Corona Crisis related Opinion] Analysis of Trends in Annual Shareholders’ Meeting under the Corona Crisis and Issues regarding Determination on Dividends in Japanese Companies

Abstract

Looking at the trends of annual shareholders meetings held in Japan in 2020, it can be said that many companies have been slow to close their accounts due to the ongoing pandemic and the associated difficulties in responding to shareholders meetings. According to Article 124 of the Japanese Companies Act (JCA), if the record date for exercising shareholders’ rights is specified in the articles of incorporation (AOI), such rights must be exercised within three months from said date. Many Japanese companies set the record date at the end of March and hold an annual shareholders meeting by the end of June. However, if the date of the annual shareholders meeting is delayed, it is, in principle, necessary to shift the record date as well. Under the current JCA it is also possible to hold, as originally scheduled, a shareholders meeting to propose a resolution regarding dividends and then to report financial statements at a later date. However, in situations where audited financial statements do not exist, there is some opposition to the resolution on dividends and to the appointment and dismissal of directors at shareholders' meetings because the information that is the premise for such a resolution is insufficient. Therefore, companies that decide about dividends at shareholders’ meetings are likely to face a difficult decision. Actually many listed companies in Japan postponed the annual shareholders' meeting in 2020. While in Japan, it is generally believed that the dividends are to be determined at shareholders meetings, we should remember that many Japanese listed companies have been able to determine dividends by a resolution of the BOD based on the provisions of the AOI even before the recent coronavirus crisis. In the United States, it is common for the BOD to determine dividends. In the United Kingdom, dividend determination can be carried out by either the shareholders or the BOD, depending on the provisions in the AOI. Even in Germany, whose laws provide the authority to determine dividends to shareholders’ meetings, the BOD (including the supervisory board) assume authority to reserve up to half of the annual surplus as a voluntary reserve fund. As a matter of fact, currently, about 60% of Japanese listed companies can still determine dividends by a resolution of the BOD based on the provisions of AOI, and the number of such companies continues to grow. In this context, future issues regarding companies’ dividend distribution should be discussed.