Is it possible for a reconvened general meeting of a public limited liability company to be held on the same day as the general meeting which does not have a quorum? Under certain conditions, yes.
As of 1 January 2022, certain rules of the Civil Code applicable to limited liability companies and joint stock companies have been amended making the previously rigid rules on the date of the general meeting of members and the date of the general meeting of shareholders reconvened due to the lack of a quorum more flexible.
The Act XCV of 2021 amending Act V of 2013 on the Civil Code terminated the cogency of Article 3:191 (1) of the Civil Code on the quorum of a general meeting of members and Article 3:275 (1) of the Civil Code on the quorum of a general meeting by abolishing the nullity of deviations from these provisions of the articles of association.
In the reasoning to the amending law, the legislator explains the amendment as follows: “The provision not allowing a minimum interval between the original general meeting and the reconvened general meeting has been criticised. In practice, this rule is seen as unnecessary strictness and patronage, and practical experience shows that there are no more members attending the reconvened general meeting than at the time of the original general meeting. Since the member can ensure that he is represented at the general meeting in case of absence, the Proposal leaves the question of the time at which the company wishes to hold the general meeting repeated due to the absence of a quorum to the discretion of the company. The Proposal retains the provision on time limit, but no longer renders null and void the derogating provision in the articles of association.[1]”
With the above amendment, the legislator reviewed a former controversial issue, which had already arisen during the codification of the Civil Code, and made it possible for the parties concerned, i.e. the members of the limited liability company (“kft.”) and the shareholders of the company limited by shares should also be able to decide on this issue whether they consider the basic solution of the Civil Code or a different approach to be appropriate. This means, for example, in the case of a public company limited by shares that unless the company’s articles of association provide otherwise, the reconvened general meeting shall have a quorum in respect of the items on the original agenda irrespective of the number of voting rights represented by those present if the reconvened meeting is scheduled for a date between at least ten days and not more than twenty-one days following the original date. However, following the above amendment of the Civil Code, the company’s articles of association may provide that the reconvened general meeting may be convened on the same date as the general meeting at which there is no quorum.
Since the entry into force of the amendment, several major listed companies have taken advantage of the legal option: the shareholders have approved the amendment of the articles of association, which enables the reconvened general meeting to be held on the same day.
Below is a summary of why I believe it is beneficial for the shareholders of a public company limited by shares to hold the reconvened general meeting on the same day (typically 1-2 hours later) as the meeting that was reconvened due to a lack of quorum.
It is often argued against a general meeting held on the same day that if the general meeting is convened even an hour later than the original time, there is no chance that those who did not attend earlier for whatever reason will be able to attend the reconvened general meeting. This is undoubtedly likely, but if the reconvened general meeting is not held on the same day, it is precisely the attendance of shareholders present on the original day that would be questionable. Let us not forget that the general meeting of the listed companies is an event which attracts a large number of shareholders, including institutional investors from foreign countries as well as domestic pensioners.
Of course, individual shareholders may include those who have travelled hundreds of kilometres to attend the general meeting (even by taking annual leave), while foreign institutional investors (e.g. investment funds, pension funds) are typically represented by proxy representatives (e.g. national banks, law firms). It is easy to understand that both travelling again and having to arrange for a proxy again are inconvenient, costly and energy-intensive in the event of general meeting reconvened on a different day. Thus, it is precisely those shareholders, who actively wished to exercise their rights as shareholders and who came in person or by proxy to the general meeting on the announced date, are adversely affected by this practice. Among the large number of shareholders in listed companies, there are undoubtedly some shareholders who buy shares for investment purposes only and do not wish to participate actively in the company’s general meeting. Such passive investors who do not attend the original general meeting are unlikely to attend another general meeting.
Another aspect that should not be neglected is that the organisation and holding of general meetings of the listed companies is a complex and costly task, precisely because of the large number of participants, the venue, staff, technical conditions and catering etc. must be provided, thus it is not unimportant for the company whether there is a need to prepare for a reconvened general meeting held at another date.
Finally, the transparency requirements for the listed companies, in particular the publication of the invitation of the general meeting and the agenda items published at least 30 days before the date of the general meeting, including the conditions for participation and the date of the reconvened general meeting, and the publication of the agenda items at least 21 days before the date of the general meeting, also help shareholders to make a responsible decision on their participation in the general meeting in a timely manner. Just as from 1 January 2022, shareholders can make responsible decision (again) on whether to allow for a reconvened general meeting in the company’s articles of association to be held on the same day as the general meeting with no quorum.
[1] The quoted text is the justification for the amendment of Article 3:275. The justification of the amendment to Article 3:191 is essentially identical with it.
