Deadlines for the formulation, verification and approval of the annual accounts in the COVID-19 alarm state

On April 2, the Institute of Accounting and Auditing (ICAC) responded to the audit consultation on the effect of the health crisis and Royal Decree Law 8/2020 of March 17, on urgent extraordinary measures to deal with the economic and social impact of COVID-19 on the process of formulating, verifying and approving the annual accounts (RDL), and its modification by the final provision 1, section thirteen, of Royal Decree Law 11/2020 of March 31.

As we have already informed you, by means of Royal Decree 463/2020, a state of alarm was declared on 14 March 2020 in order to deal with the health emergency caused by the coronavirus COVID-19.

In view of the state of alarm decreed by the Government, doubts may arise between the members of the administrative bodies and the partners of the commercial companies when deciding how and when to hold the corresponding sessions and meetings for the formulation and approval of the Annual Accounts, as well as the application of the result of the financial year.

To resolve these issues, it is necessary to attend to the provisions approved by the Government in Royal Decree Law 8/2020 of 17 March on urgent extraordinary measures to deal with the economic and social impact of COVID-19, the wording of which was slightly modified by the subsequent Royal Decree Law 11/2020, together with the clarifications published by the Institute of Accounting and Auditing (ICAC) in view of the large number of queries received regarding the application of the RDL.

With regard to the holding of the sessions of the administrative body and the general meetings, the Royal Decree Law provides that these can be held telematically while the state of alarm lasts and despite the fact that it is not established in the company’s articles of association. To this end, it is necessary that all participants in the event have the resources to be able to participate by means of video or multiple telephone conference, that the secretary of the body recognizes the identity of the event and that this is recorded in the corresponding minutes, which must be sent by e-mail to each of the participants.

It also includes the possibility of the adoption of resolutions by the administrative body through a written vote without the need to hold a session while the state of alarm lasts and despite not being included in the statutes. This procedure will be followed whenever the president so decides or at the request of at least two members of the administrative body.

With regard to compliance with the deadlines, a suspension of the period of 3 months from the closing date of the financial year provided for in the company legislation for the preparation of the annual accounts and other required documentation is foreseen until the end of the state of alert, at which time a new period of 3 months will commence for their preparation. Consequently, for cases in which the accounts have been prepared previously or during the alarm state, the period for their verification by means of the issue of an audit report, whether voluntary or obligatory, is extended by 2 months from the end of the alarm state.

The ordinary general meeting for the approval of the accounts must be held no later than three months after the end of the period for their preparation. In cases where the notice of meeting was published prior to the declaration of the state of alarm, but a later date was set for the meeting, the board of directors is empowered, at least 48 hours before the meeting, to publish a notice on the company’s website or, failing that, in the BOE, to change the place and date agreed or to revoke the agreement to call the meeting, in which case the board must again call the meeting within one month of the end of the state of alarm.

On the other hand, the modification of the proposed application of the year’s result is allowed for cases in which, the accounts having been prepared, the ordinary general meeting has not yet been called for approval and the administrative body justifies that the substitution of the application of the result is due to the crisis of the COVID-19. For cases in which the meeting has already been called, it is permitted to withdraw approval of the application of the result as an item on the agenda, under the condition that it must be dealt with at a subsequent meeting held within the legally established deadlines.

In view of the various extensions provided for in the Royal Decree-Law and the clarifications provided by ICAC, it can be inferred that the companies may be in any of the following situations:

• Entities whose deadline for the formulation of accounts had expired on the date of entry into force of the RDL, i.e. 14 March 2020.
  For these entities, the provisions of the RDL regarding the formulation and approval of accounts do not apply, but the 2-month extension for the issuance of the audit report would apply. If this extension is used, the deadline for approval of the accounts by the general meeting would be affected, as the audit report is required for approval of the accounts.
• Entities whose governing body had already prepared the annual accounts by 14 March, despite the fact that the deadline for doing so had not expired.
  In these cases, the deadline for the formulation of the accounts ends 3 months after the end of the alarm statement and, consequently, the extension of the issuance of the report and the approval of the accounts is also applicable.
• Entities whose administrative body formulates the accounts during the state of alert despite being able to benefit from the extension
  . It should be remembered that it is not obligatory to make use of the extended deadlines, so that the formulation of the annual accounts during the state of alert would be valid, a situation to which the extensions for the audit and approval of the accounts would still be applicable.
• Entities that formulate their accounts within the period extended by the RDL, once the alarm state has ended.
  These entities will have three months from the end of the alarm state to formulate their accounts and the general meeting must meet for approval within three months of the end of the formulation period. In this case the extension for the audit does not apply as the accounts were formulated after the alarm state.

By way of conclusion, it should be noted that the relaxation measures included in the Royal Decree-Law concerning the corporate sphere provide for a voluntary extension of 3 months from the end of the state of alert for the formulation of the annual accounts, one of 2 months for the issue of the audit reports on the accounts formulated before or during the state of alert and another of 3 months for their approval from the end of the formulation period. They also allow, depending on the case, the modification or revocation of the notice of the ordinary general meeting and the substitution of the proposal for the application of results, as well as providing the administrative body and the shareholders’ meeting with the possibility of holding their meetings and adopting resolutions telematically despite not being provided for in the articles of association and while the present circumstances continue.

The Commercial Department of AddVANTE is at your disposal to provide further information or to resolve any doubts that may arise in relation to this article.