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Listed companies facing coronavirus

Frank Martin Laprade , Cyril Deniaud , Benjamin Cohu , Claire Coquard

Although the coronavirus is an extraordinary situation making financial communication both necessary and particularly sensitive, there is no indication at this stage that listed companies will benefit from any exemptions regarding compliance with their legal obligations or from any forbearance from the Autorité des Marchés Financiers (“AMF”). Therefore, in this difficult context, issuers have to find pragmatic solutions by themselves to comply with applicable laws and regulations, as well as to implement their development strategy (by way of fundraising on the market, as the case may be).

Spoiler title

  • Ordinary general meetings of shareholders

Annual ordinary shareholders’ meetings have to be held within six months from the end of any financial year in order to approve the corporate and/or consolidated financial statements of the last financial year (article L. 225-100 of the French Commercial Code). In most cases, French listed companies close their financial year on December 31 each year, which implies that their ordinary general meeting have to be held by June 30 the following year.

Employers’ associations have recently submitted various recommendations to the French Minister of the Economy about difficulties for listed companies to hold annual ordinary general meetings. The idea of a bill allowing those general meetings to be held behind closed doors (i.e. with no physical attendance of shareholders) in the event of a health crisis has been evoked, and as far as we know, a decree allowing general meetings to be held behind closed doors is expected to be published imminently.

Notwithstanding the current health situation linked to the coronavirus spread and to the prohibition of events involving a high number of people until further notice, neither the AMF nor French lawmakers plan to allow annual ordinary shareholders’ meetings to be held beyond June 30, 2020.

Such a postponement would not necessarily be welcomed by shareholders as it would postpone the approval of resolutions relating to the allocation of financial results, and thus any decision relating to any dividend distribution.

In addition, postponing annual ordinary shareholders’ meetings would involve significant costs for issuers, which mostly are already affected by coronavirus’ impacts on their activity.

Above all, postponing annual ordinary shareholders’ meetings to be held by June 30, 2020 seems particularly unnecessary as shareholders have the opportunity to participate in those shareholders’ meeting without being physically present. As the AMF pointed out in a press release dated 6 March 2020, shareholders of listed companies may also participate in general meetings of shareholders by using postal voting forms or proxy forms provided by issuers, or by voting online on an Internet secured platform (for issuers allowing this method of voting).

However, issuers should remind their shareholders with applicable deadlines for the receipt of such votes by the issuers in order to avoid any quorum issues which would imply convening a second shareholders’ meeting, or even the judiciary appointment of an “ad hoc” proxy (who would be in charge of representing non-voting shareholders in order to reach the required quorum and thus enable the general meeting to be held) in the event that the approval of major resolutions for issuers (e.g. the approval of a merger, the approval of a reserved share capital increase to a new investor, etc.) would be placed on the agenda.

In addition, in its press release dated March 6, 2020, the AMF reminded that all shareholders have the right to ask written questions on matters relating to the general meeting of shareholders (article L. 225-108 of the French Commercial Code) up to the fourth business day prior to the general meeting of shareholders (article R. 225-84 of the French Commercial Code).

Finally, in this press release, the AMF recommended the issuers to plan to broadcast their annual general meetings on their website and to broadly communicate on this matter.

One of the indirect consequences of the massive use of postal voting or proxy forms or the convening of general meetings to be held behind closed doors (subject to the publication of the decree related to such exceptional procedure) is the decrease of the risk for issuers of being exposed to incidents or to the submission of additional resolutions “live” during general meetings.

 

  • Board of directors’ and supervisory boards’ meetings

It is reminded that members of the board of directors or supervisory boards, including their chairman, do not necessarily need to physically attend meetings of these boards. Indeed, within the limits of the by-laws of an issuer, internal rules of a board of directors or supervisory board may provide that the members of such board of directors or supervisory board may attend the meetings using “videoconferencing or telecommunications means enabling their identification and guaranteeing their actual participation” (article L. 225-37 of the French Commercial Code).

Members of the board of directors or the supervisory board participating remotely to board meetings will be counted in the quorum of such meetings, except for meetings relating to the closing of corporate and consolidated financial statements (i.e. those board meetings which are currently being held in most issuers) for which a member participating remotely will be considered as absent, which would be likely to raise difficulties in terms of achieving the required quorum.

However, as far as we know, a decree is expected to be published imminently in order to allow members of the board of directors or the supervisory board who participate remotely in board meetings relating to the closing of the corporate and consolidated financial statements to be considered as present. This decree would even have retroactive effect.

II.ISSUES REGARDING MARKET DISCLOSURES

  • Impact of the coronavirus on users’ disclosures

–  Regarding ongoing information

In a press release published on February 28, 2020, the AMF pointed out that the Market Abuse Regulation EU 596/2014 of 16 April 2014 (MAR Regulation) requires issuers to make a public announcement, as part of their ongoing information, of any inside information, i.e. any information of a precise nature, which has not been made public, relating, directly or indirectly, to an issuer and which would be likely to have a significant effect on the prices of financial instruments.

The AMF mentioned that any knowledge of a significant impact of the epidemic on the activity, the performance or the outlook (or instance) of an issuer, as soon as this information constitutes inside information, must therefore be disclosed to the market without delay.

As a reminder, in accordance with applicable regulations, issuers may always defer the publication of such inside information under their responsibility provided that:

  • the immediate disclosure may jeopardize the legitimate interest of such issuer;
  • a delayed disclosure would not be likely to mislead the public;
  • the issuer is able to ensure confidentiality of the information until its disclosure.

Consequently, everything will depend on the potential discrepancy that may be observed between, on the one hand, the precise information available to the issuer internally and, on the other hand, the market’s expectations as reflected in particular in the share price: allowing excessively alarmist rumours to spread, whereas internal information is more reassuring, could in fact be considered as a deception of the market.

More generally, the AMF recommended to the issuers (i) to periodically reassess the known and anticipated impact of the epidemic on their activity or their outlook as to its materiality and/or amount, (ii) to disclose the epidemic’s impact on their activity, their performance or their outlook when presenting their annual results, and (iii) for issuers that will communicate outlooks to the market for 2020 when publishing their results, to present the assumptions made with regard to the epidemic’s potential impact, even in the absence of more precise information (definitive and quantified).-  S’agissant de l’information périodique

–  Regarding the periodic information

Listed companies are required to publish their annual financial report within four months following the end of the previous financial year (article L. 451-1-2 of the French Monetary and Financial Code).

So far (but that can change very quickly), there is no evidence that the coronavirus health crisis would constitute a case of force majeure allowing an issuer not to comply with this legal deadline, even if such issuer could justify a delay in the drafting of its annual financial report caused by continuous or repeated absence of their employees (due to a containment measure or contamination for instance).

The AMF recommended that issuers mention in their annual financial report including their management report, a description of the main risks and uncertainties faced by the issuer in the relevant section in light of the coronavirus.

The AMF also recommended the “risk factors” section of the universal registration document to deal with the impact of the epidemic on economic exposure of the issuer as well as any measures that may have been taken by it.

In addition, in the “health and safety at work” section of the non-financial statement (déclaration de performance extra-financière) (provided that such issuer has to disclose such statement in accordance with legal thresholds), the measures taken by the issuer to ensure health and safety of its employees in relation to the epidemic should be presented.

Finally, the AMF specified that epidemic’s impacts should also be considered, if necessary in financial statements of December 31, 2019, as a post-closing event requiring information.

However, no adjustment of the financial statements as at December 31, 2019 is necessary as only an event related to facts that existed at the reporting date can be accounted for as an adjusting event.

Yet, on December 31, 2019 a limited number of cases of an unknown virus had been reported to the World Health Organization and there was no explicit evidence of human-to-human transmission at that date.

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  • The impact of the coronavirus on the share price

The health crisis caused by the coronavirus spread has an important impact on financial markets, and the share price of some issuers may fall below the nominal value of the share.

However, French law prohibits any issue of shares at a lower price than the nominal value (Article L. 225-128 of the French Commercial Code), which would in theory prevent any issue of new shares by an issuer for which this situation would persist.

In such a case, issuers always have different ways to achieve fund raisings.

The most intuitive way is the reduction of the share capital by reducing the nominal value of the share, which however implies that (i) a resolution of the general meeting of shareholders of the issuer deciding on, or authorising, such a capital reduction has been approved, and (ii) the issuer has sufficient losses available in the event of a share capital reduction justified by losses.

Issuers may also increase their share capital by using a “mixed” pay-up mechanism (this mechanism being authorized by Article L. 228-7 of the French Commercial Code), i.e. a payment of the new shares (i) partially in cash (up to the subscription price, i.e. the share price with a discount) and (ii) partially by capitalisation of reserves, profits or share premiums (up to the difference between the subscription price and the nominal value of the share), so that the issuance price of the new shares issued is actually equal to the nominal value of the new shares issued.

This unknown mechanism is a real alternative to a share capital reduction which is not always possible. Consequently, it is recommended that issuers submit to the vote of the next general meeting of shareholders resolutions entitling the board of directors or the management board to increase the share capital allowing such a “mixed” paying-up of shares (if such a delegation has not already been granted in an applicable resolution).

For more information about this mechanism: http://www.jeantet.fr/la-liberation-mixte-des-actions-une-technique-meconnue-permettant-a-une-societe-cotee-de-lever-des-fonds-quand-son-cours-de-bourse-est-inferieur-au-nominal/