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Covid-19

Managing Legal Entities in Times of Social Isolation – V1. UPDATED 4/2/2020

Executive Summary

As a consequence of the declaration of sanitary emergency, and the social isolation ordered by the National Government, many challenges have arisen for companies, among others as well as important, with regards to:

  • Board meetings;
  • Shareholders’ meetings;
  • Compliance with corporate and accounting filings with the regulatory authorities.

The aforementioned topics acquire significant relevance since, during these days, many companies will have to approve their financial statements and hold their annual Shareholders’ Meetings.

As a result of the prohibition for circulation and/or mobility established by Decree Nbr. 297/2020, prohibition that, in principle, would affect shareholders, members of the board and members of the statutory committee of every company, there are certain alternatives in order to provide solutions to the problems described below, taking into consideration whether the problems affect private or public companies.

The following analysis shall be made taking into consideration the particular situation of each company.

1. Private companies

A. Board and Shareholders’ meetings

As a general rule, art. 158 of the Argentine Civil and Commercial Code (the “CCyC”) establishes that legal entities’ bylaws should contain clauses regarding the government and management of the company. Nevertheless, in absence of treatment of the issue in the legal entities’ bylaws, the CCyC authorizes legal entities to hold Shareholders’ meetings remotely as well as self-convened Shareholders’ meetings.

Shareholders’ meetings held remotely must comply with the following:

(i) All shareholders should consent on having the meeting remotely.

(ii) The minutes should be signed by the Chairman and another director, stating the adopted means of communication.

(iii) The records should be kept, according to the means used to communicate.

Furthermore, the Public Registry of Commerce of the City of Buenos Aires (the “IGJ”) – regulatory authority for legal entities domiciled in the City of Buenos Aires-, issued the Resolution 11/2020 which allows to hold remote meetings for both the Board and Shareholders’ meetings as long as said possibility is included in their bylaws, in accordance with the provisions of art. 158 of the CCyC. The aforementioned resolution also allows those legal entities whose bylaws do not contain a provision related to remote meetings to hold Board and Shareholders’ meetings remotely during the term of the mandatory and preventive social isolation introduced by Decree Nbr. 297/2020 remains effective, or its eventual extensions, including the one resolved by Decree Nbr. 325/2020.

In either situation, the following requirements must be guaranteed:

i) free access of all participants to the meeting;

ii) the possibility of participating of the meeting through a platform that allows the simultaneous transmission of audio and video;

iii) the participation with voice and vote of all members;

iv) the meeting must be recorded in a digital form;

v) the legal representative of the company must keep a digital copy of the meeting for a 5-year term and said copy must be available in case any shareholder requests it;

vi) the minute of the meeting must be copied to the corresponding corporate book, stating the name of each participant and said minute must be signed by the legal representative; and

vii) the summon to the meeting must inform in a clear and simple manner the chosen communication channel, and the access method in order to allow the participation of all members.

As regards the companies which are not subject to the IGJ’s control, and in the absence of a provision in their bylaws authorizing remote meetings, in accordance with the provisions of art. 158 of the CCyC and based on the current emergency context, the shareholders could hold Shareholders’ meetings remotely in order to discuss urgent matters in case a delay in such treatment could cause a damage to the company as long as all partners agree with holding the meeting in those conditions.

Also, taking into consideration the current emergency situation, upon the need of having an urgent matter considered by the Board and in the event the delay of such treatment could either cause damage to the company or affect the continuity of its activity, it could be considered justified the need of the Board to hold meetings remotely.

B. Filings within Public Registries of Commerce.

The ongoing situation, resulting from the application of Decrees Nbr. 297/2020 and Nbr. 325/2020, has also generated the impossibility for companies domiciled in the City of Buenos Aires and in the Province of Buenos Aires to comply with the filings established by Resolution IGJ 07/2015 and Resolution of the Public Registry of Commerce of the Province of Buenos Aires (“DPPJ”) 45/15 within the terms established in the aforementioned resolutions.

Through Resolution IGJ 10/2020 (“Res. IGJ 10/2020”) the IGJ suspended until March 30th, 2020, inclusive, the prescribed periods for: (i) submitting responses to requirements made by the IGJ regarding ongoing procedures; and (ii) submitting the reporting requirement set through Decree Nbr. 142.277/43 and Resolution 8/15. This term was extended by Resolution IGJ 13/2020 (“Res. IGJ 13/2020”) until April 12th, inclusive, in accordance with the mandatory precautionary social isolation extension decided by Decree Nbr. 325/2020.

In addition to the above, IGJ informed through its web site the suspension of the attention to the public as of March 16th, 2020 until March 30th, 2020, both days inclusive. Such suspension was extended until April 10th, inclusive. Therefore, regarding procedures which are not included in the suspension established by Res. IGJ 10/2020 -which was extended by Res. IGJ 13/2020- and that must be filed in the period during which the IGJ is closed, we expect the IGJ to issue a resolution regarding how the deadlines for those procedures should be calculated.

On the other hand, the DPPJ established through Resolution DPPJ 12/2020: (i) a 180 days term during which the public attention will be made with prior appointment granted via e-mail; (ii) the suspension for a 180 days term for filing the response to any observation made by the DPPJ in ongoing procedures; (iii) to grant an extension of 180 days to file the previous and post filings regarding ordinary and extraordinary Shareholders’ meetings, if the meeting has been held during the current sanitary emergency; (iv) an authorization for civil associations, foundations, mutual associations and companies subject to permanent governmental control to send via e-mail every filing related to Shareholders’ meetings.

2. Public companies

A. Board and Shareholders’ meetings

I. Board meetings

The Capital Markets Law No. 26,831 (“CML”) allows Board meetings of public companies to be held remotely. The requirements are: i) that there is simultaneous transmission of sound, images and words; and ii) that the procedure is provided in the bylaws .
The statutory advisors must indicate the validity of the decisions taken in the meeting held remotely.

Unless the bylaws state otherwise, only the Board members that are physically present shall be counted for the purposes of the quorum. Likewise, the bylaws must establish the way in which the participation of remote members will be recorded in the minutes.

The minutes must be prepared and signed within 5 business days as of the meeting by the members present and the representative of the statutory advisors’ committee. Considering the prevailing emergency situation, it would be reasonable to interpret that said period will take effect from the day in which the cessation of the social, preventive and compulsory isolation becomes effective.

The first thing to check then is the treatment of the issue in the company’s bylaws.
In the event that the bylaws allow for the possibility that the meetings of the Board may be held remotely, the requirements stated in the bylaws must be met.

In the event that the bylaws do not allow that possibility, considering the situation of force majeure generated by Decrees 297/2020 and Nbr. 325/2020, the application of art. 158 CCyC could be analyzed, as remarked above. Although this regulation foresees the possibility of holding remote Shareholdes’ meetings, it can also be interpreted so that it could also be applied, by analogy, to Board meetings. To hold a remote Board meeting under these conditions, at least the following requirements should be met:

a) All directors should participate and consent to having the meeting remotely.

b) The minutes should be signed by the Chairman and another director, stating the adopted means of communication.

c) The records should be kept, according to the means used to communicate.

However, given that there are special regulations on the matter, in this hypothesis it is recommended to consult with the Securities Exchange Commission (the “CNV”) in advance.
Nevertheless, the risks associated with the use of alternative solution mechanisms to those provided for in the special regime applicable to public companies, can be, for example, from the declaration of irregularity and ineffectiveness of the act, to an administrative summary from the CNV, and eventual nullity and liability actions against Board members and statutory advisors, to the extent that the legal requirements for it are met.

In summary, it must be analyzed on a case-by-case basis to determine if a company is in a position to comply with the aforementioned requirements and guidelines. If the reason for the meeting and/or the agenda to be discussed is urgent and cannot be delayed (e.g. accepting a loan to pay staff salaries), the proposed method above would be the only way forward. Otherwise, it may be appropriate to make inquiries and/or request extensions to the CNV, in the event that the bylaws do not provide for the possibility of holding Board meetings remotely.

II. Shareholders’ meetings.

The CML also allows that the companies’ bylaws include the possibility of holding remote Shareholders’ meetings, for which the CNV must regulate the means and conditions necessary to grant security and transparency to the meeting.

Art. 61 of Regulatory Decree Nbr. 471/2018 states that, when the bylaws of the public companies allow for the possibility of holding Shareholders’ meetings remotely, communication channels must be established that allow the simultaneous transmission of sound, images and words, ensuring the principle of equal treatment of the participants.

There should be a record in the Shareholders’ meetings’ minutes of the shareholders that are participating in the meetings and the means through which they joined in the event remotely, the place where they were, and the technical mechanisms used.

The celebration of a remote Shareholders’ meeting must be reported to the CNV five working days in advance to the day in which the meeting will be held. The CNV may designate one or more inspectors with oversight powers to attend the meeting.

In the case of proxies, the power of attorney, sufficiently authenticated, must be sent to the CNV five business days before the meeting.

The entities that make use of this possibility must present before the CNV the procedures to be used for their approval.

However, it should be noted that certain acts related to the Shareholders’ meeting may encounter difficulties by requiring the participants physical presence, such as: certifications of signatures in power of attorneys so that shareholders can be represented at the meeting, the deposit of the certificates issued by Caja de Valores pursuant to art. 238 LGS, with no less than 3 business days prior to the date of the meeting, its entry, the closing of the Book of Deposit of Shares and Record of Attendance at Meetings and their signatures.

The practical difficulties for holding these types of meetings have been recognized by the CNV in its General Resolution 824/2019, which submitted a regulatory impact analysis to public consultation evaluating the possibility of regulating this type of meetings. To date, the CNV has not issued the regulations provided by the CML. Similarly, it should be noted that the CNV has recognized that almost no public company has established a mechanism for this purpose.

The CNV has issued a communication announcing that those public companies that, due to the number of attendees and/or the characteristics of the meeting, consider that they cannot carry out the meeting in due time for the approval of their financial statements closed on December 31st, 2019, they will be granted, exceptionally, an extension to celebrate the meeting. For this, they must notify them at gobcorp@cnv.gov.ar of the impediments and make the request in a justifiable way, so that it is immediately merited for a response.

As far in advance as possible, this route could be used in case the company runs into complications for the celebration of the meeting.

In those cases, in which the meetings are held, the CNV recommends compliance with the recommendations issued by the Ministry of Health and encourage as much as possible the attendance of shareholders at the minute by proxy, in order to minimize the amount of attendees.

Communication of attendance to the meeting: In relation to this matter, we note that, to date, there are already several cases (informed to the market ) of the establishment of a reception mechanism by a public company of confirmations of attendance via email, established because of the exceptional situation of the declared emergency.

We expect the CNV to issue a resolution admitting remote meetings as long as certain requisites to be established are complied with.

B. Filings before the CNV.

Decree Nbr. 298/2020 suspended deadlines of administrative procedures until March 31, 2020, notwithstanding the validity of the acts already carried out or to be fulfilled. Such term was extended until April 12, 2020, inclusive, by Decree Nbr. 327/2020.

The General Resolution 829/2020 of the CNV extended the deadlines for the presentation of the quarterly financial statements closed on December 31st, 2019 for financial entities authorized to operate under the terms of Law No. 21,526, which are also authorized to issue public securities or shares and/or also those that are registered with the CNV for their activities related to the capital market, and also the public companies whose main assets and results are made of and originate from investments in financial entities and present their financial statements observing the regulations established by the Central Bank of the Argentine Republic, in the terms of art. 2 of Chapter I of Title IV of the CNV Rules (NT 2013 and mod.). The presentation must be made within 60 calendar days of closing of their financial year.

The CNV decided to close in-person attention at their Reception Desk and enabled a series of emails so that presentations and queries can be made virtually. These emails are available on its website. Only the presentations and documentation sent from those email addresses previously declared on the Autopista de la Información Financiera (“AIF”), or from the new email address that the company reports to the CNV from the previously declared email address will be considered valid, and will be the valid email from which you will send or receive notifications for the purposes of the filings.

By means of a communication to the public companies, CNV has informed that the procedures that require administrative compliance and involve mergers and split-offs, must follow the same procedure until the corresponding prospectus is published. Submissions and subsequent processing, due to the formalities they require and the intervention of other registration agencies, will be subject to the lifting of the emergency measures, or the publication of new measures to overcome the difficulties.

The CNV has communicated to the public companies that the obligation to send through the AIF all the documentation and information that by regulatory requirement must be sent, remains in force.

Finally, it is to be expected that, by virtue of the prevailing situation, the CNV will issue emergency regulations admitting the celebration of remote Board and Shareholders’ meetings, whether or not this is allowed in the bylaws of the company.

We remain available to assist you in evaluating these circumstances and choosing the best possible solution.