On 28 April 2020, a ministerial decision establishing exceptional measures in the context of the gradual resumption of activities in order to address the COVID-19 epidemic set out, among other things, the following measures as of 4 May 2020 and until further notice:
- Any gathering of more than five people on public roads and areas is prohibited.
- Whatever the reason for travelling, it must be done in compliance with general preventive and hygienic measures to limit the spread of the virus.
- People must therefore respect, at all times and in all places, a sanitary distance of 1.5 metres.
On 15 May 2020, eleven days after the end of lockdown in the Principality, the Journal de Monaco published Act No 1.488 of 11 May 2020 which takes up and clarifies certain provisions of bill n°1014 dated 21 April 2020 related to the COVID-19 health and economic crisis.
Act No 1.488 contains, inter alia, provisions on contract and company law:
- It prescribes certain contractual sanctions in the event of lack of performance and lays down specific rules for tourism or event service contracts.
- It softens the requirements for convening and holding meetings of the corporate bodies of civil and commercial companies, economic interest groups, associations and foundations ("Monegasque Entities").
- It contains specific provisions relating to the approval of financial statements of Monegasque Entities.
With regard to the consequences of the lack of performance of a contract
Act No 1.488 of 11 May 2020 aims at regulating the difficulties of contractual performance as well as the contractual deadlines applicable in the context of the sanitary and economic crisis that we are currently experiencing.
Three types of measures have been taken:
- Suspension of the enforcement of contractual sanctions
Penalty payments, penalty clauses, termination clauses and clauses providing for forfeiture, when their purpose is to sanction a failure to perform an obligation within a specified period, shall be deemed not to have commenced or taken effect, if that period has expired during the two-month (extendable) period of suspension of administrative time limits which began on 18 March 2020 (which will be supplemented by an additional month's suspension, i.e. a minimum period of suspension of 3 months from 18 March 2020).
These penalty payments will take effect and these clauses will be effective at the end of this period of suspension, if the debtor has not performed his obligation before this term.
The course of the penalty payments and the application of the penalty clauses having taken effect before 18 March 2020 are suspended during this period.
- Extension of deadlines for the fulfilment of suspensive conditions in contracts for the transfer of a business asset
In the event of a sale or transfer of a business asset concluded under the suspensive condition of obtaining, within a specified period expiring during the above-mentioned period of suspension of administrative time limits, an administrative authorisation, this period shall be extended until 18 June 2020, where it has not been possible to issue such authorisation before the expiry of this period.
- Adjustment of the financial consequences of the termination of tourist package contracts, travel services contracts and contracts concluded in the field of the events industry
The Act provides, under certain conditions, for the procedures for the termination of tourist package contracts and travel service contracts relating to transportation, accommodation, vehicle rental or other travel services as well as contracts to attend shows, sporting events, conferences or congresses.
It establishes a regime derogating from Article 1039 of the Civil Code (relating to the resolutory condition) and its provisions apply when:
- the performance of these contracts is made impossible for a reason related to the COVID-19 epidemic; and
- the termination is notified between 18 March and the end of the above-mentioned period of suspension of administrative deadlines.
In this case, a professional has a choice between two solutions:
- proposing a credit note to the contracting party when the sale or the services provided for in the contract can be postponed within a maximum period of 18 months from the termination of the contract; or
- offering to reimburse all payments made by the contracting party if necessary by setting up a payment schedule within a maximum period of 18 months for tourist package and travel service contracts and six months for contracts allowing attendance at shows, sporting events, conferences or congresses.
To be noted: Specific rules apply to tourist package or travel service contracts (as opposed to contracts pertaining to the events industry mentioned above):
- the amount of the credit note must be equal to the totality of the payments made under the contract that has been terminated; and
- the credit note must be offered by means of a durable medium within 30 days of the termination.
Within a period of 3 months following the termination of the contract, the new service must be proposed to the contractor and give rise to a new contract meeting the following conditions:
- the new service must be identical or equivalent to the initial service provided for in the contract that has been terminated;
- its price must not be higher than that of the initial service;
- it must not give rise to any increase in charges (other than those provided for in the initial contract, where applicable).
Finally, the new Act provides that, in the absence of an agreement between the parties on the new services to be provided as part of the tourist package or travel service contract, the professional must reimburse all payments made by his contractor under the contract that has been terminated.
With regard to the convening and holding of general or a board of directors meetings
The Act allows, as of 18 March and until 31 July, 2020 (unless this deadline is extended to a date set by a new ministerial decision), the holding of general meetings and/or of boards of directors remotely, even though the articles of association would not provide for such an option.
Directors, shareholders, partners or members, as the case may be, as well as other persons entitled to attend (e.g., auditors) may validly participate by means of a telephone or audiovisual conference allowing the continuous and simultaneous retransmission of the deliberations.
They may be notified by any means that ensures that they are effectively informed of the date and time of the meeting and of the conditions under which they will be able to exercise all the rights attached to their membership status or capacity to attend.
The members shall participate or vote at the meeting in accordance with the terms and conditions provided for by the instruments governing the meeting as amended and supplemented, as the case may be, by this Act (the notice periods provided for in the articles of association must, for example, be complied with).
These persons are deemed to be present for the calculation of the various quorum and majority rules.
The decisions of the corporate bodies may also be taken by simple written consultation (without a clause in the articles of association being necessary or being able to oppose it).
However, with specific regard to meetings, written consultation is only possible where legal provisions provide for it (e.g. in limited liability companies) and excluding decisions concerning the annual approval of the company's financial statements.
The Act provides that these provisions are retroactive to 18 March 2020.
In any case, we strongly recommend that a precise mechanism be provided for in the articles of association so as to allow for shareholders' and /or board of directors’ meetings to be held remotely, even outside of the period of travel restrictions related to the COVID-19 pandemic, in order to ensure their validity.
With regard to the approval of annual financial statements and applicable time limits
Many companies are due to hold a board of directors and/or a general meeting to approve their financial statements in the coming weeks.
What are the rules applicable, in principle, to the approval of financial statements in commercial companies?
By way of reminder, the directors of commercial companies (in particular, the directors of public limited companies or "gérants" of limited liability companies) must convene, within six months of the end of a financial year, the general meeting in order for it to approve the financial statements of the past financial year.
For example, for a financial year ending on 31 December 2019, the general meeting must, in principle, be convened before 30 June 2020.
Then, within three months following the holding of this meeting, a list of documents, provided for by Monegasque law, including the approval or rejection by the general meeting of the shareholders of the annual financial statements, must be submitted to the Trade and Industry Register ("Répertoire du Commerce et de l’Industrie").
For example, for a financial year ending on 31 December 2019, the filing of these documents with the Trade and Industry Register must, in principle, be made before 30 September 2020.
Criminal sanctions (fines) might be incurred in case of failure to comply with these obligations.
How have these rules been bent by the new piece of legislation?
- Administrative time limits
Act No 1.485 of 9 April 2020 on administrative time limits authorises the suspension, for a period of two months starting 18 March 2020 (but which may be extended), of all "time limits, in progress on that date, imposed on constituents, by legal or regulatory provisions, for filing an application or a statement, for formalising an act or for carrying out any other formality, registration, notification or publication". An additional period of a one month suspension will be added at the end of this period (i.e. a minimum suspension period of 3 months).
- Preparation of the annual financial statements and of the management report
Act No 1.488 of 11 May 2020 provides that the time limits, imposed by the articles of association of a legal entity on the boards of directors or "gérants" to prepare the annual financial statements and the management report for the past financial year, are extended by two months.
- Approval of the annual financial statements
Act No 1.488 of 11 May 2020 provides that the deadlines imposed by law or ordinance or by the articles of association of a legal entity to approve its annual financial statements for the past financial year or to convene the general meeting for such approval are extended by three months.
It is to be noted that the Act specifies that all of these provisions (adjusting the time limits for approving the financial statements and the documents attached to them, and to convene the meeting) are applicable to legal entities whose fiscal year ends between 30 September 2019 and the expiry of a period of one month from the date on which the measures, taken by the Minister of State to temporarily restrict travels to combat the spread of the COVID-19 virus, shall end (to date, the latest measures set by the aforementioned ministerial decision of 28 April 2020 remain applicable until further notice).
Consequently, this means that for a financial year ending on 31 December 2019, the six-month period relating to the approval of the financial statements, extended by three months, allows that the company's financial statements be approved by 30 September 2020.
However, it is likely that the lighter procedures for convening and holding the meetings described above will no longer be in force by then (for now, they are applicable until 31 July 2020). Amending articles of association in this regard is, in our view, the best way to mitigate risks for businesses, going forward.