is authorized in the articles of association.

Ordinance no. 2020-321 provides exceptionally that, for all types of companies, all board meetings and shareholders’ meetings to be held between March 12, 2020 and July 31, 2020 may be held by means of a conference call or audiovisual conference without any clause in the articles of association, or the internal regulations as the case may be, being necessary for this purpose or despite any clause to the contrary.

The telecommunication means set up must ensure continuous and simultaneous retransmission of the deliberations and allow the identification of the participants.  As an exception, companies whose articles of association already provide for the holding of meetings by telecommunication means are subject to the rules that usually govern them.

For the purposes of calculating quorum and majority, members of meetings who participate by conference call or audiovisual conference are deemed to be present, even if the articles of association do not so provide or contain a clause to the contrary.

The shareholders and the auditor, in any, shall be convened by any means that ensures that they are effectively informed of the holding of the meeting.

For meetings already convened, the governing body may modify the procedures for holding the shareholders’ meeting up to 3 working days before the date of the deliberations.

Under the terms of Ordinance No. 2020-321, the representatives of the works ‘council are validly convened by any means that ensures that they are effectively informed.

In companies with a works’ council (“Comité Social et Economique”) and more than 50 employees, the representatives of the works’ council must be convened to shareholders’ meetings and, when relevant, to meetings of the board of directors.  They have the possibility to attend these meetings if they so wish.

If the shareholders’ meeting or the meeting of the Board of Directors is held by videoconference, representatives of the works’ council must also be given the opportunity to participate in the said meeting by videoconference. Similarly, if a written consultation is organized, the representatives of the works’ council shall be informed of the agenda and draft resolutions.

Under the terms of Ordinance no. 2020-321, the representatives of the works’ council are validly notified by any means that ensures that they are effectively informed.

To date, the Commercial Registry’s services for the completion of legal formalities seem to be normally operational, although slower. It is only in case of inaccessibility of the website that the documents should be sent in original to the registry.

All formalities can be carried out online, via the  websites Infogreffe.fr and tribunaldigital.fr. Commercial Registries of Alsace and Lorraine have  been connected to Infogreffe for a few weeks now.

In a communication published on March 20, 2020, the President of Infogreffe indicated that online services remain freely accessible.. In addition, it is possible to contact the Commercial Court of the place where the company is registered in order to obtain information concerning the formalities and procedures in progress, via the tribunaldigital.fr website.

In addition, Ordinance No. 2020-460 dated April 22, 2020 provides for the possibility, during the period of health emergency, to transmit declaration files to business formalities centers (so called “Centre de Formalités des Entreprises”)  by way of electronic  means.

A possible delay in the completion of the legal formalities with the Commercial Register and a subsequent amendment of the registration certificate (Kbis) will only result in the change being unenforceable against third parties. Indeed, the changes become effective as soon as the decision is taken by the Shareholders’ Meeting or the Sole Shareholder. The amendments would therefore not be deprived of effect solely due to a delay in the execution of the legal formalities.

Certain acts must imperatively be registered, and in particular all decisions relating to the modification of the share capital, dissolution, liquidation, transfer of shares or business assets. These acts must be registered with the tax authorities within 30 days of the date of the decision or act. In the event of delay, the tax authorities may charge interest equal to 10% of the amount of the registration fee, plus 0.20% for each month of delay.

Registration requires the filing of the original copies of the minutes or acts to be registered.

Due to the containment measures, the direct filing of documents with the tax administration or their sending by mail or courier may be compromised or delayed.

In these circumstances, certain tax administration’s services for registration services have set up a procedure for the dematerialized registration of acts during the health crisis. 

If certain acts were registered late, either because of difficulties in sending them by post or because the tax administration counter is closed, a waiver of delay penalties could be attached to the application for registration.

Given the particular circumstances, we believe it is unlikely that the tax administration will currently levy fines for delayed registration.