Legal Aspects of Coronavirus in Switzerland I – Assembly Ban

Last week Switzerland reported the first cases of the Coronavirus in Switzerland. To stem the spread of the virus in Switzerland, the Swiss Confederation has issued beside other measures a ban on gatherings of over 1000 people within Switzerland. The ban is initially valid until 15 March 2020. Under the same ban, the city of Chur has issued an even more restrictive ban for gatherings of over 50 people, which does restrict the everyday life even more.

In the following, we would like to highlight the consequences of such assembly ban for companies intending to convene a general meeting. Even if at the moment only large companies might be affected by such ban it is also possible that smaller companies become equally affected if such ban should be strengthened.

• Assembly Ban

The ban on assembly of over 1,000 people imposed by the federal government applies not only to public meetings such as the carnival in Basel, but also affects in reality the convention of a general assembly when more than 1,000 shareholders should attend.

According to art. 699 para. 2 CO, the ordinary general meeting of a stock corporation must take place within six months of the end of the financial year. The good news is that even without any such assembly ban a delayed meeting will not turn out to be invalid. Therefore, even if an ordinary meeting should be held after such six months deadline due to a possible extended ban, it will not have any consequences on the validity of the meeting.  

However, a long-term ban on holding an ordinary or even more an extraordinary general meeting can under certain circumstances create a very negative effect on a company in practice. Consider the case of an intended and, if necessary, urgently needed capital increase or another important decision that needs the vote of a shareholders’ meeting. It might be that in certain cases, the board will be able, given the extraordinary circumstances, to solve any critical business situation different and without the decision of a shareholders’ meeting. However, if this is not the case the company must find a solution to be able organise that a general meeting due to an existing assembly ban.

• Virtual Shareholder Meeting

One way out of this dilemma would be to hold an entire virtual general meeting where shareholders are no longer present physically but via an internet connection and where they vote electronically. However, this solution is not yet possible under the present law in Switzerland as it still foresees that the shareholders must meet physically. At the very least, the draft law for the comprehensive revision of Swiss company law provides for the introduction of a virtual general meeting, as already exists and is practised in England, for example, but this will be too late under the present ban.

It is therefore to be hoped that the legal foundations for a virtual meeting will soon be in place, as the practical implementation will present a further challenge in order to be able to guarantee a reliable and secure assembly.

• Further Way Outs

In the absence of a corresponding law, a way out of this situation is under the applicable law to hold multi-local general meetings, where the general meeting will be held simultaneous at different places and by means of video and audio transmissions. Like this, the shareholders are still physically present, but the requirements of the assembly ban can be met. Consideration should also be given whether it might be possible and acceptable to hold a meeting in a neighbouring country where there is currently no ban.  

Due to the current situation, a company may also consider to provide its shareholders with the opportunity to participate at the physically held general meeting via internet, which can be qualified as a mix between a conventional shareholders’ meeting and a virtual meeting. However, the challenge with this form is that a company has no knowledge in advance, how many of its shareholders will use the internet and whether the assembly ban can be met. For this solution the shareholders’ must be informed in advance of such internet facility and must be requested to inform the company in advance whether they intend to participate physically or via internet that the company can arrange for the required facilities.

Another more theoretically possibility is under the given situation to try to persuade as many shareholders as possible to be represented by proxy to another shareholder, to a board member or to the proxy representative in order to reduce the number of participants. However, no shareholder may be denied the right to attend the General Meeting, even if he should be infected by the current virus. Therefore, this measure is based on the voluntariness of the shareholders and does not give a company the certainty that it can hold its general meeting without violating the prohibition to hold meetings.

Finally, it should be mentioned that resolutions passed at a general meeting that may violate the imposed ban on meetings are not invalid or contestable under stock corporation law. The legal consequences of a general assembly violating the prohibition of assembly are to be sought more in the criminal law area against the fallible officers of a company. Also conceivable would be liability claims by shareholders who become infected with the virus at a general meeting. 

• Recommendation

Should the currently imposed ban on meetings in Switzerland be extended or more restricted to smaller numbers of participants as already in effect in the city of Chur, it might be advisable even for smaller companies to consider when and how a general meeting should be convened and what will be legally, technically and practically required to hold a legally valid general meeting in compliance with the regulations. This requires, among other things, that the necessary hygiene regulations be observed and that the technical means be put in place to ensure that a general meeting can be held in an orderly manner while safeguarding all shareholder rights.