C reel Insights on COVID-19 for Mexico: Issuers - Shareholder Meetings

Creel, Garcia-Cuellar, Aiza y Enríquez, S.C.®

On 30 March 2020, the Mexican General Health Council (Consejo de Salubridad General) declared the epidemic of the disease generated by the COVID-19 virus a “sanitary emergency for reasons of force majeure”, and established as part of the measures to mitigate the spread and transmission of the virus the immediate suspension of non-essential activities in the public, private and social sectors from March 30 to April 30, 2020.

In a similar manner, the Government of Mexico City and the governments of states of the Mexican Republic have issued similar decrees ordering the suspension of certain activities considered non-essential during the sanitary emergency.

Based on the above, it is foreseeable that as the sanitary emergency continues to progress, Mexico’s federal, state, and municipal authorities will continue to issue decrees, orders, and provisions restricting and limiting the activities that companies, businesses, and individuals may carry out, as well as the concentration of a maximum number of individuals in a single place, while the sanitary emergency is ongoing. One of the relevant activities that could be impacted by these restrictions is the holding of in person shareholder meetings by public companies and in person holder meetings of issuing trusts, as required by law. This is particularly relevant for Mexican companies and some real estate investment trusts (FIBRAs) which are required to hold their annual meetings during the month of April.

Notwithstanding that current technology allows for business meetings to be held remotely through digital platforms and the internet and that Mexican commercial law recognized electronic means as tools for commercial acts and their formalization, there is no express and clear recognition in Mexican law regarding the validity of shareholders meetings held through these means. However, given the difficulty or impossibility of holding in person shareholder meetings in the current environment, it has become necessary to implement measures to facilitate legally supporting the validity of those shareholder meetings that are held remotely during the sanitary emergency. We have the following considerations with respect to such measures:

  • Force Majeure. Article 179 of the Mexican General Law of Business Corporations, which is suppletory to the General Law of Negotiable Instruments and Credit Transactions and to the Securities Market Law, and which is therefore applicable to both Mexican companies and issuing trusts, specifically provides that shareholder meetings are required to be held at the corporate domicile of the issuer, except in case of acts of God or force majeure. The declaration of a health emergency due to force majeure that was issued by the General Health Council and any other decrees, orders or legal provisions that are issued by the Federal Government, the government of Mexico City and the governments of the states of Mexico that limit or restrict the ability of issuers to actually hold shareholder meetings in the corporate domicile of the issuer serve as legal support for the exception contained in Article 179 of the Mexican General Law of Business Corporations. As stated above, the aforementioned Article allows that shareholder meetings are not necessarily held in a physical location within the corporate domicile of the issuer (but that, for example, they are held through platforms that are accessible through remote means) in the event of force majeure. It is therefore advisable to include in the corresponding call a brief mention of the force majeure event which caused the meeting to be held remotely.
  • Corporate Domicile and Remote Access. Another alternative to strengthen the legality of a shareholder meeting, to the extent permissible and possible in the current situation, is to designate a physical place in the corporate domicile of the issuer and grant the right to shareholders to participate in such shareholder meeting remotely. Of note is that, in most cases, the corporate domicile of a Mexican company is expressed as a state or municipality in its by-laws, and not as a specific place where its premises are located. Therefore, if this alternative were to be pursued, the physical place for the shareholder meeting to he held should be within the state or municipality designated as the corporate domicile of the issuer in its by-laws. In the event that a public company has a controlling shareholder, it is advisable that such shareholding appears physically at the meeting (including through an attorney-in-fact), if possible. Similarly, if a meeting is called in a physical location, it would be advisable to clarify that such meeting must comply at all times with the sanitary measures implemented by the Mexican Ministry of Health.
  • Powers of Attorney to Single Individual. In order to limit the congregation of multiple individuals in a single space, a mechanism could be implemented whereby all shareholders grant a power of attorney to a single attorney-in-fact, which would attend the meeting on behalf of them (exercising each vote individually as instructed by the respective shareholder).
  • Calls. The call for the shareholder meeting that will be held remotely, or that will be held physically but contain the right of shareholders to access remotely, must contain an express mention thereof (it could even mention the digital platform through which it will be held, although the access information would be granted at a later stage, as described below).
  • Granting Access. In order to control the access to the telephone or digital platform on which the meeting is to be held, the access information must be provided only to those shareholders that have processed their passes to the meeting by presenting the deposit certificate issued by Indeval and the list of positions issued by their custodian which evidences their status as a shareholder on the corresponding record date.
  • Real-time Meetings. The respective meeting shall be held through a telephone or video conference that allows for the interaction of the participants in real time. To the extent possible, it is advisable that the meetings be held via video conference to allow the secretary of the meeting to visually confirm the presence of authorized participants, and if possible to record such meetings. The above may be complemented by the presence of a public attestor who attests to the presence of shareholders and the integration of the required quorums.
  • Obtaining Written Votes. Whenever possible, it is suggested that shareholders who have attended the meeting submit their votes in writing to the secretary on or before the meeting Such vote could be sent to the secretary of the meeting through electronic means.
  • Called Meetings. For meetings already called, a supplement to the call may be published indicating that the respective meeting will be held remotely. It is suggested that the period of time required to convene be restarted with the publication of the supplement. However, if this is no longer possible, a supervening force majeure argument could be put forward.
  • By-laws, Incorporation Documents and Trusts. Issuers must ensure that their by-laws, trust agreement or other incorporation document do not restrict holding shareholder meetings remotely, even in the event of force majeure.
  • Shareholders and Holders. Issuers must be alert with respect to the composition of investors in their respective securities and evaluate if there could be a material opposition to remote shareholder meetings.
  • Decisions taken by the Board of Directors or Technical Committee. By virtue of the complexities of celebrating shareholder meetings in the current situation, it is advisable that any decisions that may be taken by the board of directors of a public company or the technical committee of an issuer trust are discussed and decided in such forums, particularly since their gathering and voting requirements are more flexible than those applicable to shareholder meetings generally.

The foregoing considerations and the applicability of the related measures may vary depending on the circumstances of each issuer and therefore, before implementing any of the measures described above, an in-depth legal analysis of the situation of each issuer must be carried out. Please feel free to reach out to us with any question related to the contents of this note or the implications that any of the considerations described herein may have with respect to your business.

*This article or news brief does not constitute legal advice and is protected by copyright.