The worldwide spread of COVID-19 and the security measures such as travel restrictions and social distancing rules are likely to have significant impact on the decision making processes of corporate governance organs and therefore on the operation and corporate governance of companies. Non-compliant decision making may have serious operational, legal and financial consequences on the companies.
It is important that companies ensure continuity of corporate governance organ decision making processes even in complex times like these and that the decisions made are compliant with applicable regulations and bylaws so that they cannot be successfully challenged. Generally, Hungarian corporate regulations require the members of corporate governance organs, including shareholders or board members, to participate in the decision-making process personally. The law does not provide exemptions from this even in cases where a shareholder or board member is prevented from attending the governance body’s meeting.
What happens if a shareholder or board member cannot attend a meeting and participate in the decision making due to employer measures, authority prohibitions or simply because they take account of safety and health recommendations in the context of the global health situation?
It is important that companies ensure continuity of corporate governance organ decision making processes even in complex times like these and that the decisions made are compliant with applicable regulations and bylaws so that they cannot be successfully challenged.
Using telecommunication tools to adopt decisions or doing so by written resolutions may be alternatives for an in person meeting. However, such options will not always be available, because if the companies' existing corporate documents do not allow such then the amendment of those is required (the adoption of such decision may difficult as well) , and in some cases their use is also restricted by law.
Availability of shareholders and executive officers to attend the meeting of a corporate governance organ must be taken in to account before convening such a meeting by circulating the invitation to and agenda for the meeting. Although such right is not expressly granted in the law, it is foreseeable that some invited participants could challenge the convening of a meeting if they obviously cannot attend that meeting and the possibility of remote communication or remote voting is not made available to them. An invitation issued without taking such circumstances and hardships into consideration, as well as the resolutions adopted at the meeting, could be considered as a violation of shareholders' rights or the right to participate in the decision making.
It is a critical time to consider these issues because general meetings approving annual financials will have to take place soon. Errors in the corporate governance process of approving annual financials could have serious legal and financial consequences to a company. Although the fact that a member or executive officer cannot attend such meeting does not in itself preclude the possibility of holding the meeting, doubt may be case on the acceptance of the annual financials if several members or the whole body is prevented from attendance.. Whether a member intends to exercise their decision-challenging right within the 90 days deadline may also cause uncertainty for the implementation of decisions. Therefore, advance preparation for such governance challenges is highly recommended to enable corporate decision making processes to run fully in compliance with the applicable regulations and corporate bylaws. It is worth exercising increased caution and prudence when convening meetings and ensuring in advance that the absent member(s) or executive officer(s) can communicate or vote by way of telecommunication. It is also timely to review the company's corporate documents and bylaws to ensure such measures are even possible.
While there is no explicit provision in Hungary's corporate regulations for dealing with such exceptional circumstances, the general rules that members, executive officers and the company shall behave in a manner expected from them in order to ensure the lawful corporate governance decision making, and that the members and executive officers may not exercise their rights in an abusive manner, are still applicable.