Capital Markets Update: Q&A’s in respect of Covid-19

With regard to the effects of Covid-19 and the many questions from listed companies in the past days, primarily concerning conducting the annual general meetings, decisions on dividends, and disclosure of information, Cederquist’s Capital Markets Team has put together the following Q&A in order to summarize the most common questions. In addition, you will find a link to a recently published statement from ESMA with recommendations directed towards inter alia listed companies.

The Annual General Meeting 2020

Q: Is it possible to postpone the Annual General Meeting to a later date, and/or a different location, than what has been stated in the Notice to the Annual General Meeting?

A: Yes. In case of a postponement of the Annual General Meeting, the shareholders must be informed that the original day for the Annual General Meeting has been cancelled, and then you need to issue a new notice, at the earliest six weeks and at the latest four weeks prior the new date for the Annual General Meeting.

If the location is changed, it is sufficient to inform the shareholders of the change in a timely fashion so as to allow the shareholders to receive the information. The information to the shareholders shall be provided by way of a press release.

Q: When must the Annual General Meeting be held at the latest?

A: The Annual General Meeting must be held each year within six months from the end of the fiscal year (i.e. typically at the latest on 30 June) unless a shorter time frame is stipulated in the Articles of Association. However, if a company does not convene its Annual General Meeting within this time frame, this does not prevent convening the Annual General Meeting later. Nevertheless, it may give rise to fines if the company does not in a timely fashion make public and submit its annual report and audit report to the Swedish Companies Registration Office (the latter shall be done after the Annual General Meeting has adopted the income statement and balance sheet and must be done within seven months from the end of the fiscal year). If the delay is longer, a corporate fine, and ultimately forced liquidation, may be ordered, as well as criminal liability for fraudulent accounting and personal liability for the board of directors. Furthermore, civil liability may ensue for the board of directors if the delay has caused damage to the company.

Q: What matters are mandatory at an Annual General Meeting in a listed company?

A: The most common matters at an Annual General Meeting (aside from formalities), of which certain are mandatory and thus shall always be addressed at the Annual General Meeting are:

1. Presentation of the Annual Report and the Audit Report, and the adoption of the income statement and balance sheet,
2. Disposition of earnings,
3. Discharge from liability for the board of directors and the CEO,
4. Presentation of the nominating committee’s proposal for the election of the board,
5. Adoption of fees to the board of directors and the auditors,
6. Election of board members,
7. Election of auditor (if applicable),
8. Election of the members of the nominating committee or decision on how members shall be elected (if applicable), and
9. Adoption of guidelines for remuneration to management (if applicable).

Statements of the Chairman or the CEO can therefore be shortened or stricken from the agenda. As an alternative to statements at the Annual General Meeting, it can be considered that a statement from the CEO is provided at the company’s website after the Annual General Meeting.

Pursuant to the Swedish Corporate Governance Code, the nominating committee shall present its proposal for the election of board members at the Annual General Meeting, and a member of the nominating committee shall also be present at the Annual General Meeting. If the nominating committee omits to provide a statement, or is absent, at the Annual General Meeting, it is our view that this is a warranted deviation from the code in light of the spread of Covid-19 during the spring of 2020.

Q: What individuals need to attend the Annual General Meeting?

A: According to the Swedish Corporate Governance Code, if possible, the board of directors, the CEO, at least one member of the nominating committee and at least one representative from the company’s auditors shall be present. If not all these individuals can be present, we believe this is a warranted deviation from the Code in light of the spread of Covid-19 during the spring of 2020. However, in light of the shareholders’ right to ask questions, the company must ensure that the CEO and one member of the board are present e.g. via telephone or video to answer questions from the shareholders, and that a quorum of the board can be assembled e.g. via telephone should questions arise during the Annual General Meeting that require a decision of the board.

Q: How can we limit the number of participants attending the Annual General Meeting?

A: It is not permitted to prevent a shareholder from physically participating in the Annual General Meeting 2020. In consideration of the fact that the Swedish Public Health Agency has raised the risk level for spread of Covid-19 in Sweden, and the government has decided to prohibit public gatherings above 500 individuals, many listed companies have decided to significantly limit the agenda for the Annual General Meeting 2020 in order to achieve as low physical attendance as possible. Examples of such actions is e.g. that no food will be served, that all presentations/product displays in connection with the Annual General Meeting are cancelled, that all presentations are shortened or cancelled and that questions during the Annual General Meeting will be concentrated to the matters on the agenda that require decisions.

In addition, listed companies are urging their shareholders to not physically participate in the Annual General Meeting if they (or anyone close to them) has health issues or has visited risk areas, but instead be represented by proxy. Many listed companies also plan to publish the CEO’s statement online after the Annual General Meeting.

Q: How does the government ordinance on public gatherings (the “Ordinance”) entail in respect of Annual General Meetings?

A: Formally, the Ordinance does not apply to Annual General Meetings, as these are not public gatherings. However, in light of the purpose of the Ordinance, it is our view, as many others, that there is reason to apply the Ordinance also in respect of Annual General Meetings during the spring of 2020. If the listed company historically has had an attendance above 500 individuals, or the attendance listing indicates an attendance above 500 individuals, the company ought to cancel the Annual General Meeting and issue a new notice for the Annual General Meeting at a later date (see above), or split the Annual General Meeting so that it can be held at two venues. Considering the purpose of the Ordinance, it ought to in any case be a venue with two or more localities with separate entrances, separate common areas, etc.

Q: What possibilities are there to convene a so-called “hybrid Annual General Meeting”?

A: a “hybrid Annual General Meeting” is where the company gives the shareholders the possibility to participate (vote and ask questions) both at the physical venue andvirtually. It is not allowed to have entirely virtual Annual General Meetings.

In order to convene a hybrid Annual General Meeting, the manner in which the meeting will be held has to be described in the notice for the Annual General Meeting. The listed company must also decide how questions from shareholders who participate through telecommunication shall be handled, what shall be broadcasted and how it shall be broadcasted. The listed company must also procure the service “hybrid Annual General Meeting” from one of the providers of Annual General Meeting services in order to ensure identification of participating shareholders and voting procedures etc.

Hybrid Annual General Meetings are very rare in Sweden, and has previous years not been considered financially viable.

Dividends

Q: Does the board of directors need to provide a dividends proposal in accordance with what has been stated in the Announcement of earnings (Sw: bokslutskommunikén)?

A: No. However, if the board intends to change the dividends proposal in relation to what has been communicated in the Announcement of earnings, the change needs to be made public. Most likely, a change in the communicated dividends proposal would be considered insider information and shall therefore be made public as soon as possible after the board has decided to change the dividends proposal for the previous fiscal year.

Q: Can the board change or repeal the dividends proposal that has been set out in the notice for the Annual General Meeting?

A: Yes, we believe so, as long as the change entails a proposal of a lower (or no) dividend, i.e. a reduction of the previously communicated dividends proposal.

Q: Can the Annual General Meeting decide on dividends that differ from the board’s proposal?

A: Yes, as long as the change entails a proposal of a lower dividend than that proposed by the board. In order for the Annual General Meeting to decide on a higher dividend than that proposed by the board, it is required that the board amends its dividends proposal at the Annual General Meeting, which in accordance with the answer to the previous question, is not possible, alternatively that it is a minority dividends request.

Q: Can the board, before dividends are paid out, stop a dividends payment that has been decided by the Annual General Meeting?

A: In extreme cases, this may be possible, where a significant deterioration of the company’s financial position has occurred after the date of the Annual General Meeting’s decision, and prior to the dividends payment falls due, and it would not be justified by the board to execute the dividends payment.

Information Disclosures

Q: ESMA recommended in a statement on 11 March 2020 that listed companies inter alia shall make public any relevant significant information concerning the impacts of Covid-19 (see link here). How should listed companies act in light of this?

A: The statement shall be seen as a reminder for the listed companies about their obligation (pursuant to EU’s Market Abuse Regulation (MAR) and Nasdaq Stockholm’s Issuer Rules) to as soon as possible make public insider information as a result of the effects of the spread of Covid-19. Listed companies therefore need to assess whether the impacts of Covid-19 constitute insider information or not for the company. Press releases on the impact of Covid-19 should be structured in a way that makes it possible for investors to understand what parts of the information that may be relevant for the valuation of the share. The most relevant information for the stock market should be clearly presented in the introduction of the press release, followed by more general information about different impacts. Listed companies should note that information concerning potential future impacts of Covid-19 may be considered to be a “forward-looking statement” according to Nasdaq Stockholm’s Issuer Rules, why caution is advisable with respect to such information.

ESMA’s recommendation also entails that listed companies in the coming Q1 Reports should comment on the impacts of Covid-19 and make qualitative and quantitative assessments of the impacts.

Q: How should we act in respect of the requirement regarding “profit warning” in respect of Q1; should not the market reasonably understand that certain impacts will ensue?

A: For listed companies where significant negative impacts of Covid-19 already have materialized and had a clear negative effect on the financial development for the period January-March 2020, “profit warnings” may be required. For many listed companies, it is not the effects on turnover and income which has already materialized that is the most relevant information for the stock market to be made aware of. Rather, it is understanding what parts of the business that is impacted and exposed to the effects of Covid-19 and how this exposure may materialize, coupled with (historic) financial information, that allows investors to understand the financial exposure.