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Impact of the COVID-19 Pandemic on the Upcoming AGM Season in Italy

In Short

The Situation: The spread of the novel coronavirus (COVID-19) has led to the Italian government enacting certain extraordinary measures aimed at curbing the pandemic and which pose several challenges for Italian listed issuers.

The Result: On March 8 and 9, 2020, the Italian government issued two Presidential Decrees imposing certain temporary movement and assembly restrictions applicable until April 3 (unless extended), which present novel organizational challenges for most Italian listed issuers with the 2020 annual general meeting ("AGM") season quickly approaching.

Looking Ahead: The Italian government issued Law-Decree no. 18 of March 17, 2020, which, among other things, facilitates holding shareholders' meetings remotely or by proxy during the national state of emergency relating to the COVID-19 pandemic, and extends the term for Italian companies to approve their annual financial statements.

Among other measures aimed at curbing the spread of the COVID-19 virus in Italy, on March 8 and 9, 2020, the Italian government issued two Presidential Decrees imposing certain temporary restrictions that will be in effect everywhere in Italy until April 3 (unless extended). Among these temporary restrictions, the Italian government has imposed:

  1. The outright prohibition of "any form of gathering of people at public places or places open to the public"; 
  2. The suspension of "all organized assemblies and events at public or private places"; and 
  3. The requirement "to utilize, in all possible instances, modalities permitting remote connections to carry out meetings […] in any case ensuring compliance with the minimum safety distance between people of at least one meter [i.e., about three feet] […] and avoiding gatherings of people."

Under general principles of Italian law, most companies having fiscal years ending on December 31 are required to approve their annual financial statements by April 30 of the following year, unless certain circumstances apply that justify postponing the approval until no later than June 30. Therefore, the 2020 AGM season is quickly approaching for most Italian listed issuers, which will be required to deal with, among other things, several organizational issues as a result of the COVID-19 related restrictions.

Generally speaking, Italian law permits listed issuers to allow their shareholders to attend shareholders' meetings through means of telecommunication and/or to vote by mail or electronically, but only provided that such flexibility is contemplated in their bylaws.

To date, only a minority of Italian listed issuers provide for such flexibility in their bylaws, and an even smaller minority has so far taken advantage of this option. The COVID-19 pandemic is now presenting new challenges to the longstanding market practice to generally have in-person attendance and voting at AGMs.

While the temporary restrictive measures enacted by the Italian government are in effect, traditional AGMs relying on in-person attendance of a potentially large number of individuals will not be permitted as they would fall within the prohibition of public gatherings. This poses an issue for all Italian listed issuers, but particularly for the majority of them that do not have the flexibility in their bylaws to allow shareholders' meetings to be held remotely. 

In an effort to provide comprehensive relief in connection with the COVID-19 pandemic, the Italian government has issued Law-Decree no. 18 of March 17, 2020, which, among other things, provides organizational tools to listed issuers allowing them to hold their AGMs in compliance with the emergency rules that are currently in effect, including the following:

  • The deadline to approve annual financial statements is extended to 180 days after the end of the fiscal year;
  • In the notice calling their shareholders' meetings, Italian companies can (1) allow shareholders to attend by means of telecommunication and/or cast their votes electronically or by mail, even though this is not permitted by their bylaws, or (2) provide that shareholders' meetings be held exclusively by means of telecommunication, provided that these permit the identification of attendees, their participation and the exercise of voting rights;
  • Italian listed issuers may designate a centralized agent to whom shareholders may grant their proxies to participate and vote in the shareholders' meeting along with voting instructions (which is already common practice for many Italian listed issuers), regardless of any provision to the contrary in their bylaws;
  • In the notice calling their shareholders' meetings, Italian listed issuers may require that participation and voting take place exclusively through the aforesaid centralized agent.

Thanks to these extraordinary rules, the Boards of Italian listed issuers can decide to hold their AGMs during the COVID-19 state of emergency (a) entirely remotely, provided that they have access to appropriate systems enabling remote identification, participation (including the ability to address questions) and voting; (b) physically, requiring that shareholders grant proxies to an issuer-designated centralized agent; or (c) by resorting to a combination of such options.

It is worth noting that in its proxy voting guidelines for Continental Europe (that were issued before the COVID-19 outbreak), proxy advisory firm ISS recommended voting in favor of hybrid shareholders' meetings (i.e., in-person meetings with the ability for shareholders to participate remotely) but against virtual-only shareholders' meetings, due to concerns that these may reduce shareholder access to Board members.

The extraordinary provisions enacted by the Italian government will apply to all shareholders' meetings called on or before July 31 or such later date until which the state of emergency remains in effect.

Three Key Takeaways

  1. On March 8 and 9, 2020, the Italian government issued two Presidential Decrees imposing certain temporary movement and assembly restrictions applicable until April 3 (unless extended) to curb the spread of COVID-19 virus that pose organizational challenges for most Italian listed issuers as the 2020 AGM season is imminent.
  2. On March 17, 2020, the Italian government has issued an emergency law-decree allowing, while the COVID-19 related state of emergency remains in effect, all Italian listed issuers to hold their AGMs entirely or partly remotely or by designating a centralized proxy, even though this is not permitted by their bylaws.
  3. The new rules also extended the term for Italian companies to approve their annual financial statements to 180 days after the fiscal year close.
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