HR practice on COVID-19-VO 2: Meaningless results, adjustment was necessary (Update)
Update from 04.04.2020
On 3 April 2020, the FOJ published an update of theFAQ Coronavirus and General Meetings (as of 01.04.2020) (here the previous version as of 18.03.2020), which adopts our view described below and clarifies that, contrary to the interpretation of COVID-19-VO 2 propagated by certain notaries and HR offices, a GM with only one representative does not qualify as a meeting within the meaning of COVID-19-VO 2, and is therefore permissible, even if no independent proxy is present.
Our comments below on the inadmissible extensive interpretation of decrees restricting fundamental rights and on the questionable admissibility of "legislation via FAQ and website publications" remain as relevant as ever.
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The Commercial Registry Offices currently follow a practice with regard to the registration of corporate resolutions of legal entities which, in our opinion, in certain constellations contradicts the meaning and purpose of COVID 19 Ordinance 2 and also violates the principle of delegation. As a result, we demand that the commercial registry offices correct their practice and interpret the ordinance according to its meaning and purpose.
Legal basis
The COVID-19-VO 2 issued by the Federal Council allows resolutions of meetings of legal entities to be passed in writing or electronically or by an independent proxy. In addition, the FDJP has issued Practice Notice EHRA 2/20, which refers to the FAQ prepared on this topic, which (according to the notice) is continuously supplemented by the FDJP. The Practice Note was published on 25 March 2020, and it is noted at the beginning of the FAQ that the last amendment was made on 18 March 2020. What has become of the aforementioned permanent addition including dynamic linking (whatever this means) can be left open.
Commercial Register Practice
The exchange with certain commercial registry offices after the enactment of COVID-19-VO 2 has shown that applications for registrations are rejected that have not been decided in accordance with one of the modalities listed in Art. 6a COVID-19-VO 2. Upon enquiry with the commercial registry offices, it is reported that a practice is followed according to which Art. 6a of COVID-19-VO 2 is to be understood as an exception to Art. 6. It follows from this that assemblies are prohibited unless they have come about in accordance with the exception (Art. 6a). The offices see the basis for this practice in the FAQ on page two, which states the following: "If companies do not make use of the possibilities according to Art. 6a COVID-19 Ordinance 2 and hold their AGM according to the Code of Obligations, Art. 6 and 7 COVID-19 Ordinance 2, on the other hand, apply and, if necessary, a permit must be obtained from the cantonal supervisory authority".
Interpretation of terms
Art. 6a COVID-19-VO 2 was formulated as a "may" provision, which in principle grants the organiser a discretionary decision. There is no indication in the text of the ordinance or in the accompanying explanations that Art. 6a COVID-19-VO 2 is to be understood as an exception to Art. 6. The explanations issued by the Federal Office of Public Health (FOPH) list general meetings as an example of prohibited events under Art. 6 para. 1 COVID-19-VO 2. However, this is with a reference to Art. 6 para. 2 and 3. In our view, on the basis of this reference, the prohibition is not to be interpreted as a general one, but with the inclusion of the reference. It follows that general meetings which cannot be subsumed under the term "event" do not fall under the prohibition. Thus, according to the explanations to Art. 6 Para. 2 lit. e, advisory services of individual clients that can be arranged at a time and take place in offices or chambers that are not generally open to the public are explicitly excluded from the prohibition. This must also apply to general meetings which take place, for example, on the basis of powers of representation in the office of a notary public and where (as in the case of a simple capital increase, for example) only the board of directors participates. In this case, it must be possible for shareholders to authorise the board of directors to represent their shares as usual, even if this is not provided for in Art. 6a COVID-19-VO 2. Such a general meeting held by proxy does not qualify as a "presence meeting", as the explanations (rightly) exclude.
Bizarre result
As is usual with start-ups and other SME transactions, already in the past only two persons were present at a general meeting requiring notarisation (amendments to the articles of association, capital increases, relocation of the registered office, etc.): the notary and a member of the board of directors, who also represented all share votes on the basis of special powers of attorney. If in this constellation under the COVID-19 regime the instructions of the commercial registry offices are followed, as is currently the practice of the commercial registry offices, this leads to the bizarre result that at least three persons must be present at the general meeting, since neither the board of directors nor the notary qualify as independent proxies within the meaning of the Ordinance. This can certainly not be the aim of the provision. On the other hand, the fact that "larger" general meetings that qualify as "presence meetings" are prohibited is undisputed.
In our opinion, the same result (that there is no general prohibition of general meetings) is reached if Art. 6 COVID-19-VO 2 is interpreted according to the meaning and purpose of the regulation (cf. Art. 1 para. 1).
"The practice of the EHRA misses the mark considerably in everyday cases involving start-ups and SMEs."
Restriction of fundamental rights
Like the entire Emergency Ordinance, Art. 6a COVID-19-VO 2 must be interpreted restrictively by the authorities due to its far-reaching encroachment on fundamental rights. An extensive interpretation without the necessary formal legal basis (e.g. solely on the basis of some FAQ published somewhere on an authority website) certainly does not meet the formal legal requirements for an extension of an encroachment on constitutional fundamental rights and therefore cannot justify an extension of the encroachment on fundamental rights.
Furthermore, an extended interpretation of the provision would probably violate the delegation principle, because the commercial registry offices have no legislative power in this regard. It is also worth mentioning in this context that the practice pursued by the commercial registry offices, even if the legal basis for the encroachment on fundamental rights were to be affirmed, would probably fail the requirement of proportionality(Art. 36 para. 3 BV). Specifically, this concerns the necessity of the restriction (ban on all general meetings) in order to achieve the public interest pursued (public health).
Impact and appeal
The consequence of the current formalistic and exaggerated practice of the commercial registry offices is that notaries currently refuse, for fear of the penal provisions of COVID-19-VO 2, e.g. to certify general meetings with the sole presence of an authorised board member.
Everyone is well aware that these are currently difficult times for all participants in economic life. However, critical voices and, in particular, the principles of the rule of law should also, or rather even more so, be heeded in these times. This can be understood as an appeal to all authorities who currently feel entitled to make a form-free and extensive interpretation of COVID-19-VO 2. In this sense, we hope that, based on the comments made, the commercial registry offices will reconsider their practice in these specific cases and align it with the meaning and purpose of COVID-19-VO 2 as soon as possible.
If you have any questions, please contact Balthasar Wicki and Sebastian Wälti.