The Finnish Ministry of Justice adopted temporary legislation that allowed derogations from the Finnish Limited Liability Companies Act (Companies Act) in the spring of 2020 in order to deal with the COVID-19 pandemic’s impact on general meetings. The temporary legislation allowed companies listed on the official list of Nasdaq Helsinki or Nasdaq First North Growth Market Finland to hold their statutory meetings while observing the gathering restrictions introduced as a response to the pandemic.
New amendments to the Companies Act, which came into force on 11 July 2022, replaced the temporary legislation implemented in response to the pandemic. The new provisions introduce a permanent regime that, e.g., allows alternatives to physical meetings. In this Legal Alert, we discuss the background and nature of the key amendments introduced to the Companies Act.
Key characteristics of the temporary legislation introduced in 2020
The temporary legislation adopted by the Finnish Ministry of Justice in the spring of 2020 provided companies with much needed flexibility that allowed them to hold their statutory meetings while observing the gathering restrictions introduced as a response to the pandemic. The temporary legislation only applied to companies listed on the official list of Nasdaq Helsinki or on Nasdaq First North Growth Market Finland.
The Companies Act, as applied before the temporary legislation, stipulated that general meetings could not be held solely by remote means, i.e., shareholders had to be offered the option to participate on-site in a physical meeting, and only unanimous shareholders could override the requirements regarding the method of organising the general meeting. In deviation from previously applicable rules, the temporary legislation made it possible to offer remote participation by mail, telecommunications, or other technical means as the sole alternative, and shareholders (or their representatives) could be barred from participating in person at the meeting venue.
A survey carried out by the Finland Chamber of Commerce in August 2022 concluded that the temporary legislation had been well received by the companies to which it applied as altogether 109 out of the 130 listed companies reviewed had utilised the possibility offered by the temporary legislation to require shareholders to exercise their rights (i.e., pose questions, submit counterproposals, and vote) in advance. The temporary legislation was also found not to have caused any material problems with the exception that communication between shareholders and the company was deemed lacking.
However, the temporary legislation was indeed intended to be temporary, and its preparatory works noted that the goal was to adopt permanent regulation to allow more flexibility for companies in arranging their general meetings. As such, the temporary legislation expired on 30 June 2022 and was followed by the amendments to the Companies Act that came into force on 11 July 2022.
What kinds of amendments were introduced in July?
As noted above, under the temporary legislation, shareholders participating in remote general meetings could be required to only exercise their rights in advance. A fundamental difference between the new amendments introduced to the Companies Act and the temporary legislation is that, pursuant to the amended Companies Act, shareholders must be able to exercise their full participation rights during a remote or hybrid meeting. In addition, the option of holding remote and hybrid meetings is now available to all limited liability companies, not only to companies listed on the official list of Nasdaq Helsinki or Nasdaq First North Growth Market Finland, as was the case under the temporary legislation. The transitional provisions of the amendments form an exception to this, as they apply only to the latter type of companies.
Going forward, and contrary to the options allowed by the temporary legislation, it will not be possible to arrange general meetings under the amended Companies Act by relying on advance voting, counterproposals, and questions as a sole means of participating in a general meeting. Participating in advance by technical means or postal voting may only be offered as an alternative.
New meeting types
The amended Companies Act allows companies to organise their general meetings in three alternative ways:
- Traditional meeting. This is a general meeting that offers shareholders or their representatives the option of participating in person at a physical meeting venue in the place where the company’s registered office is located, unless otherwise provided in the company’s articles of association.
- Hybrid meeting. The board may decide to arrange general meetings as hybrid meetings, i.e., shareholders or their representatives may participate in the general meeting either at the physical venue or via a remote connection, provided that this is not prohibited in the company’s articles of association. In most cases, an amendment of the articles of association is not required to enable the company to arrange hybrid meetings. The participants in the hybrid meeting, either physically present or attending via a remote connection, must be able exercise their shareholder rights in full. To promote the use of hybrid meetings with full remote participant rights, the amended Companies Act provides that the articles of association may be amended to require the company to arrange general meetings as hybrid meetings by a simple majority, instead of the qualified majority that is usually required.
- Remote meeting. This is a novel measure introduced by the amendments and refers to a general meeting that is organised remotely without assigning a physical meeting venue. The board may decide on arranging a general meeting as a remote meeting, provided the articles of association either allow or require this. As such, an amendment of the articles of association may be required. Pursuant to the Companies Act, such an amendment requires the support of a qualified majority (i.e., more than two thirds of the votes cast and shares represented), unless there is a stricter provision in the company’s articles of association.
If a general meeting is held as a hybrid or remote meeting, the company must ensure that all shareholders are able to exercise their full participation rights at the same time as any shareholders present at the appointed physical meeting venue. Pursuant to the government proposal regarding the amendments, the full rights of a shareholder participating remotely mean the possibility to follow the meeting and presentations as well as the right to speak (i.e., to ask questions, give presentations, or make counterproposals) and vote during the meeting at the same time as any shareholders that may be attending the general meeting at the physical meeting venue.
The amended Companies Act also requires for the participation rights to be ascertained in a manner corresponding to the procedures involved in setting up a traditional physical meeting. For example, the identity and the representation right must be sufficiently evidenced. The amendments to the Companies Act do not, however, introduce new or detailed regulation on how remote participants are to be identified.
Additional means of participation
The amended Companies Act allows additional means of participation, which may be combined with any form of general meeting. In order to clarify the meaning of the additional means of remote participation, it is also necessary to explicitly determine when a remotely participating shareholder is considered a participant in the meeting. To this effect, the amended Companies Act includes definitions on which shareholders are considered as participating in a general meeting.
The new additional means of participation are somewhat reminiscent of the provisions of the temporary legislation whereby shareholders had the ability to vote, make counterproposals and ask questions only in advance. The amended Companies Act, however, requires for participating and exercising shareholder rights at the meeting to also be possible on the day and at the time of the meeting. As such, the additional means of participation may only supplement the opportunity to participate in the meeting with full rights, whether that be in person or remotely.
In accordance with the government proposal concerning the amendments made to the Companies Act, these additional means of participation may include, for example, the possibility to vote, ask questions, or make counterproposals before the actual meeting, or the possibility to submit written questions and comments during the meeting. The board may limit the use of additional means of participation, in which case the limitation must be stated in the meeting invitation. These limitations may comprise, e.g., a deadline for submitting votes or questions, or an advance voting option may only apply to certain matters on the agenda.
The introduction of additional means of participation does not require any amendments to the company’s articles of association. Amendments are required only if the articles restrict or prohibit the use of these additional means.
Concrete examples of the additional means and possibility to moderate questions and speaking contributions
For example, the board may decide that advance voting via mail or a website before the actual general meeting may be used as an additional means of participation in a traditional general meeting where shareholders have their normal shareholder rights. However, in contrast to the temporary legislation, shareholders who have cast their votes in advance may opt to change and re-cast their vote at the general meeting.
Furthermore, when a shareholder exercises their right to speak other than orally during the meeting by, e.g., submitting written questions or contributions recorded in advance or during the meeting, the amended Companies Act allows for combining and modifying these before the questions and their respective answers and contributions are presented at the general meeting.
The prerequisites for moderating the questions are that moderation is necessary to reasonably limit the duration of the general meeting, to make following along with the general meeting easier, and to secure the proper course of the meeting. In addition, moderation cannot substantially change the content of the questions.
The principles for moderating written questions and contributions recorded in advance should be confirmed at the beginning of the meeting, and such questions and contributions should be kept for at least one year after the general meeting.
The possibility to adjourn the meeting due to technical difficulties
As the additional means of participation strongly rely on telecommunications or other technical means to connect shareholders with the meeting, the amended Companies Act also takes into account technical malfunctions that may occur in the communications solutions and that may impact the validity of the resolutions or the rights of the shareholders.
The chair of the general meeting may decide to adjourn the meeting and continue it four weeks after the opening of the meeting. A precondition for reconvening is that the new meeting date and any new technical solutions that may be required for participating are communicated to the participants well in advance before the meeting is reconvened.
It should be noted that arranging voting as well as the submission of questions and counterproposals in advance as the sole means of participation in a general meeting – which was the common practice under the temporary legislation – will no longer be possible under the amended rules. Going forward, the amended Companies Act requires companies to either offer means to participate remotely during the meeting or the option of attending the meeting in person, while participating in advance by technical means or postal voting may only be offered as an alternative.
The amendments to the Companies Act included transitional provisions, applicable to companies listed on the official list of Nasdaq Helsinki or on Nasdaq First North Growth Market Finland. Under the transitional provisions, a general meeting may be held during 2022, where shareholders exercise their rights only in advance of the meeting through mail, telecommunications means or by other technical means.
However, this kind of general meeting may only be held for the purpose of amending the company’s articles of association to allow or require remote meetings. Hence, such companies may introduce a remote meeting provision in their articles in 2022, which will enable them to hold remote meetings during the AGM season in the spring of 2023 (and later). From the beginning of 2023, the decision to amend the articles of association enabling remote meetings must be made at a traditional or hybrid meeting.
What will happen next?
Certain Finnish listed companies seized the opportunity offered by the transitional provisions and summoned extraordinary general meetings in the summer months to enable remote meetings introduced by the amended Companies Act right from the beginning of autumn 2022. These early movers will serve as pioneers and offer initial examples of the practical implementation of the amendments introduced to the Companies Act.
Although it remains to be seen which of the general meeting types will prove to be the favourite – hybrid and remote meetings are expected to be readily adopted as alternatives for traditional meetings. The flexibility introduced by the amendments to the Companies Act will likely give service providers a push to offer new and improved technical solutions for running remote general meetings, identifying participants, and implementing remote voting in a reliable and efficient manner.
If your listed company has yet to amend the articles of association to allow for remote meetings and you are interested in calling an extraordinary general meeting to decide on amending the articles, using advance remote participation under the transitional rules by the end of this year, we would be more than happy to provide any assistance you may require. The Borenius lawyers named in this Legal Alert are also available to answer any questions you may have regarding the new amendments. Please do not hesitate to contact us for more information.