Estonian corporate update: participation and voting at virtual meetings widely available

The crisis has forced lawmakers to act promptly and introduce a wide array of new electronic options for companies to organise their business. While these new options often reduce the red tape burden for management board members, their most important duty – to act in the best interest of their companies – remains as important as ever.

Virtual meetings are widely available

Under the same law, adoption of resolutions by governing bodies has become much more flexible. All members of governing bodies of legal persons are now allowed to participate at meetings electronically. The requirements as to shareholder votes sent before the meeting are also relaxed – votes are allowed in a form that can be reproduced in writing (eg e-mail).

Companies may now convene meetings fully or partially by electronic means. So far, all members of the governing bodies must have had a chance to physically participate in a meeting.

Electronic measures used for meetings must be secure and enable two-way real time or other similar connection, so that participants can observe the meeting, as well as speak and vote. The management board should also identify the participants and verify representation rights. This means that management boards will need to set rules for holding virtual meetings and ensure that all members have an equal opportunity to participate and vote. Finding a suitable electronic platform for convening a meeting is a challenge.

In addition, all companies are now able to adopt resolutions without calling a meeting. For example a public limited company may adopt a resolution if the management board sends the shareholders a draft resolution in a form that can be reproduced in writing (eg e-mail). The shareholder must send its position by eg e-mail to the management board by the set deadline. A shareholder who fails to do so is deemed to have voted against the resolution. After the voting deadline, the management must submit a voting record of the results.

The law enters into force in June and the new amendments will also stay in force after the crisis.

Share transactions are relieved from bureaucracy

On 10 March 2020 the Estonian parliament adopted amendments to the Commercial Code on abolition of the formal requirement for transactions constituting an obligation (in Estonian: kohustustehing) to transfer and pledge shares. The amendments were to have entered into force on 1 August 2020, but due to the current state of emergency immediate implementation of the amendments was proposed.

As a result of this amendment the notarisation requirement for transactions constituting an obligation is abolished. This means that, for example, shareholders’ agreements can be entered into in a format that is most convenient to the parties. This does not concern share purchase agreements, ie factual transfer of ownership, which still have to be notarised. Nevertheless, concluding a format-free obligation transaction will motivate potential investors and give them confidence to acquire shares in local companies, whereas disposition transactions can be completed once notarisation can be conducted.

The amendments come in especially handy for companies that are planning to raise capital or attract funding from foreign investors during the current uncertain times.

As from 1 August 2020, the companies whose fully paid share capital is at least EUR 10,000 will be released from the obligation to notarise the disposition transactions, if all shareholders agree to this and it is reflected in the articles of association of the company.

Extension of obligation to promptly file for bankruptcy while other duties of management boards remain in place

The Estonian parliament has passed an amendment to the law, according to which a member of the management board need not file for bankruptcy from 12 March 2020 until 2 months after the end of the state of emergency on 17 May.

So far, the law has required a member of the board to promptly file for bankruptcy if their company is permanently insolvent, but no later than in 20 days.

The amendment  does not change the general standard of conduct expected of management board members. As before, they must perform their duties with due diligence, always acting in the best interests of the company. In a situation involving payment difficulties or temporary insolvency, all creditors must be treated equally. Support measures must be used to secure the sustainability of the company. Otherwise, it could be concluded that a management board member has not performed their duties with due diligence and they will be personally liable for damage caused.

Companies that do not have the prospect of resuming economic activities after the end of the state of emergency should still file for bankruptcy without delay. The period during which transactions can be recovered later in bankruptcy proceedings is also extended by the same timeframe to protect the interests of creditors. The right of creditors to file for bankruptcy remains unchanged.

Salary cuts for executives an option, damages can be claimed

In case of a difficult economic situation, it is possible to reduce the remuneration of a member of the management board. If this happens, the manager may exercise the right to extraordinary cancellation of a contract upon one month’s advance notice of cancellation. Upon declaration of bankruptcy of the company and termination of the contract of a member of the management board, he/she can, in the course of the bankruptcy proceedings, claim compensation of damage caused by termination of their contract for up to one year from termination.