ProMach is a leading international platform in the field of packaging and processing technologies.

DFT is an established provider of innovative solutions in the field of sterilization, pasteurization and other thermal processes for the food and beverage industry. With the acquisition of DFT, ProMach is continuing its growth strategy in Europe.

The international cooperation within the ADVANT alliance played a central role in this transaction: our Italian alliance partner ADVANT Nctm has been advising ProMach in Italy for many years.

ADVANT Beiten entered into the mandate in close coordination with the US law firm Thompson Hine, which regularly advises ProMach on legal matters in the United States.

Advisors to ProMach:
ADVANT Beiten: Prof Dr Hans-Josef Vogel (Dusseldorf), Roy Naor (Frankfurt, both Corporate/M&A, lead partners), Dr Andreas Imping, Anna Kubitz (both Labour Law), Mathias Zimmer-Goertz, Christian Döpke (both IP/IT), Sarah Peters, Simon Litterst (both Corporate/M&A, all Dusseldorf), Christopher Harten (Dispute Resolution, Hamburg), Marcus Mische, Markus Linnartz (both Tax), Thomas Herten (Real Estate, all Dusseldorf), Katrin Lüdtke (Public Sector, Munich).

Public Relations
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

The Büter Group comprises German and Dutch (production) companies and is one of Europe's leading companies in the hydraulics industry. Founded in 1965, the family-owned company is headquartered in Emmen (NL) and has production facilities in Haren and Meppen (DE). It employs around 550 people. Over the past six decades, the family-owned company has developed numerous patents and utility models in cylinder and lifting technology and is now one of the technological market leaders in the industry.

NPM Capital, part of the family-owned SHV Group, is an investment partner based in the Benelux countries that focuses on long-term partnerships with family-owned and entrepreneurially managed companies. As part of the transaction, NPM Capital is acquiring the entire group of companies, including the two German subsidiaries Büter Hebetechnik GmbH and Büter Maschinenfabrik GmbH.

By joining forces with NPM Capital, Büter Group is well positioned to accelerate its growth strategy and continue to invest in technological innovation and international expansion. Under the new ownership, Büter Group will continue to operate independently.

Regarding the sale of the Dutch entities, the international law firm Houthoff acted on ADVANT Beiten's recommendation. Taurus Corporate was involved as an M&A advisor. The acquisition is still subject to the usual regulatory and antitrust approvals. The parties have agreed not to disclose the transaction volume. 

Advisors to the shareholders of Büter Group:
ADVANT Beiten: Dr Guido Krüger (Corporate Succession/Taxes), Prof Dr Hans-Josef Vogel (M&A, both lead partners), Julian Krause (Corporate Succession/M&A), Dr Magdalena Rindermann-Haugwitz (Corporate/M&A), Volker Küpper (Taxes), Thomas Herten (Real Estate), Dr Andreas Imping, Anna Kubitz (both Labour Law, all Dusseldorf), Christoph Heinrich (Antitrust Law, Munich) and Maximilian Steffen (Taxes, Hamburg).

PR
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Dr Dominik Moser specialises in national and international corporate transactions, particularly in the areas of M&A, private equity, joint ventures and venture capital, with a particular focus on the IT, technology, biotechnology and pharmaceutical industries. Beyond that, he has extensive experience in the area of search fund transactions. Dominik Moser also regularly advises on general company law (in particular limited liability company and stock corporation law), corporate governance, compliance, and national and international transformation processes. In addition to his legal training in Germany, Spain, England (Oxford) and Singapore, he also holds a degree in business administration.

"The Corporate/M&A practice, with a particular focus on private equity, is a key growth area for our firm. In Dominik Moser, we are not only gaining an outstanding lawyer, but also a strong entrepreneurial personality. His in-depth industry knowledge and strategic vision are an excellent addition to our partnership," says Dr Guido Krüger, Managing Partner of ADVANT Beiten.

As recently as early September, ADVANT Beiten expanded its visibility on the European market and its advisory services for cross-border transactions by opening a new office in London with Sebastian Diehl. The addition of Dominik Moser is a further step in the consistent implementation of ADVANT Beiten's growth strategy, namely to invest specifically in future-oriented areas of consulting and to strengthen the partnership with proven market personalities.

Dominik Moser on his transfer: "I am looking forward to further expanding the M&A practice, with a particular focus on private equity and search fund transactions, and to working with my colleagues to deepen ADVANT Beiten's international advisory services. In my view, the excellent professional environment and broad expertise offer an ideal starting point for these goals."

PR

Frauke Reuther
Manager Communication
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Statement of accounts 2024 of the BAFA

The BAFA has published its current Statement of Accounts 2024 on the LkSG (as of: October 2025) (BAFA - Overview - Statement of Accounts). In its report on the audits completed in 2024, it states "that most companies take their due diligence obligations under the LkSG extremely seriously and can demonstrate good to very good implementation." The "willingness to cooperate shown by the companies audited in each case" should be particularly emphasised. In 2024, the BAFA therefore initiated administrative fine proceedings only in "a few exceptional cases". However, the BAFA "did not evaluate or review in detail" the companies' reports on the fulfilment of their due diligence obligations pursuant to section 10 (2) LkSG in 2024, insofar as such reports were submitted at all. Background: In spring 2024, the BAFA had announced to review the availability of these annual reports for the first time as of 1 January 2026.

Immediate facilitations for addressees of the LkSG

In addition, a reference to "simplifications for companies in the Supply Chain Act" can be found on the website of the BAFA concerning the LkSG (BAFA - Overview) since 1 October 2025. The corresponding draft bill to amend the LkSG (more on this below) has not yet been passed through parliament. Nevertheless, the BAFA already announced that the audit of LkSG reports (already postponed until the beginning of 2026) will be discontinued with immediate effect. Furthermore, due to the lapse of the public interest in prosecution, all administrative offence proceedings relating to fines, which are to be deleted under the current draft bill, are to be discontinued. In view of the small number of administrative fine proceedings initiated to date (see above), this will not affect many companies but will certainly provide relief.

Reduction of the number of addressees of the Act only with future implementation of the CSDDD

Otherwise, the LkSG remains unchanged for the time being. This applies both to the group of addressees of the LkSG (cf. section 1 LkSG, in brief, companies based in Germany with more than 1,000 employees in Germany) and to the due diligence obligations of the relevant addressees provided for in the LkSG. Amendments in this regard are only expected in connection with the transposition of the European Corporate Sustainability Due Diligence Directive (CSDDD for short) into German law. This will presumably only take place once the revision of the CSDDD, among other things, which was initiated by the omnibus package on sustainability (see our blog post on this Omnibus Package on Sustainability: The Planned Amendments | ADVANT Beiten) has been completed. It is currently becoming apparent in the trialogue negotiations that the provisions of the CSDDD should in future only apply to companies with more than 5,000 employees and a worldwide turnover of more than EUR 1.5 billion. With the announced "seamless replacement" of the LkSG "by a law on international corporate responsibility that transposes the CSDDD into national law", the group of addressees of the Act in Germany is therefore likely to be considerably reduced in future. It is not yet clear exactly when this will happen. After setting a new deadline, the CSDDD is to be transposed into national law as of 26 July 2027 and has to be implemented as of 26 July 2028. Of course, even after such a transposition law came into force, many companies (especially European ones) would still be indirectly affected in their role as suppliers to companies subject to the CSDDD.

Continued compliance obligations for the time being and open question concerning benefits of the companies through implementing the LkSG

The LkSG thus remains applicable law for all previous addressees of the Act for the time being. It would therefore not be a good idea to disregard the LkSG now, even if the majority of the fines are deleted in the near future with the adoption of the LkSG Amendment Act as planned. On the one hand, inadequate fulfilment of the continuing LkSG due diligence obligations (such as refraining from a risk analysis) may trigger one of the remaining fines. On the other hand, and above all, the board of directors or management of the addressees of the LkSG are still (also) obliged to observe the provisions of the LkSG due to their general compliance obligation, irrespective of the deletion of the fines (see our blog post from December 2024 on the question: Why we (in particular the management) need to continue to take the German LkSG seriously and how it (also) relates to the pending implementation of the CSRD | ADVANT Beiten). 

Speaking of CSRD: According to the current status of the trialogue negotiations, companies with 1,000 employees and an annual turnover of EUR 450 million are likely to be obliged to submit sustainability reports in the future. In these reports, the respect for human rights in the supply chain, among other things, must also be reported. Although the planned simplification of the CSRD (Corporate Sustainability Reporting Directive) and of the ESRS (European Sustainability Reporting Standards) also promises simplifications in this respect, the basic reporting obligation remains unchanged in this respect. The topic of human rights in the supply chain will therefore not disappear completely from the "mandatory agenda" of most LkSG addressees in the future.

Apart from this, the question arises as to whether the implementation of the LkSG - and thus in particular the establishment of a human rights risk management system - has brought any benefits for the addressees in terms of content, apart from the high administrative costs, which are also due to the many uncertainties of the Act, and if so, what benefits? It would then be an obvious question for the companies that are likely to fall outside the scope of application in the future with the implementation of the CSDDD as to which of these benefits the company can and wants to maintain with reasonable effort - also with a view to the possibly continuing obligation to sustainability reporting in accordance with the CSRD.

More details on the Statement of Accounts 2024 of the BAFA

In 2024, the BAFA carried out a total of 851 ex officio audits, thereof 638 risk-based controls and 39 occasion-related audits. In addition, there were 314 processes from complaints and suggestions, of which 48 had an LkSG reference.

The focus was in particular on:

• determining the responsibility for risk management,
• establishing effective complaints procedures and
• first audits on the regular risk analysis and on the policy statement.

This revealed that many companies - particularly in the new size category of 1,000 employees or more - still faced challenges in the organisational separation of implementation and monitoring of human rights risk management and in the barrier-free design of complaints channels.

The occasion-related controls of the BAFA concerned, among other things:

• the transport sector (reasonable wage),
• the textile industry in Pakistan (child labour, occupational safety, freedom of association, unequal treatment, reasonable wage),
• the palm oil production in Central America (land grab, environmental offences) and
• the soybean cultivation in Brazil (land grab, environmental offences).

The BAFA names the following other countries affected: China, Germany, Morocco, Serbia, South Africa, Turkey and the USA.

Despite the increased audit activity of the BAFA, the number of sanctions in 2024 remained low:

• 18 administrative fine proceedings were initiated,
• 9 warnings were issued,
• no fines were imposed.

Backgrounds for the facilitations announced by the BAFA

It was already clear from the coalition agreement between the CDU, CSU and SPD that the "abolition" of the national LkSG announced there under the heading "Bureaucracy reduction" was to take place in two steps: (1) Immediate abolition of the reporting obligation under the LkSG and no sanctioning of the applicable due diligence obligations (with the exception of massive human rights violations), (2) Replacement of the LkSG in the course of implementing the European Corporate Sustainability Due Diligence Directive (CSDDD) with a "law on international corporate responsibility" (cf. Coalition Agreement-2025-1.pdf, there lines 1909 et seq.).

To implement the first step, on 3 September 2025, the German Federal Government presented the "Draft Act to Amend the German Supply Chain Due Diligence Obligations Act - Relieving the burden on companies through application and enforcement-friendly implementation" (see Act Amending the German Supply Chain Due Diligence Obligations Act - BMAS). According to this, the annual reporting obligation pursuant to section 10 (2) LkSG - which had previously been effectively postponed until the end of 2025 by the BAFA's announcement - will no longer apply with retroactive effect from 1 January 2023. In future, only those breaches of duty that the legislator has deemed to be particularly serious under the LkSG will be subject to a fine, i.e.:

• violations of the obligation to take preventive measures (section 6 (1) LkSG),
• violations of the obligation to take remedial measures (section 7 (1) sentence 1) and to develop concepts (section 7 (2) sentence 1 and section 9 (1) LkSG),
• violations of the obligation to establish a complaints procedure (section 8 (1) sentence 1 and section 9 (1) LkSG).

Even in these cases, the imposition of fines should be the last resort (cf. RefE, justification for Art. 1 number 6). The provision on increased fines for legal entities in section 24 (3) LkSG is apparently to remain in place - apart from consequential changes to the offences for which fines are imposed.

According to a press release of 26 September 2025, the Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie, BMWE) in coordination with the Federal Ministry of Labour and Social Affairs (Bundesministerium für Arbeit und Soziales, BMAS) has instructed the Federal Office of Economics and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle, BAFA) to "exercise restraint with regard to the Supply Chain Act" (BMWE - Immediate relief for companies - BMWE instructs BAFA to exercise restraint with regard to the Supply Chain Act). This instruction might be the reason for the current information on the website of the BAFA. sein.

Dr. Daniel Walden
Jole Inserra
Dr. André Depping

Yancoal International Holding Co., Ltd. acquires 51 percent of the shares in CFH GmbH within the scope of the transaction. The parties have agreed not to disclose the transaction volume.

The globally operating CFH Group of Companies bundles under its umbrella a number of subsidiaries and holding companies, all specialising in engineering services enabling innovative solutions related to the topic of air at the workplace. 

Yancoal International Holding Co., Ltd. brings comprehensive experience in global resource allocation and industrial cooperation. The stake of Yancoal International Holding Co., Ltd. represents an important milestone in the international growth strategy of CFH Group of Companies. The partnership opens up new opportunities for technological innovation, global market presence and sustainable development. New standards in developing intelligent ventilation and environmental technologies are defined together - in particular for applications in mining, tunnelling and industry. 

The international team of ADVANT Beiten headed by Dr Martin Rappert (Dusseldorf) and Susanne Rademacher (Beijing) regularly advises companies on investments and business activities in Europe and the People's Republic of China.

Advisors to CFH GmbH: 
ADVANT Beiten: Dr Martin Rappert, Nico Frielinghaus, Prof Dr Hans-Josef Vogel, Dr Winfried Richardt, Sarah Heinrichs, Simon Litterst (all Dusseldorf), Susanne Rademacher (Beijing, all Corporate/M&A), Christian Döpke, Mathias Zimmer-Goertz (Data Protection/IP, Dusseldorf), Christoph Heinrich (Antitrust, Munich), Dr Christian von Wistinghausen (Foreign Trade Law, Berlin), Thomas Herten (Real Estate, Dusseldorf), Vasily Ermolin (Sanctions, Moscow).

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Lysine is an essential amino acid that is used in the pharmaceutical, food and animal feed industries. Lysine is a key ingredient for health and food security in the EU, as it is used in many medicines (painkillers, parenteral nutrition, perfusion) and is contained in all modern animal feed for livestock farming. The essential amino acids produced in the EU through fermentation reduce the European Union's dependence on imports and reliance on imported soya meal.

Protecting the EU lysine industry from dumped and injurious imports of lysine from China is imperative to prevent the EU from becoming completely dependent on imports of this and other essential amino acids by fermentation. Lysine of Chinese origin is sold at high dumping margins, causing serious injury to the EU industry.

Eurolysine also contributes to the achievement of environmental targets, as the carbon footprint of lysine produced in the EU is at least five times lower than that of lysine produced in China.

Several EU Member States have requested that lysine be categorised as a critical chemical under the EU Critical Chemicals Act.

The product concerned is imports of lysine and its esters, salts thereof and feed additives, consisting of 68 % or more but not more than 80 % by weight of lysine sulphate and not more than 32 % by weight of other components such as carbohydrates and other amino acids, on the anhydrous basis. 

The process underlines ADVANT Beiten's successful trade practice. Only recently, in January 2025 that Prof. Dr Rainer Bierwagen's team achieved the imposition of definitive anti-dumping duties in favour of the European erythritol industry.

Advisors to the European lysine industry:

ADVANT Beiten: Prof Dr Rainer Bierwagen (lead), Gábor Báthory, Christian Hipp, Dr Dietmar O. Reich.

Source EU: 

Commission Implementing Regulation (EU) 2025/1330 of 10 July 2025 imposing a definitive anti-dumping duty and collecting definitively the provisional duty imposed on imports of lysine originating in the People's Republic of China
Commission Implementing Regulation (EU) 2025/74 of 13 January 2025 imposing a provisional anti-dumping duty on imports of lysine originating in the People's Republic of China; OJ L of 15 January 2025;
Commission Implementing Regulation (EU) 2024/2732 of 24 October 2024 making imports of lysine originating in the People's Republic of China subject to registration; OJ L of 25 October 2024; 
Notice of initiation of an anti-dumping proceeding concerning imports of lysine originating in the People's Republic of China; OJ C of 23 May 2024 (C/2024/3392).

Press contact
Mrs Frauke Reuther
Communications
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Banyan Software was founded in 2016 and regularly acquires growing software companies with the aim of developing them over the long term as part of a buy-and-hold strategy. Banyan Software has offices in Canada, the UK and the DACH region.

Headquartered in Munich, Germany, star/trac is specialised in optimizing complex yard management operations. Its innovative solutions significantly enhance operational efficiency, reduce truck waiting times, and ensure compliance with the stringent safety and regulatory standards.

ADVANT Beiten advises Banyan Software regularly on the implementation of its growth strategy in the DACH region, most recently in January 2025 on the acquisition of FoxInsights.

Advisor Banyan Software:
ADVANT Beiten: Christian Burmeister (Lead), Damien Heinrich, Julius Bauer (all Corporate/M&A), Heiko Wunderlich, Fabian Buker (both Tax), Mathias Zimmer-Goertz, Christian Döpke (both IP/IT), Lelu Li (FDI), Alexander Grässel (Labor & Employment Law).

Public Relations
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Moosmann GmbH & Co. KG based in Ravensburg is a family-run company with a focus on sustainable logistics solutions and customised packaging systems for industry and trade. The Moosmann Group is pursuing a long-term growth strategy through targeted investments in innovative technologies.

Verpackungs- u. Lagertechnik Ulm GmbH is an established provider of modular storage, transport and order picking systems for industry, trade and logistics providers. The company based in Ulm has a strong market presence in the DACH region and is well known for its solutions for increasing efficiency in intralogistics. The integration into the Moosmann Group opens up new development prospects for both companies - particularly in the areas of digitalization, automation and sustainable material development.

Advisors to Moosmann GmbH & Co. KG:
ADVANT Beiten: Gerhard Manz (Freiburg), Christian Burmeister (Freiburg and Berlin, both lead partners in charge), Dr Christian Osbahr (Freiburg, all Corporate/M&A).

Public Relations

Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

On 8 May 2025, the European Parliament adopted a far-reaching reform of the EU-wide screening rules for foreign investments. The reform is aiming at protecting critical sectors from security risks without jeopardising the openness of the single market. The adopted draft for a revision of the EU FDI Screening Regulation provides for mandatory screening in key areas and gives the Commission the authority to take final decisions in instances of disagreement.

Key elements of the new rules

1. Mandatory screening of sensitive sectors:
   Investments (including Greenfield investments!) in certain sectors such as media, critical raw materials, transport infrastructure, energy grids, aerospace and emerging technologies (e.g. semiconductors, AI, cyber security) will be subject to mandatory screening in order to identify security or public order risks. The purpose is to prevent foreign players from controlling strategic infrastructure.
2. Harmonised procedures across the EU:
   National screening mechanisms will be harmonised in terms of criteria, deadlines and transparency. This reduces red tape for businesses and gives investors planning certainty.
3. Strengthened role of EU Commission:
   For the first time, the Commission will have the power to intervene where there are disagreements between member states about potential risks emanating from a planned foreign investment or where the planned investment has impacts beyond national borders. The Commission will have the right to prohibit investments or impose data protection requirements or demand joint ventures with EU companies.
4. Wider scope of application: 
   Transactions within the EU are also covered by the rules if the investing company is controlled by investors from outside the EU.

Protection of economic sovereignty

Parliament’s rapporteur Raphaël Glucksmann (S&D, France) said:

'Right now, the EU’s foreign investment screening system is fragmented, costly for investors, and insufficiently effective at mitigating risks. Leaving large industrial plants, energy grids, and media giants open to foreign takeovers — whether from China, the US, or elsewhere — ultimately puts our security and economic sovereignty on shaky ground. Screening procedures will now be streamlined across member states, keeping the single market open and attractive, while also protecting our industries, safeguarding key sectors, and allowing our strategic industries to become more competitive.'

From patchwork to a common line

The current EU FDI screening system of 2020 allows screening on a national level but offers no effective tools for EU-wide risks. The reform is a response to geopolitical tensions and developments such as investments in harbours, technology companies or power plants by foreign wealth or companies outside the EU.

Next steps

Now that the report has been adopted in plenary, negotiations with member states on the final shape of the Screening Regulation can begin. Parliament and Council must adopt the final legislative act before it can enter into force.

Why this is important

The reform aims at protecting the EU single market as an attractive place to invest, but closes loopholes in investment screening that could be abused by geopolitical rivals. By empowering the Commission as an 'arbitrator', the EU is sending a clear signal of the EU's greater ability to act in an era of global competition for economic supremacy.

Dr Christian von Wistinghausen
Lelu Li

These tariffs affect all sectors, but one of the most affected in Europe is the automobile sector, particularly in Germany: cars will now be taxed at 25%. The most affected sector in France are aeronautics, with 7.9 billion euros of exports in 2023, pharmaceuticals with 4.1 billion euros in 2023 and alcohol (especially wine) with 3,9 billion.

In addition, differentiated and higher tariff rates will apply on goods from the French overseas territories: Guadeloupe, Mayotte, Guyane and Martinique will be subject to a 10% tax in addition to the 20% levied on the rest of France, while Réunion will be subject to a total tax of 37%. Tariffs of 50% will be imposed on products from Saint-Pierre-et-Miquelon and 10% on those from French Polynesia, as these islands have not been considered part of the EU by Trump.

Commission President Ursula von der Leyen said she was ready to negotiate but was also ready for confrontation if necessary to assert the EU's interests and values. She said that the Commission is working on countermeasures. Several European heads of state are also working on measures to be adopted.

ADVANT has a team of international trade and national security attorneys, and government relations professionals ready to help European companies. Our dedicated team has decades of experience supporting clients across a range of industries – ranging from steel, chemical, rubber, mining, and agricultural products.

Prof. Dr Rainer Bierwagen
Christian Hipp
Dr Dietmar Reich
Gábor Báthory

Understanding the Dual Investment Strategy

Let's examine both components of this historic financial commitment: 

The EUR 500 billion Infrastructure Special Fund

This fund, dedicated to rebuilding Germany's deteriorating infrastructure, will be deployed over ten years and represents more than one-tenth of Germany's GDP. SPD leader Lars Klingbeil emphasized that "Germany is running on wear and tear" and requires massive investment to modernize its roads, bridges, railways, and digital networks.

The Defence Spending Reform is equally significant. The constitutional debt brake (Schuldenbremse) will be modified: It will exempt defence spending above 1% of GDP from debt restrictions, allow theoretically unlimited credit-financed defence expenditures, and enable Germany to meet and potentially exceed NATO's 2% of GDP target for defence spending. CDU leader Friedrich Merz has called for a "whatever it takes" approach to defence, signalling a political commitment to substantial military modernization in response to evolving security threats in Europe.

Business Opportunities in Defence

The defence spending reform creates extensive opportunities for international defence contractors and related businesses:

1. Military Equipment and Systems Modernization

With the potential for substantially increased defence procurement budgets, companies in these areas stand to benefit:

• Land systems: Manufacturers of armoured vehicles, artillery systems, and ground equipment will see increased demand as Germany upgrades aging systems.
• Naval capabilities: Companies specializing in submarine technology, naval vessels, and maritime systems will find opportunities as Germany strengthens its naval forces.
• Aerospace and air defence: Producers of fighter aircraft, air defence systems, and military drones will benefit from Germany's focus on aerial capabilities
• Command, control, and communications: Providers of advanced C4ISR systems (Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance) will see growing markets.

2. Defence Technology and Innovation

Investment will flow to cutting-edge defence technologies beyond traditional defence equipment:

• AI and autonomous systems: Companies developing artificial intelligence for defence applications, including autonomous vehicles and decision-support systems.
• Cybersecurity and electronic warfare: Firms specialising in protecting military networks and developing electronic warfare capabilities will be essential as warfare becomes increasingly digital.
• Space-based defence capabilities: With growing recognition of space as a military domain, companies providing satellite technology and space-based intelligence systems will find new opportunities.

3. Defence Supply Chain and Services

The broader defence ecosystem will also benefit:

• Logistics and supply chain management: Companies that can optimize military logistics and supply chains.
• Training and simulation: Providers of advanced training solutions using virtual reality and augmented reality for military personnel.
• Maintenance, repair, and overhaul (MRO): Firms specialising in the maintenance of complex military systems throughout their lifecycle.

Business Opportunities in Infrastructure

The EUR 500 billion infrastructure fund will create enormous opportunities across multiple sectors:

1. Transportation Infrastructure

Germany's aging transportation networks require comprehensive modernization:

• Bridge construction and rehabilitation: There are thousands of bridges in need of repair or replacement. Companies with expertise in accelerated bridge construction will be in high demand.
• Road development and maintenance: Firms specializing in highway construction, smart road systems, and sustainable pavement technologies.
• Railway modernization: Companies with expertise in high-speed rail, signalling systems, and railway electrification as Germany pushes to improve its rail network.

2. Energy Infrastructure

Germany's infrastructure plans make the energy transition a priority:

• Renewable energy systems: Developers and manufacturers of wind, solar, and other renewable energy technologies.
• Energy storage solutions: Companies offering grid-scale batteries and other energy storage technologies to complement renewable energy.
• Smart grid technology: Providers of intelligent energy distribution and management systems.
• Hydrogen infrastructure: Firms specializing in hydrogen production, storage, and distribution as Germany invests in this emerging energy carrier.

3. Digital Infrastructure

Germany's digital transformation is a critical component of infrastructure modernization:

• Broadband and 5G deployment: Telecommunications equipment providers and network deployment specialists.
• Data centres and cloud infrastructure: Companies building and operating the physical foundation of digital services.
• Smart city technologies: Providers of integrated urban management systems that connect transportation, energy, and public services.

4. Environmental and Climate-Resilient Infrastructure

Germany will prioritise infrastructure that supports climate goals:

• Flood protection and water management: Companies specialising in flood defence systems and sustainable urban drainage.
• Climate-adaptive infrastructure: Firms designing infrastructure that can withstand extreme weather events.
• Carbon-reducing building materials: Providers of innovative, low-carbon materials for infrastructure projects.

The Common Challenge: German Bureaucracy

Despite the massive financial commitment across both defence and infrastructure, foreign companies must understand that Germany's administrative processes remain a significant challenge. The same bureaucratic hurdles affect both sectors:

Administrative Realities in Germany

• Planning and approval processes for major infrastructure projects can take up to 5-18 years.
• Defence procurement processes are notoriously complex and slow-moving.
• Multiple levels of government involvement create coordination challenges.
• Environmental, historical, and social impact assessments add layers of complexity.

These administrative challenges mean that despite the availability of funds, actual project implementation may lag significantly. It is likely though that this will be changed by the Union and the SPD as well. However, companies should have experienced experts at their sides when dealing with the German administration.

Strategies for Success in both Markets

To maximize opportunities in both defence and infrastructure, it is recommended to:

1. Form strategic partnerships: Consider joint ventures or partnerships with established German companies that understand the administrative landscape and have existing relationships.
2. Invest in regulatory expertise: Build teams that understand Germany's complex regulatory environment, including defence procurement rules and infrastructure approval processes.
3. Offer integrated solutions: Companies, that can demonstrate how their offerings address both technical requirements and administrative efficiency, will have advantages.
4. Emphasize sustainability and security: Projects that demonstrate alignment with Germany's dual commitment to environmental sustainability and enhanced security will receive priority.
5. Be patient but persistent: Adjust business expectations for the reality of German administrative timelines while continuously engaging with stakeholders.

Sectoral Convergence: Where Defence Meets Infrastructure

An interesting aspect of Germany's dual investment approach is the growing convergence between defence and infrastructure priorities. Companies positioned at this intersection will find particularly valuable opportunities:

Areas of Convergence

• Critical infrastructure protection: Solutions that secure energy grids, transportation systems, and communications networks against physical and cyber threats.
• Dual-use technologies: Technologies with both civilian and military applications, such as advanced materials, autonomous systems, and certain types of sensors.
• Resilient supply chains: Systems and services that ensure continuity of critical materials and components for both defence and infrastructure.
• Energy security: Solutions that enhance Germany's energy independence, a concern for both economic and defence reasons.

A Dual Opportunity for International Business

Germany's historic investment in both defence and infrastructure represents a rare dual opportunity for international companies. The scale of investment is unprecedented, creating markets that will evolve over the next decade and beyond. Success will require a nuanced understanding of Germany's unique administrative environment, patience with its bureaucratic processes, and the ability to demonstrate value beyond mere technical capabilities. Those companies that position themselves as partners in Germany's transformation – helping not just to rebuild roads or modernize military capabilities, but to improve the systems by which these goals are achieved – will find themselves at the forefront of this historic opportunity. Foreign companies willing to make this investment in understanding and adapting to the German context will find substantial rewards in the next decade as Germany reinvents both its physical infrastructure and its security posture in response to evolving global challenges.

Do you have any questions? Do not hesitate to contact us.

Dennis Hillemann
Johannes Voß-Lünemann

TETEC AG, which specialises in regenerative medicine, had been integrated into the international medical technology group B. Braun through the surgical division Aesculap, based in Tuttlingen, Germany. In future, Aesculap will strategically focus even more strongly on innovative medical technology relating to surgical processes in the operating room, which means that the regenerative medicine business segment no longer fits into the medical technology group's portfolio.

In the United States, B. Braun has partnered with Octane Medical for more than ten years. With the completion of the transaction, the Canadian specialist for regenerative medicine has taken over TETEC completely, including the approximately 160 highly specialised employees at the site in Reutlingen, Germany.

Octane is a global group of companies headquartered in Ontario, Canada, with subsidiaries in the United States and Europe, specialising in innovative processes, biomaterials and bioreactors for regenerative medicine. Part of the group are Octane Clinical Systems, Octane Orthobiologics, Octane Exo, Octane Biotech and Octane Biotherapeutics (BioTx).

B. Braun is one of the world's leading medical technology companies. With over 60,000 employees, B. Braun is a reliable partner that develops intelligent solutions and sets pioneering standards to accelerate progress in healthcare.

Advisors to Aesculap AG:
ADVANT Beiten: Dr Sebastian Weller (lead partner), Nico Frielinghaus, Dr Winfried Richardt, Markus Schönherr, Sarah Heinrichs, Simon Litterst (all Corporate/M&A), Christian Schenk, Markus Linnartz (both Tax), Thomas Herten (Real Estate), Christian Döpke (Data Protection Law, all Dusseldorf), Dr Erik Schmid (Labour Law), Christoph Heinrich (Antitrust Law, both Munich), Rainer Süßmann (Banking & Finance, Frankfurt), Dr Christian von Wistinghausen, Lelu Li (both Foreign Trade Law, Berlin).

Advisor to Octane Medical:
Osborne Clarke

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Dr Sebastian Weller
Rechtsanwalt
ADVANT Beiten
+49 (211) 51 89 89 - 134
sebastian.weller@advant-beiten.com

Importers of products listed in Annex I of the CBAM Regulation will be required,

• during the transitional period from October 2023, to determine and calculate the direct and indirect emissions generated during the production of the imported goods,
• to report quarterly on direct and indirect CO₂ emissions in the country of origin and the carbon price paid in the third country (CBAM report),
• to register as a so-called CBAM declarant, being authorised to import products subject to CBAM from January 2026 and to acquire the necessary CBAM certificates.

The companies must submit their first reports by the end of January 2024.

In detail:

CBAM and the European Green Deal

Four years ago, in 2019, the European Union as a pioneer in the fight against the climate crisis, set itself the goal of achieving CO₂ neutrality by 2050, delivering on the commitments under the Paris Agreement. The European Green Deal is the overarching strategy implemented by more than fifteen new laws or changes to existing legislation, the so-called 'Fit for 55' package. The goal is to reduce net greenhouse gas emissions by at least 55 % by 2030, compared to 1990 levels.

The 'Fit for 55' package² establishes the CBAM together with changes to the current EU Emissions Trading System (ETS). The CBAM should equalize the carbon price between domestic and foreign products.

In accordance with the applicable legislative procedure, the European Commission put forward a draft which was discussed by the European Parliament (EP) and the 27 Member States in the Council. The draft was welcomed by the EP's Environment, Public Health and Food Safety Committee (ENVI) but the EP rejected the proposal as not ambitious enough. It took several months to find a compromise.

Historical and legal context

The EU has an Emissions Trading System (ETS)³ for more than fifteen years and CBAM is designed to function in parallel with this system, complementing it for imported goods.

The ETS puts a cap on the amount of greenhouse gases companies are allowed to emit. Within the cap it is possible to buy emission allowances that can be traded with. Some of the allowances are auctioned, however, the rest of the allowances are given for free by the European Commission to certain sectors at risk of carbon leakage.

Carbon leakage refers to the problem of companies relocating their production offshore, to countries with fewer environmental protection. CBAM addresses this issue, so that EU efforts to reduce greenhouse gas emissions are not undermined by production shifts causing increased emissions in non-European countries or by importing more CO₂-intensive products.

Even without counting the emissions caused by imports, the EU accounts for around 8 % of global carbon dioxide emissions. It would be counterproductive and against the objective of the Paris Agreement to decrease emissions in the EU while importing more carbon-intensive products from non-EU countries.

How the CBAM works

Under the CBAM, carbon pricing is done through the instrument of CBAM certificates, similar to ETS allowances. "CBAM certificate" means a certificate in elec-tronic format corresponding to one ton of embedded emissions in goods. Importers of certain energy-intensive goods must buy CBAM certificates to be allowed to import those goods into the EU. The required number of CBAM certificates corresponds to the total embedded emissions of the imported goods.

If a company has already paid a CO₂ price for its emissions in the country of origin, Article 9 of the Regulation provides for the possibility of offsetting against the number of CBAM certificates to be surrendered.

According to Art. 2 of the Regulation, third countries can also apply for an exemption from the CBAM if they have an equivalent carbon pricing mechanism or if there is a link with EU emissions trading system. Imports of goods from these third countries are then outside the scope of the Regulation. This already applies to goods originating in Iceland, Liechtenstein, Norway and Switzerland.

Such a linkage could also be considered in the future between the EU and the UK. Following the UK's withdrawal from the European Union, the UK has introduced its own emissions trading scheme. Currently, the UK and the EU are thinking about linking their emission trading schemes. Indeed, a final decision has not yet been made.

Under the ETS free emission allowances are to be phased out for some EU producers and the product scope of the ETS and CBAM shall converge. First, the allocation of free ETS allowances will be phased out from 2026 and completely discontinued from 2034. In addition, the scope of the ETS will also be extended to aviation and shipping from 2024, and to road transport and buildings from 2027. For the aviation sector, no more free certificates will be made available from 2026. Moreover, a shortage of allowances is planned to increase the prices for emission allowances according to the principles of the market mechanism.

CBAM transition phase

The CBAM Regulation is applicable since 1 October 2023. Articles 32 et seq. of Regulation (EU) 2023/956 provide for a gradual introduction. Under EU law, the legal basis of the CBAM is Article 192 para. 1 of the Treaty on the Functioning of the EU (TFEU), which allows the Union to act to achieve the environmental and climate objectives specified in Article 191 para. 1 TFEU.

CBAM started with importer reporting obligations in October 2023. Companies must now request access to the CBAM Transition Registry to submit quarterly reports. Under a European implementing regulation adopted in August⁴, companies must report for the first time by the end of January 2024. Failure to do so will result in penalties between €10 and €50 for each ton of unreported emissions. The actual penalty will be determined pursuant to Art. 16 para. 3 of the Implementing Regulation and can increase if the duration of non-reporting exceeds six months.

The information required in the report includes, in particular, the quantity of goods imported in tons, the total amount of direct and indirect CO₂ emissions per ton of each type of goods, and the CO₂ price paid for the imported goods in the country of origin, if any.

The submitted report can be modified until two months after the end of the relevant reporting quarter. For the first two reporting periods, a modification is possible until 31 July 2024.

In principle, the reporting obligation rests on the importer within the EU of the CBAM goods. However, the importer can transfer the reporting obligation to an indirect customs representative (e.g., the transport company) with consent. Furthermore, the reporting obligation applies directly to the indirect customs representative when the importer is located outside the EU.

CBAM fully effective starting 2026

Once CBAM is fully effective starting 1 January 2026, both EU and non-EU companies importing goods into the EU subject to CBAM will be required to apply for the status of authorised CBAM declarant and purchase CBAM certificates. The price of CBAM certificates is calculated based on the weekly average auction price of EU-ETS allowances, expressed in €/ton of carbon dioxide emitted. If an EU importer can prove that it has already been paid a carbon price during the production of the imported good, the importer will only have to pay the difference between the amount paid and the price of a CBAM-certificate.

Economic consequences and legal issues

As regards the economic consequences in the EU, the emissions-intensive industry considers that the lack of relief of the ETS burden for exports with the simultaneous expiry of the free allocation of certificates leads to imbalance and the increased risk of relocation of industries. While EU-based manufacturers of emission-intensive raw materials would be protected from imports originating in countries with lower carbon dioxide prices, the export of emission-intensive raw materials from the Union would hardly be economically viable, as the production costs would no longer be competitive in international comparison without free allocation of allowances. The U.S. Inflation Reduction Act (IRA) of August 2022 has raised additional concerns about a new subsidy race as well as a debate about the competitiveness of the European Union.

With respect to political considerations, several countries have already voiced their concerns, ranging from CBAM violating trade agreements to decrying it as blatant protectionism. Brazil, South Africa, India and China have stressed the negative implications for developing countries.

In particular, many concerns have been voiced about the compatibility of CBAM with international law. However, a CBAM compatible with the General Agreement on Tariffs and Trade (GATT) is not per se impossible and could be justified on environmental grounds. It could qualify as a border adjustable internal measure under GATT Article III or, if found to be discriminatory, could be justified under the general exceptions of GATT Article XX, relating to the conservation of ex-haustible natural resources (GATT Article XX(g)) or necessity to protect human, animal or plant life or health (GATT Article XX (b)).

Upcoming steps

To fulfil the reporting obligations, companies must first check and identify whether and which imported goods are subject to CBAM. Decisive are the CN codes of the respective goods listed in Annex I of the Regulation, and further guidance is given with sectoral factsheets.⁵

In a second step, importers must obtain all CBAM-related information from their suppliers. The Taxation and Customs Union Directorate-General (TAXUD) published guidance documents for importers in the EU and their suppliers outside the EU, together with templates.⁶

The contractual transfer of the reporting obligation to an indirect customs representative and the related contractual hedging of risks (e.g., in relation to late or inaccurate reporting) must be considered.

If there is an own reporting obligation, access to the CBAM Transitional Registry must be requested.
The quarterly reports must then be completed and submitted no later than one month after the end of the quarter in question, first time at the end of January 2024. If the required information is not yet available, the respective importer may use default values made available and published by European Commission for the transitional period until 31 July 2024.

Prof. Dr Rainer Bierwagen
Gábor Báthory

¹ Regulation (EU) 2023/956 of the European Parliament and of the Council of 10 May 2023 establishing a carbon border adjustment mechanism, http://data.europa.eu/eli/reg/2023/956/oj and Commission Implementing Regulation (EU) 2023/1773 of 17 August 2023 laying down the rules for the application of Regulation (EU) 2023/956 of the European Parliament and of the Council as regards reporting obligations for the purposes of the carbon border adjustment mechanism during the transitional period, http://data.europa.eu/eli/reg_impl/2023/1773/oj
² See European Commission, COM/2021/550, 14 July 2021
³ See https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets_en
⁴ Commission Implementing Regulation (EU) 2023/1773, http://data.europa.eu/eli/reg_impl/2023/1773/oj
⁵ See https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism/cbam-sectoral-factsheets_en
⁶ See https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en

Relevance of Start-ups

Germany is a strong business location. However, the main pillars are industry and small and medium-sized enterprises, not start-ups. Nevertheless, the German government recognizes that start-ups are of great importance for the German economy. At the same time, the government broadens its view and emphasizes the relevance for society in general and ecology in particular: For example, almost one-third of all start-ups perform activities in the field of climate and environmental protection, and, thus also contribute significantly to the sustainable transformation of the German economy.

According to the government's paper, start-ups are idea generators and innovation drivers and therefore create momentum, renewal and transformation. Thus, they are materially important to promote.

Objectives

The main objectives of the start-up-strategy are ambitious and have been named as follows:

1. strengthen financing for start-ups,
2. make it easier for start-ups to attract talent - make employee participation more attractive,
3. igniting the start-up spirit - making start-ups easier and more digital,
4. strengthen female start-up founders and diversity,
5. facilitate start-up spin-offs from science and universities,
6. improve framework conditions for public benefit start-ups,
7. mobilize start-up competencies for public contracts,
8. make it easier for start-ups to access data,
9. strengthen real-labs - facilitate access for start-ups and
10. put a general focus on start-ups.

Implementation of the Start-up-Strategy in a Nutshell

At present, it is difficult for new and fast-growing German start-ups with huge capital requirements to raise sufficient funds - loans are hardly an option. For this reason, financing is provided by government support programs and specialized public and private investors. This is where the start-up-strategy essentially kicks in. In summary, the financing of start-ups - in addition to many other measures - is to be conducted by the following steps:

• Among other things, the German government will use the future fund and its individual modules to support innovative technology-oriented start-ups in the growth phase and provide EUR 10 billion in new public funding over an in-vestment period until 2030.
• In addition, the INVEST program is to be relaunched to further and sustainably stimulate the business angel market in Germany. The effective date for a new INVEST funding guideline is targeted for 1st January 2023.
• The requirements for initial public offerings (IPOs) are to be reviewed, simpli-fied and modernized.
• Sales tax exemption for venture capital funds shall be implemented.
• Establishment of a capital stock in statutory and private pension plans as well as a minimum investment quota in venture capital funds.

Moreover, in view of the tight applicant situation on the labour market the following priority measures are planned to attract more talents:

• Further development of the "skilled labour strategy" (Fachkräftestrategie) to simplify and accelerate the immigration of skilled workers from foreign countries, in particular by anchoring the professional and university degrees of foreign skilled workers and simplifying administrative procedures.
• Improving income tax law in the context of employee participation.
• Simplify accessibility of "remote work".

In addition, simplified "founding" is to be ensured with a digital (notarial) founding act for the founding of German limited liability companies (GmbH).

In order to increase diversity, female founders are to receive targeted support, for example through a new funding line "EXIST Women" or the targeted financing of diverse and female venture capital funds.

Furthermore, numerous priority measures are intended to (i) facilitate spin-offs from science and universities, (ii) improve framework conditions for public benefit-oriented start-ups, (iii) mobilize start-up competencies for public contracts, (iv) facilitate start-ups' access to data, (v) strengthen real-labs, including by creating (new) experimenta-tion clauses, and (vi) centralize the start-up ecosystem through targeted networking.

Outlook

The general naming of the goals shows that many measures will still be characterized by great dynamism and that there is still a lot "in flux" here.

It remains to be seen whether the start-up-strategy - still intended for this summer - will be finally adopted by the traffic light government. Then there should be more clarity about the exact legislative implementation.

Overall, the federal government is pursuing a holistic approach and will implement the strategy - as of now - in bundled measures within the current legislative period. Annual monitoring of the development of Germany as a start-up location is also planned.
We will continue to observe the development of the start-up-strategy with interest and look forward to its implementation with anticipation.

Markus Schönherr

WPG is a leading provider of advanced mission-critical drive systems and services for off-highway and industrial applications, headquartered in Lohmar near Cologne, Germany. WPG is represented in 75 countries with components and drive systems for agricultural, industrial, construction and mining machinery and employs more than 2,200 people worldwide. 

The merger of Comer Industries, listed on the Borsa Italiana, with WPG will create one of the world's largest suppliers of drive solutions in the agricultural sector, with an expected combined turnover of one billion euros in 2021.

ADVANT Beiten supported the transaction, which was completed in December 2021, in particular by carrying out legal due diligence, conducting a clearing procedure under the German Foreign Trade and Payments Regulation (Außenwirtschaftsverordnung) and assisting with German and Russian antitrust clearance.

Adviser to Comer Industries: 
ADVANT Beiten: Dr Christian von Wistinghausen (Lead Partner in charge), Tassilo Klesen, Dr Patrick A. Hübner, Lelu Li, Olga Prokopyeva (all Corporate / M&A, Berlin), Dr Klaus Kemen, Robin Maletz (both Real Estate, Berlin), Katrin Lüdtke, (Public Sector, Munich), Michael Ziegler, Petra Fendt (both Banking/Finance & Capital Markets, Munich), Christoph Heinrich, Cathleen Laitenberger (both Antitrust Law, Munich), Uwe Wellmann (Antitrust Law, Berlin), Susanne Klein (IP/IT, Frankfurt), Dr Nicole Hirschvogel (IP/IT, Munich), Julia Alexandra Schütte (Employment & Labour, Berlin), Christian Freiherr von Buddenbrock (Employment & Labour, Dusseldorf), Julia Meler (Employment & Labour, Munich).

ADVANT Beiten, Moscow (Russia) (for regulatory clearances under Russian law): Vasily Ermolin

ADVANT Nctm, Milan (Italy), NOBILI RTZ Legal

Adviser to WPG: Freshfields Bruckhaus Deringer LLP, Milan (Italy)

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Dr. Christian von Wistinghausen
Lawyer
ADVANT Beiten
Tel.: +49 30 26471-351
Christian.Wistinghausen@advant-beiten.com

While the focus of SPAC activity has clearly been the USA until now, since the end of 2020, there has been a significant increase in activity in Europe, too. Rocket Internet recently established a SPAC, HelloFresh founder Dominik Richter also established a SPAC together with another investor, and J.P. Morgan Chase announced that it was establishing a growing team of specialist consultants to advise only SPACs in preparation for what they expect to be a SPAC-led takeover boom in Europe (Börsen-Zeitung, 17 February 2021, pages 9 respectively 16).

This is good news for the venture capital sector in Germany and Europe as it means there is now a third significant exit option in addition to a trade sale to a private investor/purchaser and the classic IPO (Initial Public Offering, the first time shares are offered to a capital market as part of an increase in capital stock). Access to capital for start-ups and scale-ups is improved and flexibility for investor strategies is increased, as more and more SPACs are established as an acceptable exit variant. They even make venture capital and private equity investments more democratic because shares in a SPAC that is listed on a stock exchange can be acquired by anyone. Such investment options and strategies are otherwise only available to classical venture capital or private equity fund investors after they have made a high minimum investment.

Against this background, some founders or early investors might ask themselves whether the SPAC boom could have an impact on the equity story of their own company. The simple answer is: unless there is an impending exit, no. However, it is worth looking at the situation more closely and working out possible indirect effects and recommendations for action so that the start-up is optimally positioned to profit from the capital available via SPACs.

1. Basic "SPAC" Exit Option

First, we recommend that founders and early-stage investors generally address the possibility of introducing a SPAC at some point in the company’s equity story. Of course, we don’t mean that you should address this exit variant in detail when working on the proof of concept. However, you should recognise and be open to the possibility and act accordingly. When it is the right time, things often have to move quickly, so it will be vitally important for transaction security, in other words, the likelihood that a merger with a SPAC will be completed successfully, that the company is compatible as a takeover target. In this respect, the operative and legal/financial structures of the start-up will be important.

2. Establish Operative and legal compatibility

By operative compatibility, we naturally mean that the SPAC management must have confidence in the product or service of the start-up. It is also important that the start-up has sound economic organisation, which is par for the course for most of the founders that we know.

Rather than focusing on legal issues, the first workshop in our series of free workshops developed for early-stage start-ups focuses on how the internal forecasts can be drafted from the start in such a way that they can be used as a reliable and flexible planning tool. This makes it easier to ensure that the company valuation is correct and can be relied upon during negotiations with investors and makes a good impression on early-stage investors. You can find more information about our workshop series under: Start-ups & Venture Capital | BEITEN BURKHARDT (beiten-burkhardt.com).
 

On the legal level, the recommendations are only little different to normal:

We recommend that almost every start-up prepares its documents primarily in English (with the exception of the articles of incorporation or other documents that, for compelling reasons, must (also) be in German) to make it easier for foreign investors to carry out their due diligence and make the company more attractive to such investors. This recommendation becomes more important where the potential takeover by a SPAC is concerned because even European SPACs often have a foreign legal form and thus have to provide their legal documentation in English or otherwise decide to do so.

We also recommend that the circle of shareholders is kept small or at least easy to manage. If there are already numerous shareholders, from multiple founders and family and friends to the first business angels and even several venture capital funds, voting pools, appropriate spokespersons and powers of attorney can be used to signal to potential purchasers that you have thought about ensuring that the shareholders are well organised so that takeover talks can be held efficiently.

A further issue, which is already finding more and more consideration for VC investors and start-ups, irrespective of the SPAC phenomenon, is ESG (Environmental, Social and Corporate Governance ("ESG") are sustainability criteria which more and more frequently play a role in the fitness of a company for an investment, and may even be decisive, especially when the result of an ESG due diligence is negative). Recently, ESG compliant companies have shown better returns on equity than companies that don’t comply with ESG so that the point of ESG is not merely about improved reputation. As SPACs are (1) listed on the stock exchange and are thus listed companies, (2) most have an Anglo-Saxon legal form, and (3) the takeover target will automatically be a publicly-traded company after the takeover, the fulfilment of ESG criteria is an obligatory condition. In this context, the timing of an acquisition by a SPAC may be crucial: At least under U.S. capital market law (and most currently active SPACs are subject to US law), a SPAC only has an 18-month window after listing on the stock exchange to invest in a suitable company. A large part of this period will be spent searching for a suitable target, so the length of the transaction process can become very relevant. If ESG criteria have to be implemented first, this can be a dealbreaker due to time constraints. On the other hand, the chances of an exit via a SPAC are very positively influenced if ESG is lived and implemented in the company from the very beginning.

3. Conclusion

You don’t need totally new measures to make a start-up “fit” for takeover by a SPAC, just the considered implementation of largely well-known recommendations.

In one respect, SPACs are similar to an operative start-up: As it is purely an acquisition vehicle and, at the time of listing on the stock exchange, i.e. when the investors decide for the first time whether they want to invest money in the SPAC, it is not clear whether and when the takeover of a promising company will be successful, the success of the SPAC will almost exclusively depend on the ability and the network of its management or the founders of the SPAC. For this reason, SPACs that are formed by successful companies or investors and listed on the stock exchange are particularly sought-after, collect above-average levels of money and, with greater resources, then have a larger choice of potential takeover targets. Above all, as with investments in start-ups, SPAC investors must have trust in the team.

Optimistically, you can speculate: Perhaps this common benchmark, against which SPAC management and a founding team must be measured, will ensure that SPACs and start-ups have comparable mindsets and that, over time, SPACs will become an ideal exit option for start-ups.

SUMMARY / TIPS:
 

(i) Consider a “SPAC” as a basic exit option: All decisions with an effect on the exit situation should take the new SPAC variant into account. Of course, this should not be the dominant issue in the early stage but merely requires that decisions which would be taken anyway take this additional criterion into account.
 

(ii) Establish operative and legal compatibility: The start-up still has to be “found” by a SPAC first, but, once the transaction has started, is very likely to want to successfully conclude it (which is mutual). For this to happen, the business model, which catches the attention of the SPAC, must be anchored in a solid business and legal structure. From a legal perspective, this means in particular: (a) best practice documents, where possible from day 1, (b) contractual documents in English, (c) a small or efficiently structured circle of shareholders (“Keep your cap table clean”), and (d) the early implementation of ESG criteria.

Dr Mario Weichel

1. Which amendments does the draft bill entail?

The draft bill prepared by the working group of professors is based on the German Limited Liability Company Act. It proposes a new sixth chapter, which would establish the GmbH gebV as an alternative legal form to the limited liability company or entre-preneurial company (Unternehmergesellschaft, UG), with some mandatory character-istics. The general provisions of the German Limited Liability Act would apply except as where amended by the new Chapter.

The following guiding principles are particularly noteworthy:

Permanently tied capital

Where the capital is locked, shareholders will not have any claim to the profits or in the case of the dissolution or liquidation to the assets of the company. Even the settlement in the case of an exit will be limited to the refund of the contributions made. The draft bill also prohibits the repeal or modification of the principle of permanently locked capi-tal (eternity clause). However, the GmbH gebV does not need to pursue a sustainable or public interest purpose. The company name must still contain “mit gebundenem Vermögen” (with Locked Capital) or a generally accepted abbreviation thereof.

The old draft referred to the permanently locked capital as an “asset lock”. The new draft moves away from this, as it remains possible to sell the assets of the company.

The new draft bill also contains a provision that requires the purpose of the company to be business-oriented or charitable in order to avoid the form being used purely for asset management.

Characteristics and selection of shareholders

Supporting the idea that responsibility is transferred to those shareholders who actively participate in the company, the draft limits the circle of possible shareholders to natural persons, other companies with locked capital or other legal entities that have their capital permanently tied in a similar fashion (the latter is designed to make it possible or foreign companies to hold shares in a GmbH gebV). The shares in the company are subject to transfer restrictions, so that their assignment requires the consent of the shareholders. Autonomy principle does not rule out inheritance, but this will require the approval of the shareholders.

2. What are the main criticisms of the old draft bill on the limited liability company in steward ownership?

2.1 The new draft bill deals constructively with some of the criticism levied against the old draft:

Change of name

First, the name of the new form of limited liability company was changed from “GmbH in Verantwortungseigentum” (Limited in steward ownership, or responsible ownership) to “GmbH mit gebundenem Vermögen” (Limited Liability Company with Locked Capi-tal). This was in response to the criticism that the old name implied that one could ex-pect a company that had chosen this legal form to always act “responsibly”.

Stricter requirements for an amending resolution

A company with locked capital can be established as such. However, if the resolution to tie the capital is only adopted later, it must be ensured that all shareholders were sufficiently informed and were fully aware of the irreversible consequences when they voted on the resolution. In addition, workers’ rights must be protected. For this reason, the new draft provides detailed specifications on these aspects, similar to those under transformation law (substance of resolutions, information for the works council).

Creditor protection

In reaction to the criticism that the formation of a limited liability company in steward ownership could mean that creditors of shareholders will be deprived of capital be-cause the creditor cannot access the capital tied to the company – just the sharehold-ers themselves cannot access it – through distraint of shares, the new draft provides for a right to claim security.
A security claim can be enforced if it is incurred prior to the tying of the capital. In line with the standard established under transformation law, creditors must plausibly show that the permanent tying of capital – more specifically the contribution of assets into a company with permanently locked capital – will en-danger the fulfilment of the claims of the creditor.

Corporate governance

The mandatory capital lock has fundamental importance for governance because it structurally changes the incentives of the parties. Although there was some criticism that the creation of a limited liability company in steward ownership would circumvent the purposes of the Foundation Supervision Authority, the new draft still does not con-sider it necessary to have a state supervision body, similar to the Foundation Supervi-sion Authority.
The new draft instead proposes two alternatives, which would allow third parties to as-sess whether the principle of locking the capital is being maintained:

The first proposed option requires the preparation of a comprehensive annual report on various aspects of the principle of locking the capital, which would be audited by an independent auditor that does not also audit the company.
The second proposed option combines this report developed on the assurance of the principle of locking the capital with compulsory membership in an auditing association in line with a cooperative society law model; the auditing association would then audit the report.

2.2 Some fundamental issues, that were vehemently criticised, were not addressed:

One argument centres in particular on the issue of whether the prohibition against the collective deprivation of power, based on the intended eternity clause, could be partial-ly repealed for the limited liability company without introducing a (completely) inde-pendent legal form.

It is also alleged that the proposed new sub-form of limited liability company will elimi-nate the incentive mechanism underlying the legal liability company form, which is es-sential for free enterprise. The coupling of ownership with responsibility and risk with liability is no longer given.

These issues would not also be taken up by the working group of professors in the new draft bill because, as announced in the considerations for the new draft, an aca-demic publication will address in greater detail the issues raised in the discussions of the first draft.

3. Outlook for steward ownership

The new draft bill heralds in the next round of discussions about a new form of limited liability company. It remains to be seen, how the new draft bill will be accepted in polit-ical, commercial and legal circles and what new momentum the draft might provide.

Tassilo Klesen

^{[1] Sanders, Dauner-Lieb, Kempny, Möslein, Veil, von Freeden, Entwurf eines Gesetzes für die Gesellschaft mit beschränkter Haftung in Verantwortungseigentum, Stand 12.06.2020 (nachfolgend bezeichnet als alter Entwurf oder alter Gesetzesentwurf), der flankiert wurde von einer Initiative von mehr als 600 Unternehmern und Wirtschaftsexperten, „Weitere GmbH-Variante: 600 Experten fordern neue Rechtsform für Unternehmen“, Handelsblatt vom 1.10.2020, abrufbar unter: https://www.handelsblatt.com/unternehmen/management/verantwortungseigentum-weitere-gmbh-variante-600-experten-fordern-neue-rechtsform-fuer-unternehmen/26236822.html.}

^{[2] Sanders, Dauner-Lieb, Kempny, Möslein, Veil, von Freeden, Entwurf eines Gesetzes für die Gesellschaft mit beschränkter Haftung mit gebundenem Vermögen, Stand 15.02.2021, abrufbar unter: https://www.gesellschaft-mit-gebundenem-vermoegen.de/, folgend bezeichnet als neuer Entwurf oder neuer Gesetzesentwurf; nachfolgend bezeichnet als neuer Entwurf oder neuer Gesetzesentwurf, oder auch nur Entwurf oder Gesetzesentwurf.}

Increase in the minimum wage

On 28 October 2020, the Federal Cabinet adopted a further increase in the minimum wage. Since 1 January 2021, a minimum wage of EUR 9.50 per hour has applied; from 1 July 2021, this will increase to EUR 9.60. By 1 July 2022, the minimum wage will be increased in four stages to EUR 10.45.

Act on Employee Health and Safety Controls

On 16 December 2020, the so-called German Act on Employee Health and Safety Controls was adopted. It entered into force on 1 January 2021. This law is designed to tackle abuse and ensure orderly and safe working conditions in the meat industry, but also in other sectors.

In short, since 1 January 2021, it has been illegal to conclude works agreements and employ agency workers in the meat industry. The Act also introduces a requirement to record working time in a system that cannot be manipulated, in order to allow compliance with the minimum wage rates to be monitored. In addition, plant control visits will be carried out more frequently in the future and minimum standards regulate accommodation for workers in collective living quarters for the whole sector.

Increase in “Child illness days”

On 5 January 2021, the Federal and Land Governments decided to increase the sickness benefits that parents may receive when they are not allowed to work because a child is ill. This decision increased the number of child illness benefits days granted for 2021 by 10 days per parent (20 additional days for single parents). This doubled the number of days available. Further, the claim may apply not only for days where a child is actually sick but also in cases where it is necessary to care for the child at home, such as where the school or kindergarten is closed, access to child care is limited or the child is in quarantine due to the COVID-19 pandemic.

Compensation for employees for childcare during the lockdown

Pursuant to § 56 para. 1a of the German Infection Disease Control Act (Gesetz zur Verhütung und Bekämpfung von Infektionskrankheiten beim Menschen, IfSG), employees have a right to compensation for the time that they had to look after their children themselves because of the closure of a school or child-care centre. This compensation rule was extended until 31 March 2021 and at the same time, it was expanded to cover situations where a child is in quarantine.

Under § 56 para. 1a of the IfSG, employees will be reimbursed for the loss of earnings in the amount of 67% of their net income, limited to a maximum monthly amount of EUR 2,016.00. This right only applies for a maximum of ten weeks per parent. Single parents have a right to compensation for up to 20 weeks. Employers must pay this compensation for a maximum of six weeks and can seek a refund from the appropriate authorities.

Is there an obligation to receive the COVID vaccination at work? Can your employment contract be terminated if you refuse?

Until now, for vaccinations such as the flu vaccination, the personal rights of the employee were paramount and management could not order staff to vaccinate. As the COVID-19 pandemic is not comparable with a flu outbreak (number of fatalities, progression of the disease, strain on the healthcare system, immunity), the personal rights of the employee are less important.

However, it cannot be said that an order for all employees (of specific groups) to be vaccinated against COVID-19 would necessarily be invalid. In particular, an order for medical and care personnel to be vaccinated against COVID-19 could be legally valid. This occupational group is at particular risk and, on the one hand, could be a potential multiplicator for other risk groups, and, on the other hand, this occupational group is vital for the maintenance of medical care during the pandemic. When there are insufficient hospital staff available to care for patients who have contracted COVID-19, compulsory vaccination could be considered.

Employers may demand that employees fulfil certain requirements in order to be able to carry out their contractual duties. For example, they can order that employees wear protective clothing or be vaccinated against measles in some areas. If the employee refuses to wear protective clothing or vaccinate against measles, they cannot be employed. This principle can also be applied to the COVID-19 vaccination. If the employer decides that only vaccinated employees may have direct contact with residents or patients, employees who are not vaccinated can no longer be employed in accordance with their employment contract. If there are no other positions for the employee where they would not need a vaccination, it is no longer possible to employ them. The employer would be entitled to take employment law sanctions, such as withholding pay or terminating the employment agreement on personal grounds.

Requirement to take a corona test at work – Judgment of the Labour Court of Offenbach of 4 February 2021 in Case No. 4 Ga 1/21

To avoid infecting colleagues, customers or patients, companies have implemented various measures since the start of the COVID pandemic. Regular disinfection of hands, maintaining distance, significantly limiting physical contact, and wearing face masks are now legally and commonly accepted. Even taking temperatures at the factory gate is considered admissible.  When considering the admissibility of such measures, the health and safety of employees, customers, patients, residents and the protection of the health system are to be weighed against the personal and data protection rights of employees. It is currently disputed whether vaccinations may be made compulsory, in particular for certain professions.

The presentation of a negative corona test is a milder measure than compulsory vaccinations. An employer refused an employee entry to the factory premises because the employee refused to take a PCR test. A works agreement provided that a negative PCR test is a requirement for entry to the factory premises.

An employee sought an urgent preliminary ruling to grant him entry to the plant without a test. The action was unsuccessful. The labour law court dismissed the application due to a failure to show the necessary special urgency. In its reasoning, the Court found the non-employment preferable because there was no discernible urgent interest in employment.

This decision makes it clear that issues relating to measures to combat the COVID-19 pandemic are dependent on many factors. The courts view the pandemic as so serious that the employees’ right to determination and personality have become less important than they are for other epidemic diseases, such as the flu.

Extending the special provisions on short-time work and short-time allowance

With the Act on Securing Jobs as a Result of the COVID-19 Pandemic (Job Security Act), the applicable special provisions on short-time work allowances were extended until the end of 2021. These special rules increase the short-time work allowance, for example, from 70 to 77 percent from the fourth month and 80 to 87 percent from the seventh month of short-time work, and the tax-free option to earn additional income from small part-time employment.

The simplification of the procedures for drawing short-time work benefits, the duration of benefits and the reimbursement of social security contributions have also generally been extended until the end of 2021. For example, for establishments that started short-time work before 31 December 2020, the duration of the short-term work has been extended to up to 24 months, but until 31 December 2021 at the latest. The short-term work allowances for cover agency workers have also be extended until 31 December 2021 for those agency workers who were sent into short-term work on or before 31 March 2021.

Employer contributions to supplement short-time work will also remain tax-free until the end of 2021. The so-called “Corona Bonus” (the tax exemption of any aid and support paid to employees in an amount up to EUR 1,500) has also been extended until June 2021.

Draft law on mobile working

On 5 October 2020, Federal Employment Minister, Hubertus Heil, introduced the first draft bill for a new act on mobile working, only to later introduce a revised bill after much criticism. The draft foresees the introduction of a requirement for employees to inform their employer of plans to start working from a home office at least three months before they begin, providing information on the start date, duration, extent and how they plan to divide their time between their home office and the office. Mobile working should then be allowed within the framework of a mutual agreement. The draft bill does not ultimately foresee the right to a specific number of days per year working from a home office. Instead, the draft law introduces a rule on the refusal of a request to work from home, an obligation to record working time and provisions concerning occupational health and safety and accident insurance.

Dr Michaela Felisiak

Dr Erik Schmid

I. Investment control

The German Foreign Trade and Payment Ordinance distinguishes between two types of examination: (i) the sector -specific examination and (ii) the cross-sectoral examination, which can be outlined as follows:

All foreign investors (including those from EU Member States)

• Sector-specific examinations: Notification is required for the acquisition of 10% or more of the voting rights in a German company with business activities in a sector that is directly related to security (e.g. armaments, but also certain encryption software) by a foreign investor.

All investors from third countries (Non-EU/Non-EFTA foreigners)

• Cross-sector examination: Notification is required for the acquisition of 10% or more of the voting rights in a German company with business activities in a critical sector by an investor from a third country;
• Cross-sector examination: Notification is not required for the acquisition of 25% or more of the voting rights in a German company by an investor from a third country (however, the acquisition may still be examined by BMWi ex officio).

Venture capital funds that acquire shares directly or indirectly in a German company must therefore consider whether these acquisitions fall within the scope of the German Foreign Trade and Payments Ordinance. Since 1 January 2021, the answer to this question may as well become significantly more important for investors based in the UK as a freshly minted third country.

II. Notification obligation

For venture capital funds and start-ups, the critical sectors of the cross-sector examination, in particular, will be of fundamental significance, i.e. those sectors that the German Federal Government has classified as particularly relevant to security. The draft law proposes to significantly extend the list of sectors, in particular, to include future-oriented technologies, i.e. sectors in which, in our experience, start-ups are often quite active.

In these critical sectors, there is already an obligation to notify an acquisition of 10% or more of the voting rights so that the direct acquirer must report the proposed acquisition to the BMWi and the acquisition cannot be implemented (closed) until clearance is granted. For VC funds, this means that the investment round cannot be completed where notification is required. The closing of the transaction remains suspended until the BMWi issues its approval.

III. Critical sectors

Sectors requiring notification currently include operators of critical infrastructure, software developers for the operation of critical infrastructure, cloud computing services, telecommunications surveillance services and electronic data transmission infrastructure, media and parts of the health sector. In accordance with the provisions of the EU Screening Regulation, which entered into force in October 2020 and requires further critical technologies to be covered in the future, the BMWi proposes to significantly expand the list of sectors requiring notification under the German Foreign Trade and Payment Ordinance to include the following areas:

High-quality geospatial systems

Artificial intelligence

Automated driving or flying

Robotics

Semiconductors/Optoelectronics

Cybersecurity/IT security products

Air and space travel

Certain dual-use goods

Quantum and nuclear technologies

Additive manufacturing (“3D printers”)

Network technologies

Smart metre gateways

IT and telecommunication technology services

Critical raw materials

Patents or utility models that constitute state secrets

Agriculture and food sectors

This expansion of the notification requirement – assuming the German Government does not shorten this proposed list – will significantly raise the obstacles to investment for venture capital funds from third countries or those with investors attributed to third countries. In light of the prohibition to implement (close) an acquisition, investors will not approve the payout of any venture capital by the VC fund before the investment has ultimately been cleared. Start-ups should definitely be aware of this when looking at their financing and take the duration of the investment review procedure into consideration when planning a new investment round.

IV. Control-free investments

It is worthwhile looking at those types of investments, which (still) do not fall within the scope of investment control. These include, in particular:

• Investments by German VC funds, and, in cross-sectoral procedures, European VC funds without attributable participation from third countries;
• Acquisition of voting rights below the 10% threshold (providing there is no atypical acquisition of control);
• Acquisition of additional voting rights above the thresholds to protect against the dilution of shareholding, to the extent that the voting rights after the acquisition do not exceed the percentage of voting rights before the acquisition;
• Acquisition of (additional) shares without voting rights.

V. Summary

The broadening of foreign investment control is likely to result in a significant rise in the number of transactions reviewed by the BMWi. Whether the current version of the draft law will actually be adopted remains doubtful. There is still considerable room for improvement, particularly in light of VC investments in start-ups. One could, for example, consider

• Exempting investments in start-ups– not from the notification obligation, but at least - from the closing prohibition;
• Introducing a materiality threshold for minor acquisitions of additional voting rights; or
• Introducing a general “de minimis threshold” for investments in start-ups (e.g. a threshold of at least EUR 1 million).

If you have any questions about the German FDI control and your investments in Germany, our experts, Dr Christian von Wistinghausen and Dr Patrick Alois Huebner, are happy to assist you.

Taming of Digital Giants

The high-profile core of the 10^th Amendment of the German Act Against Restraints of Competition are the special rules of conduct for companies with “paramount significance for competition across markets.” Those that the Federal Cartel Office categorises as being of paramount significance for competition will be subject to intensified supervision to prevent market abuse. Legislators clearly have large digital platform operators in their sights.

The Federal Cartel Office can prohibit leading online platforms from engaging in a broad range of conduct that threatens competition. This includes giving preference to the companies' own services in search results, the exclusive pre-installation of their own apps and the coupling of various offers. They are also prohibited from impeding competitors when it comes to interoperability and data portability.

This gives the Federal Cartel Office a tool with which it can tame the digital giants. Distortions of competition can be combatted simpler and quicker in the future. Even the legal recourse against decisions of the Federal Cartel Office has been shortened to achieve this goal.

The main winners of these new rules are start-ups that operate in the “kill zone” surrounding “GAFA” (Google, Amazon, Facebook and Apple). Their risk of being driven out by unfair competition is reduced. Of course, this will only be the case if the Federal Cartel Office makes ample use of the new instrument.

Less Merger Control for Investments and Exits

To allow the Federal Cartel Office to focus on such cases, the merger control burden has been eased. The turnover thresholds, which dictate whether or not a transaction needs to be notified to the Federal Cartel Office, have been increased significantly. The new thresholds are: (i) total worldwide turnover of all parties exceeds EUR 500 million, (ii) the German turnover of one of the parties (e.g. the acquirer) exceeds EUR 50 million, and (iii) the German turnover of a further party (e.g. the start-up that is being sold) exceeds EUR 17.5 million.

The requirement to notify certain transactions where the consideration exceeds EUR 400 million remains. This requirement had been introduced by a previous amendment in reaction to the fact that there was no obligation for Facebook to notify its acquisition of WhatsApp.

In addition, a totally new provision imposes a notification requirement on certain mergers upon the request of the Federal Cartel Office. Such a request requires, inter alia, that a sector inquiry has previously been conducted into the sector. For this reason alone, the new notification requirement will not affect many deals.

As a result, in the future, only large exits will require prior notification to the Federal Cartel Office. In contrast, the simultaneous or gradual transfer of large share packages to various investors will still be subject to the pitfalls of merger control. For example, the involvement of a large strategic investor and a large financial investor means that a transaction easily exceeds the turnover thresholds for merger control.

Better Access to Large Companies' Data

Further innovations introduced by the amendment are rights to access data under competition law. Companies with a dominant market position must provide data “when the grant of access is objectively necessary to be active on an upstream or downstream market and the refusal to grant access threatens to eliminate effective competition on this market.” Even if a company does not have a dominant market position, it must provide access to the data if another company is dependent on that data for its activities and that other company would otherwise be unfairly impeded.

In both cases, access must even be given to data that has never been utilised before. In any case, the interests of the data owner must also be taken into account: It can put forward objective reasons to justify its refusal to provide access – such as with respect to personal data under the GDPR. And it can require compensation for access to the data.

The new data access rights might be a real game-changer for some start-ups. Innovative, data-driven business models could tap into unused data reservoirs or combine various external data sources.

But let’s be realistic: Start-ups will still have to overcome some difficult obstacles before they can enforce their rights. Many large companies will not be willing to grant access to their data. Until the courts have provided clear guidelines, only start-ups that have a significant financial buffer will have a real chance of getting access to data under competition law. Rights of access under specific laws, such as those under PSD2 (Payment Services Directive 2015/2366) for FinTechs, therefore remain important.

Christoph Heinrich

Cathleen Laitenberger

This contribution is intended to provide an overview of the mandatory notification duty in foreign trade and the consequences of a violation as well as the possibilities for its remedy in the past in the form of a voluntary disclosure, or its avoidance for the future.

Duty of Notification

According to section 67 para. 1 AWV, German nationals must notify the Deutsche Bundesbank of payment transactions which they receive from foreigners or on their behalf from German nationals (incoming payments), or make to foreigners or on their behalf to German nationals (outgoing payments). According to section 2 para. 15 no. 2 AWG, German nationals within the meaning of this standard are also legal entities domiciled in Germany. Thus, compliance with the duty of notification should be part of a company's corporate housekeeping.

Section 67 AWV already defines exceptions to payment transactions that are not subject to the duty of notification. Accordingly, the following payment transactions are exempt from the duty of notification under section 67 para. 2 AWV:

• Payments not exceeding the amount of EUR 12,500 or the equivalent in another currency ("exemption limit");
• Payments for the import, export or shipment of goods;
• Payments which involve the granting, borrowing or repayment of credits, including the creation and repayment of balances, with an originally agreed maturity or period of notice of not more than twelve months.

Violation of the Duty of Notification

Anyone who intentionally or negligently fails to submit the notifications pursuant to section 67 para. 1 AWV, or fails to submit the information correctly, completely or on time, is acting in breach of regulations pursuant to section 19 para. 3 no. 1b of the German Foreign Trade and Payments Act (Außenwirtschaftsgesetz – "AWG") in conjunction with section 81 para. 2 no. 19 AWV. The administrative offence can be sanctioned with a fine of up to EUR 30,000 (section 19 para. 6 AWG) although prosecution is at the discretion of the competent authority pursuant to section 47 para. 1 German Administrative Offences Act (Gesetz über Ordungswidrigkeiten – "OWiG"). It should be noted that not only the company subject to reporting can be prosecuted, but also the management and the employees responsible for reporting, if the appropriate conditions are met. Under certain circumstances, this may also apply to all former members of the management, provided that the notifications have also not been submitted during their employment. Rules on the statute of limitations set out in the OWiG are also likely to be of particular importance in this respect.

Voluntary Disclosure exempting from Sanctions

Section 22 para. 4 AWG provides for the possibility of a voluntary disclosure that exempts the company from sanctions. Accordingly, prosecution as an administrative offence is not required if the following conditions are cumulatively fulfilled:

• Negligent violation within the meaning of section 19 para. 3 no. 1b AWG;
• The violation must have been discovered by way of internal monitoring;
• The violation must have been reported to the competent authority;
• Appropriate measures must be taken to prevent a violation for the same reason;
• The authority must not yet have started an investigation into the violation.

Concusion

A violation of the duty of notification according to section 67 AWV can be sanctioned with substantial fines. It is thus all the more noteworthy that this duty of notification is often not known in practice or is only treated negligently. The voluntary declaration exempting the company from sanctions can therefore be an important instrument to counteract high fines. We will be pleased to advise and support you in the event of possible violations of the duty of notification and any consequences for the past and the future.

Benjamin Knorr / Robert Schmid

Thus, the so-called Decentralized Autonomous Organization (DAO) first became known in July 2016, at a time when it was in the most unfavourable situation conceivable. The initiators of the project, the Canadian-Russian software developer Vitalik Buterin and his German companion Christoph Jentzsch were convinced that they had created something unprecedented. According to their vision, the DAO should be a self-governing legal entity that automatically executes decisions on the basis of a decentralized voting process among its members. The latest digital instruments should replace any human administration. Enthusiasm about a virtual company led to the first foundation and the successful issue of shares worth a total of approx. USD 152 million. Only a few weeks later, however, the DAO became the target of unknown criminal hackers who stole USD 50 million from the investors. This criminal act, which has not yet been fully resolved, led to considerable doubts about the vision, the initiators and ultimately the underlying technology.

But what is behind the technological vision of a DAO, how can it be legally classified and what relevance does this concept still have today?

Technical Background

A DAO is a structure of various smart contracts, which relate to each other and which carry out measures, when previously defined conditions arise (for further details on this topic, see Dr Christian Philipp Kalusa "Special Topic Blockchain: The Use of Smart Contracts").

The structure of smart contracts is embedded in a blockchain, a digital database that stores information transactions in a decentralized, publicly accessible and tamper-resistant manner. Investors can acquire tokens issued by the DAO, which grant them membership rights such as voting rights or profit sharing rights. These tokens are called equity or utility tokens depending on the respective weighting of their functions.

Equity or Utility Token
Tokens are software protocols that grant the owner certain rights. They are issued in so-called Initial Coin Offerings (ICOs) and can be acquired against payment of a recognised currency or crypto currency. Utility Tokens allow access to certain services or products, similar to an admission ticket or voucher. According to BaFin, this category includes the majority of the crypto tokens known to date issued in Germany within the framework of an ICO. In principle, utility tokens do not constitute securities in the sense of the German Securities Prospectus Act (WpPG) or investments in the sense of the German Investment Act (VermAnlG). In many cases, such tokens are also not financial instruments according to the German Banking Act (KWG). Equity tokens, on the other hand, grant membership rights or claims under the law of obligations to assets which are comparable to those of a shareholder or holder of a debt instrument (e.g. claims to dividend-like payments, co-determination, repayment claims, interest). In general, they are securities as defined in the German Prospectus Regulation (ProspektVO), the WpPG and the German Securities Trading Act (WpHG) and are also financial instruments as defined in the KWG.

In the case of the DAO, for instance, it is defined in advance which quotas are required for a particular resolution among the members. A smart contract, which provides for a specific transaction to a real bank account, is introduced as a resolution template. Each member then exercises his or her voting right via the token. If the appropriate quota is given, the transaction is automatically executed. An executive board or a supervisory board is not required in this scenario.

Legal Classification

The first problem with a virtual organization is the question of the applicable legal statute. The smart contracts on which the DAO is based are operated via a worldwide server network. Membership is also international and people generally only meet online. Hence, the administrative headquarters cannot be the basis for determining the applicable legal regime. Such point of reference is simply not identifiable. What is of relevance must be the so-called lex fori, i.e. the law applicable at the place of the court invoked in the individual case which is decisive. It is obvious that this can lead to different results of the legal classification.

Furthermore, the conclusion of a contract between the parties may raise questions. In order to acquire a membership token via the blockchain, the investor must use a pseudonym. This results in attribution difficulties. Voices in the legal profession, however, consider this problem to be solvable, because pseudonymisation must be clarified with the corresponding calculation effort.

Assuming an effective conclusion of a contract, a DAO would in any case be regarded as a German civil law partnership (GbR) within the meaning of Sections 705 et seq. German Civil Code (BGB). Since the parties involved deliberately dispense with the statutory disclosure requirements of corporate law - according to their vision they just wanted to create a completely new organizational form - a DAO cannot be structured directly as, for example, a German stock corporation (AG), a German limited liability company (GmbH) or a German limited partnership (KG). Classification as a GbR then ensues by virtue of the legal form requirement, because German corporate law assigns a legal form even if the parties involved are unaware that they are a company.

If the DAO were to be economically active, unlimited personal liability of all members would result analogously in accordance with Section 128 Serman Commercial Code (HGB). This naturally entails high risks.

A different classification of the DAO into the legal forms under corporate law would only be possible, if it were not regarded as the business enterprise itself, but only as a DAO that benefits from the functions of a DAO in the context of financing. The DAO can act as a tool or vehicle for online crowdfunding. However, a GmbH would be "placed in front" of this vehicle, to which the DAO would be affiliated as a silent partnership. The vision of the initiators thus clashes with the matter-of-fact reality of German corporate law. Does this mean that the concept of the DAO is nothing more than a intellectual game?

Relevance and Prospects

Even if the total number of ICOs has already decreased in 2019, there is still a demand for experimental, especially digital, funding mechanisms and forms of organization. The DAO is an expression of this demand. The latest digital instruments are used to achieve an entrepreneurial objective. Here the traditional forms of organization are called into question. However, the DAO experiment should not be seen as an alternative concept but can rather be an inspiration for the design of processes. For instance, a virtual general meeting, which is indispensable in times of the Covid-19 pandemic, could make use of tokens and smart contracts as in a DAO.

In this light, the vision of Vitalik Buterin and Christoph Jentzsch is again of relevance today.

Nevertheless, much would still have to change, before their concept could be fully recognised as a proper legal form of its own. Being a company under German law always means having to comply with mandatory law such as disclosure requirements. In civil law, this is the perpetual conflict between private autonomy on the one hand and protection of legal relations and creditors on the other. Ultimately, only the legislator can make this judgmental decision with general binding effect. In the interest of further innovation, it could be useful to decide in favour of a Decentralized Autonomous Organization.

Julius Weisshaupt

On 19 November 2020, the Federal Ministry of Justice and Consumer Protection (BMJV) published a draft law for a modernised partnership law. The draft law is intended to structure the partnership under German civil law as the basic form of all partnerships with legal capacity and, on this occasion, to adapt the law of the partnership as a whole, which in part dates back to the 19th century, to the needs of modern economic life.

The German Federal Minister of Justice commented: "The draft law for a modernised partnership law is the third major reform of corporate law since 1949. The partnership under German civil law will be oriented towards a new model and made fit for the 21st century: Away from the betting pool towards the start-up. Founders can start up in an uncomplicated and legally secure way and develop their company step by step with the new extended transformation options".

Up to now, the GbR has usually not been the legal form of choice for start-ups: On the one hand, the partners (i.e. the founders) are personally liable to creditors (for example: landlords, freelancers, etc.). On the other hand, in contrast to the GmbH or UG, due to the absence of a corresponding register, the GbR does not allow the contractual partners of the company to identify the participation regulations made internally.

The legal model of the GbR has so far been the occasional company (e.g. the Lotto betting pool) without legal capacity. However, in contrast to this, today a considerable proportion of GbRs are set up on a long-term basis and founded for the purpose of participating in legal transactions with the company, e.g. group practices of physicians or GbRs owning real estate - or simply the founders who start "just like that" and initiate the implementation of their start-up idea without founding a GmbH or UG. Attempts by the courts to find solutions for these companies that are in line with their interests have not been able to completely eliminate legal and other uncertainties. This is now to be resolved by the draft law: In the German Civil Code, the variant of the GbR with legal capacity, which is the basic form of all partnerships with legal capacity, is now to be placed alongside the GbR without legal capacity. It is based on the new legal model of a company structured for a long term perspective and equipped with its own rights and obligations.

According to the draft law, a voluntary, public register of companies is also to be introduced. Customers and business partners of GbR will thus obtain reliable knowledge about liability relationships and representation of the companies. In future, partners will be able to have their company entered in the register but they will not have to do so. With the registration, essential key data of the company can be retrieved from the company register in a legally secure way for the public.

The draft was sent to the German federal states and associations and published on the BMJV's website. Interested parties now have the opportunity to submit their comments by 16 December 2020. The comments will also be published on the website of the BMJV.

Whether the planned amendments will actually increase the attractiveness of a GbR for start-up founders depends on further developments in the legislative procedure and thus remains to be seen. In particular does the personal liability of the founders not cease to apply even in the case of a GbR with legal capacity. However, the increased publicity resulting from the (voluntary) entry in the company register could lead to an improved perception of the start-up organised as a GbR to the outside world, and thus somewhat reduce the pressure that often exists on the part of the contractual partners to establish a corporation, and thus to take on the corresponding financial and organisational effort. This, in turn, could possibly reduce the risk of a quick set-up, make it less discouraging and encourage more young people to at least try to set up a start-up. This would be welcome in view of the still cautious start-up culture in Germany.

Dr Gesine von der Groeben

Inroduction

Despite numerous advantages, the inflow of funds through the creation of so-called authorized capital (cf. section 55 German Limited Liability Companies Act (GmbHG)), should the required financing volume of the "first" financing round not yet be reached, is still rarely seen in the German venture capital sector.

In the context of a venture capital participation of investors already involved as well as in the search for new investors up to a certain deadline, it is advisable to reserve the right for additional investors to join the participation agreement and thus the company. In the case of the GmbH, this is done by a so-called Second Closing which is implemented through authorized capital. Here the GmbH is provided with the necessary liquidity and in return a simplified form of share issue is made to the (new) investor.

Although this results in a simplification of the time frame for all parties involved, the first step requires a careful and accurate contract drafting excercise.

Authorized Capital in a Nutshell

Basically, the shareholders of the first financing round (Closing) agree that further investors or those from the existing shareholder base can subscribe new shares without the need for further shareholder resolutions at a later date. As a result, the management of the GmbH is (usually) authorised to increase the share capital of the company by a maximum of 50% of the previous share capital within the next - maximum - five years, subject to the conditions initially set by the shareholders. Said shareholders' resolution amending the articles of association (notarisation and majority required to amend the articles of association, cf. section 53 para. GmbHG) is filed with the commercial register and consequently becomes a new component of the then applicable articles of association.

The creation of authorised capital in venture capital financing is being flanked by the placement of further provisions in the entire investment documentation, including the Investor Agreement and/or the Shareholders Agreement. The entire content sought by the shareholders should finally be included in the investment documentation. This requires a careful approach to contract drafting in order to avoid later changes (in the articles of association).

What should thus be definitely arranged and stipulated - in advance - without fail?

• Maximum increase amount (maximum 50% of the share capital already subscribed);
• Number and nominal amount of the maximum number of shares to be issued (if necessary, by mentioning the ranking (keyword: Preferred Shares));
• Clarification of the issue of gradual authorisation, i.e. repeated exercise until the maximum amount of the increase is exhausted;
• Collateral duties of the investor, including joining the Investor Agreement/Shareholder's Agreement in the case of a (new) investor;
• Provisions regarding the obligation to make contributions (Einlageverpflichtung), such as payment or overpayment (free capital reserve in accordance with section 272 para. 2 no. 4 German Commercial Code (HGB));
• Exclusion of subscription rights of existing shareholders;
• Catalogue of approval (Zustimmungskatalog) of individual existing shareholders, if applicable.

Closing of the Second Closing

Second Closing is then executed by the management or nominated investors. The takeover of the new shares is based on the notarised takeover declaration (Übernahmeerklärung) of the (new) investor and a declaration of acceptance (Annahmeerklärung) of the company (informal). Subsequently, the management registers the capital increase with the commercial register and submits a list of the transferees and a new list of shareholders to the commercial register. At the same time, this registration also leads to an amendment in the articles of association, as the share capital is increased as a result.

Advantages and Disadvantages

Advantages

The creation of the possibility of a Second Closing at economically identical or already determined conditions leaves founders and their investors the necessary time to select and negotiate with (new) investors. Since the decisive parameters are already carved in stone, there is planning security and the founders have the opportunity to make their selection of the new investor without the participation of the entire shareholder group. The (new) investor would have to renegotiate or refrain from participation if it did not agree with the conditions of the authorized capital. The chances of saving (notary) costs compared to the venture capital investment process of a normal investment round are enormous.

Disadvantages

On the other hand, there is the concern that the conditions in the first round were not correctly assessed or simply poorly, if not wrongly drafted. The authorized capital and the wording of its terms and conditions require extreme care in contract drafting and also estimation of the valuation, as the economic parameters cannot be changed later or only with greater effort.

Recommendation for Action

Although the factual requirements for authorized capital seem to be clear by law, the exact intentions of the shareholders must be reflected in the creation of such capital. This requires sound advice in advance and, as a consequence, proper and thorough contractual implementation. Furthermore, the formal requirements associated with a possible amendment of the articles of association must be observed even before the authorized capital is created. Only if all this is observed can the Second Closing be a chance to save time, money and nerves.

Dr Sebastian Weller / Markus Schönherr

If we are to believe the statements in the press, we can expect the modernisation of the legal framework for employee participation in Germany before Christmas. If we compare the concepts that were discussed in Britain over 70 years ago with those that prevail in Germany, it is clear that the reform is long overdue. And at least in one respect this reform could also bring about a fundamental change in social policy.

The key points of discussion for improving the framework conditions for employee participation are as follows:

1. Adjustment of the framework conditions under corporate law; to this end, creation of a separate category of shares for employees, whose confirmation, issue and transfer should be possible in digital form and without notarisation to the maximum extent conceivable.

2. Creation of legal certainty in the valuation of shares; to this end, procedures are to be set up to enable young growth companies to be valued appropriately and cost-effectively.

3. Creation of incentives for reinvesting payouts from employee participation schemes, e.g. by creating allowances (Freibeträge).

4. Equal tax treatment of employees vis-à-vis founders and Investors.

The key points of the reform are No. 3 and 4. Although a separate share class (No. 1.) would be a real nice-to-have, the existing ESOP (Employee Stock Ownership Plans) at least functions on a purely contractual basis. The shortcoming which has always been inherent in these programs, namely that they are "not genuine shares" and therefore do not function to the same extent as an incentive for employees, has been somewhat put into perspective due to the strong market penetration of these programs. Today it is standard practice for most start-ups to have a virtual employee participation scheme. A restriction is to be made here for foreign top executives who are used to the allocation of genuine shares from other legal systems; greater persuasion is still required here.

Also the evaluation of the start-ups (No. 2.) does not play a major role in the implementation of the employee participation programs or the signing of the allotment offer by the beneficiary employee. The programs are designed in such a way that there is no dry income in any scenario, which would be the case if taxes were incurred with allocation and not with inflow of exit proceeds. There is also usually little discussion when it comes to defining the strike price as the underlying asset, from where the employee participates in the increase in value of the company. Either the valuation agreed with the investors is taken as a basis here or some other minimum valuation, which is however more oriented to the scope of the employee participation program and the (virtual) share of the program than to the actual value of the company.

No. 3. would be a real improvement for Germany as a business location. It is true that in a functioning start-up ecosystem, successful founders often become important investors after an exit, often showing much greater foresight than other VC investors; at least this is the experience with regard to the USA and Silicon Valley. Today, the very large number of founders is themselves involved in their start-up through a founder holding company. If exit proceeds flow into the holding company, these can also be reinvested without incurring taxes. Since the ESOPs are usually concluded directly with the employees, the employees here are in a worse position in relation to the founders, without any apparent reason for this. An exemption for re-investments from the ESOP beneficiary would therefore be very welcome.

No. 4. however, would represent a shift in paradigm that can only be welcomed. It has never been evident why an employee has to tax any proceeds from a virtual employee participation scheme as income from employment while founders and investors who at least de facto generate the same proceeds from the same transaction have to tax them via the much lower capital gains tax. Also in this respect a reform is urgently needed.

In summary, it becomes obvious that for Germany as a location for start-ups, the reform would in any case not be a Christmas present but simply a measure long overdue.

As soon as the law is passed, we will again provide you with information here and offer a workshop on how employee participation programs should be structured in future.

Dr. Christian Philipp Kalusa

Tip 1: Unpaid leave of absence for people refusing to wear masks

According to section 106 sentence 1 German Trade, Commerce and Industry Regulation Act (GewO), employers have the right to determine the content, place and time of work performance at their own reasonable discretion. Along with the right of direction, the employer also has a duty of care and to avert dangers to its employees. Insofar as there are no other regulations relevant to the employment relationship, the right of direction also includes the implementation of the corona hygiene concept drawn up by the employer, such as the wearing of protective masks, the disinfection of hands, the observance of physical distancing, the prohibition of physical meetings, etc.

Employees who violate the corona hygiene concept set up by the employer are acting in breach of their duties. The employer can use the usual instruments of labour law to impose sanctions, such as repeated explicit instructions to comply with the hygiene concept, a warning or ordinary termination for conduct and/or extraordinary dismissal.

Since the employee e.g. not wearing a mask violates the hygiene concept and thus offers its work performance in a way that is not fit for work, the employer would also be entitled to release the employee unpaid for this period.

Tip 2: Use mobile working to reduce rental costs

Financially, it may be worthwhile to have more staff working outside a rented office, thus reducing the rental costs for the start-up. Legally, a distinction is made between the terms telework, home office and mobile working, with a difference both in terms of location (telework and home office: private residence; mobile working: any place outside the premises) and in terms of set-up costs (telework: fixed workplace; home office and mobile working: no fixed workplace).

In Germany there is not (yet) a legal entitlement of employees to a home office. Nor is there - at least in the opinion of the Regional Labour Court of Berlin-Brandenburg - any right on the part of the employer to instruct employees to work from home, if the place of work is contractually specified. However, crisis periods such as the corona pandemic are not covered by this rule. "Normal operation" would therefore require a legal basis. This, too, can save a lot of money with regard to the "issue of cost assumption" (e.g. pro rata assumption of employees' rental costs).

Tip 3: Unilateral reduction of voluntary or revocable special payments

A rapid savings effect can be achieved by eliminating gratuities or other one-off payments. This requires, however, that a so-called reservation of voluntariness or revocation has been agreed in the employment agreements.

In the case of an (effective) reservation of the voluntary nature, the special payment can be suspended for the future. The reservation of the voluntary nature of the payment prevents the employees' claim for payment from arising. The prerequisite is that the employer must point out each time this special payment is granted that it is voluntary and that no legal claim arises from repeated payments.

In the case of a reservation of revocation, the employer must declare the revocation in good time before the due payment is made. The revocation must be made for the reasons stated in the reservation of revocation and must be at the employer's reasonable discretion.

Tip 4: Postponing the payout date by mutual agreement

Should Tip 3 not be feasible because the relevant requirements are not met or if a unilateral reduction of special payments is not desired with regard to employee motivation, it is also possible to postpone the due date of the special payment in agreement with the employees. This will spare liquidity and can help to bridge shortages.

Tip 5: Waiving salary in exchange for a debtor warrant (Besserungsschein)

In the short term, money can be saved by a – mutually agreed – salary waiver. A mere salary waiver saves money but also leads to a lower motivation and willingness to perform on the part of the employees. With a so-called debtor warrant, employees keep the incentive to perform well.

Salary waiver with a debtor warrant is an option that is often neglected, if not forgotten. Employees waive part of their remuneration in order to maintain the employer's liquidity. This way, employees also secure their own jobs. If the economic situation has improved within a certain period of time or on a certain date, the employees will be reimbursed the waived remuneration or part of it.

Tip 6: Letting fixed-term contracts expire

Should it become apparent that further measures need to be taken, it need not always be a wave of dismissals. There are also alternatives that can reduce costs.

One possibility is to let fixed-term employment agreements expire. This has the advantage that there is no need to give notice and the employment relationship ends automatically when the fixed-term contract expires – at least if the fixed-term contract has been effectively agreed.

Tip 7: Extend short-time work

An extension of short-time work beyond the period initially forecast and agreed requires a regular supplement to the employment agreement with the employees affected by short-time work.

The complete and proper documentation of the work actually performed is also of great importance as the basis for the application for short-time allowance for the respective month. The incorrect provision of data when applying for short-time allowance generally not only represents a serious breach of duty for the person responsible but can also lead to comprehensive claims by the Federal Employment Agency (Bundesagentur für Arbeit) against the company.

Tip 8: Dismissal despite short-time work

It may turn out that the predicted loss of employment is not only temporary but permanent. In this case, the question arises as to whether dismissals are even possible despite short-time work.

The answer is: YES. Dismissals are also possible during short-time work, not only for personal and behavioural reasons, but also for operational reasons. However, special principles apply here.

A characteristic feature of short-time work is the temporary loss of employment. A dismissal for operational reasons, on the other hand, presupposes a permanent loss of employment. If short-time work is performed in a company, this is an initial argument against a permanent reduction in the need for employment. A merely temporary lack of work cannot justify a dismissal for operational reasons. Start-ups should thus examine and document the extent to which the forecast has changed between the time when the decision was made to introduce short-time work and the time when it was decided to announce layoffs.

If the employee affected by the termination is still on short-time work at the time of the termination, the entitlement to short-time allowance ends when the termination takes effect.

Tip 9: Termination during the probationary period

Insofar as the German Dismissal Protection Act (KSchG) applies, it may make sense to make use of the simplified options for giving notice of termination during the probationary period. Hence, start-ups should keep an eye on expiring probationary periods.

Tip 10: Employment during proceedings (Prozessbeschäftigung) in dismissal protection lawsuits

Employment during proceedings, in particular to avert the judicial execution of an enforceable general claim (titulierter allgemeiner Anspruch) for further employment by the first instance, is not an employment relationship, not even a de facto employment relationship. The employee only receives remuneration for the work actually performed. If it is subsequently established that the termination is effective, the employer may retain the remuneration for the work performed. However, no other claims arise from an employment relationship, such as holiday or continued remuneration in the event of illness or continued remuneration on public holidays. This means that the basic principle of "no work, no pay" applies without exception to such employment during proceedings.

Dr Michaela Felisiak / Dr Erik Schmid

Following the announcement of further aid measures at the beginning of April and the decision on the Matching Fund at the beginning of May, additional details are now available.

The so-called Corona Matching Facility (CMF) is aimed at already or then for the first time VC-financed start-ups (1^st Pillar), while the Federal Government wants to support non-VC-financed start-ups via the existing state companies and state funding institutes (for business promotion) (2^nd Pillar).

The official programme description of the Federal Ministry for Economic Affairs and Energy can be found here: Link.

Pillar 1:

• CMF will initially invest through KfW Capital and the European Investment Fund (EIF), but other vehicles will also be made available.
• The maximum participation ratio of CMF at VC fund level is 70 percent per financing round, as long as (a) 30 percent is contributed by private investors and (b) at start-up level no more than 50 percent of the funds are attributable to CMF per financing round.
• CMF participates as a limited partner at the VC fund level, so that purely internal, yet state-supported financing rounds are possible at company level.
• Consequently, not the start-ups but the VC funds are eligible to apply. These can be funds that already include KfW Capital and/or EIF as investors or not yet. In the latter case, access to CMF will be examined as part of a due diligence process.
• The specific terms and conditions of the programme are still being finalised, with the objective of first disbursements at the end of May.

Pillar 2:

• Beneficiaries will be non-VC-financed start-ups and small and medium-sized enterprises.
• The financing will be distributed via existing regional companies and state funding institutes. Investment vehicles may include regional and/or medium-sized investment companies, public funds, family offices and business angels.
• In contrast to Pillar 1, matching by private investors is possible but not a prerequisite.

Both Pillars are intended to reach as many start-ups as possible while maintaining a minimum standard of quality.

The BEITEN BURKHARDT Start-up Team monitors developments on a daily basis and will set up a online seminar as soon as the specific program conditions are available.

Dr Gesine von der Groeben

Christian Kalusa

Dr Mario Weichel

Service and consideration

DUTY TO WORK: Performing work is the employee's key duty of the employment relationship. This holds true also in times of coronavirus. Unless the employee is unable to work due to illness or is in quarantine by order of the authorities, he is obliged to perform work.

RIGHT to refuse performance: Also in an employment relationship employees have a general right to refuse performance if the start-up's interests in the performance of an activity must be considered less important than the start-up's duty of care. For example, in the case of a business trip to an area with a coronavirus risk, the physical integrity of the employee's life and limb on the one hand, and the necessity of the business trip, the possibility of postponing the business trip, or the possibility of a meeting at a neutral location on the other hand must be weighed against each other. The recently tightened federal and state regulations should be examined and observed in each case.

BUSINESS TRIPS: Business trips are part of the duty to work, also in start-ups. The employer may order specific business trips by virtue of his right to give instructions, at least if the travel activity is covered by the employment contract or if a travel activity is typically related to the performed activity. Refusals can lead to warnings and dismissals. At least as long as there are no travel warnings from the Federal Foreign Office for certain regions, business trips may be ordered, provided that this is otherwise reasonable. The travel warnings are currently comprehensive. In many start-ups, business trips are currently prohibited.

continued remuneration: In labour law, the principle of "no wage without work" applies. There are exceptions to this rule, for example during holidays or in the event of incapacity to work due to illness. However, an entitlement to continued payment of remuneration in the event of incapacity to work due to illness only exists if the employee is incapable of work solely as a result of illness, and if the employee is not at fault with regard to the illness. However, there is no entitlement to continued payment of remuneration if employees are healthy and do not appear at work for fear of infection.

Corona at the workplace?

HEALTH PROTECTION: Employers are entitled to order health protection measures. In accordance with the principles of proportionality, it is possible to order regular hand disinfection, the wearing and regular changing of a face mask or disposable gloves.

QUESTIONING ON disease SYMPTOMS: Start-ups may only ask for and process personal data of their employees if this is necessary for "carrying out the employment relationship". In principle, this does not include the question of where employees spent their last holiday (areas affected by coronavirus) or after symptoms of coronavirus disease. However, in the case spreading diseases such as the coronavirus, an exception could be made, in particular to protect the rest of the workforce, to prevent further infection and to maintain business operations. Purely as a precautionary measure, the consent of the interviewed employees should be obtained.

temperature CHECKS: A mandatory temperature check by the start-up without the consent of the employees is an inadmissible violation of the right to privacy. It is even more serious than the question of symptoms of disease, since the employee is denied the "right to lie" due to the right to give instructions.

COMPULSORY VACCINATION: There is currently no vaccine for the coronavirus. Even if there were a possible vaccination, the start-up could not unilaterally order a compulsory vaccination by right to give instructions. This would be disproportionate and would not appear just, and would violate the employees' rights to self-determination with regard to their health.

Countermeasures by the start-up

DUTY of care: The start-up has a duty of care. This means that it must do everything necessary and appropriate to protect the health of its employees. The duty of care can be exercised through the right to give instructions. Employers are entitled and also obliged to prohibit for example business trips to certain regions, to keep employees returning from affected areas away from the workforce for a certain period of time, to cancel or prohibit events with a large number of people or to take other measures, such as providing disinfectant.

duties to ORGANIse: The employer must organise protective measures against the coronavirus and infection of employees based on the duty of care. In practice, employers often order employees to cancel unnecessary business trips and not to attend events with a larger number of people. Further, companies offer work from home on a larger scale and provide disinfectants and other protective measures free of charge.

work from HOME: Start-ups, now also a large number of other businesses and companies, currently work a lot from home. To an extent that there are no yet regulations in the employment contract or in a company agreement on working from home, employees are not entitled to unilaterally decide to work from home. If the employee works from home without first consulting the employer, it is a breach of duty. On the other hand, neither the employer is entitled to unilaterally order home office without a specific regulation. As far as possible, however, in times of the coronavirus it is a reasonable option to work from home.

Start-ups in the crisis

INSTRUMENTS: As labour law instruments in a temporary crisis, start-ups can use short-time work and immediately save liquidity, make use of fluctuation and decide to not fill vacant jobs, use freelancers or temporary workers, compensate for lack of orders or employment through flexible working time models, arrange holiday shutdowns, carry out staff reductions, or bring employees on board and jointly agree to defer, suspend or reduce remuneration.

SHORT-time WORK: Shortfalls of employees due to coronavirus infections and quarantine measures, as well as the likely supply problems with products and services from affected areas and official restrictions by authorities have already led to (strongly) restricted business operations in Germany. These problems can be countered with the instrument of short-time work, which political authorities have been quick to adjust. Temporary short-time work serves to compensate for job losses and preserve jobs, and immediately saves liquidity.

Emergency aid programmes by federal and state governments

THE FEDERAL GOVERNMENT AND THE STATES have established emergency aid programmes for enterprises threatened by economic circumstances endangering their existence as a result of the Coronavirus crisis.

An existence-threatening economic situation must be announced under oath and, upon request, proven by documents. Still, this can be the much-needed financial rescue package for many start-ups.

Please contact Dr Michaela Felisiak and Dr Erik Schmid if you have any questions.

1. Which electronic signatures are available?

As the legal effects differ, it is important to know that different electronic signatures exist under the so-called eIDAS Regulation (Regulation (EU) No.10/2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC). In short, there are in particular:

• The simple electronic signature pursuant to eIDAS: This is the digital signature most frequently used in the start-up sector, where a service provider such as DocuSign transmits documents electronically to the contractual partner or shareholder, opens them in the service provider's software and signs them electronically with one click. This procedure corresponds to the text form - just like an e-mail.
• The qualified electronic signature pursuant to eIDAS: This signature requires the identity of the signatory to be verified and certified on site (also possible by video). Such an electronic signature must comply with certain minimum technical standards and be provided by an appropriately certified body. Only such qualified electronic signature replaces the handwritten signature and is equivalent to the written form as a so-called electronic form.

2. Practical recommendations

2.1 Using the simple electronic signature is usually sufficient - but beware of the exceptions!

The simple electronic signature is sufficient wherever the law prescribes text form, if at all:

• For internal processes such as travel expense reports.
• Text form is also sufficient for "simple shareholder resolutions" if neither the law (such as for capital increases) nor the articles of association prescribe a stricter form.

However, there are also exceptions:

• A restriction exists, for instance, for shareholder resolutions that must be submitted to the commercial register (such as the resolution on an appointment as managing director or on his revocation): As a rule, a certified copy of the shareholders' resolution must be submitted to the commercial register - and there is no real physical "original" in the case of electronically signed documents. Practical suggestion: It should therefore be agreed with the notary involved in each individual case whether the submission of a document with a simple electronic signature is sufficient.
• A further restriction exists with regard to powers of attorney for resolutions in shareholders' meetings of limited liability companies (GmbHs), for which text form is generally sufficient. However, the notary must ensure that the power of representation in fact (still) existed at the time the resolution was passed. In practice, this proof is only successful if the original of the power of attorney is presented to the notary. For this reason, notaries generally require the presentation of the originals of powers of attorney signed by hand.

2.2 Use of the qualified electronic signature

The use of the qualified electronic signature is sufficient when the law requires the written form, such as in the following cases:

• Although a lease agreement limited to a period of more than one year is not invalid if it has not been concluded in the intended written form but such lease agreement shall be deemed to have been concluded for an indefinite period of time and could be terminated in accordance with the statutory provisions. Practical suggestion: In view of this, it is advisable to use at least the qualified electronic signature for lease agreements.
• Termination agreement concerning an employment relationship.
• Conclusion of a fixed-term employment contract.
• Finally, the qualified electronic signature is recommended for concluding contracts with third parties, for example agreements with suppliers or cooperation partners.

For certain areas the legislator has excluded the use of the qualified electronic signature so that a handwritten signature is still required here. This applies, for instance,

• to dismissals and the issuing of job references,
• to sureties, and
• to promises of debt or acknowledgements.

In general, the use of digital signatures is thus a recommendable method to be able to continue to make legally effective declarations and conclude contracts - even from the home office - especially in times of crisis like these. Especially managers and authorised signatories of start-ups should, though, be aware of the existing restrictions as violations may lead to the invalidity of the contract or resolution concerned. And this can influence not only the operative business but also possible investment rounds, if a corresponding lack of form is discovered by a potential investor during due diligence.

Our experts Dr Gesine von der Groeben and Dr Eva Kreibohm will be pleased to answer your questions on this Topic.

1. Initial situation

Depending on the industry and business model, the almost tsunami-like crisis has affected large, renowned companies as well as start-ups but the latter have to overcome particularly great challenges in many respects. As regards to supply relations, the main problems are that

• due to the often thin financial cover, even brief supply shortages can threaten the existence of a company,
• the other contracting party often has the stronger market power,
• there are no long-term trusted supply relationships,
• often only rudimentary written agreements exist.

In the case of impediments to performance, the contractual provisions (these take precedence) and the statutory law on defective performance under German civil law - insofar as this is relevant - must be taken into account.

2. Priority of contractual provisions - clauses on "Force majeure /"Höhere Gewalt"

Contracts often contain specific provisions on the exchange of services and the consequences of defective performance, for example in the form of contractual penalties. General terms and conditions in particular often contain so-called "force majeure" clauses. According to such clauses, the parties are not responsible for any failures in performance due to "force majeure". Some of these clauses also provide that the parties can withdraw from the contract or (at least temporarily) be released from their obligation to perform in the event of "force majeure".

According to case law, "force majeure" is defined as an "external event, externally caused by elementary forces of nature or by the actions of third parties which is unforeseeable according to human insight and experience, cannot be prevented or rendered harmless by economically acceptable means, even by the utmost care reasonably expected in the circumstances, and cannot be accepted as such by the operating company due to its frequency". "Force majeure" is thus marked by the following characteristics: Unpredictability, inevitability and exceptional nature.

These characteristics can be present, for instance, if a contractual partner is affected by an official closure or does not receive the necessary raw materials/goods itself due to border closures etc.

However, it is also conceivable that the contractual partner itself is responsible for the closure of its business or delivery shortages or could have avoided these by taking appropriate precautions.

When invoking "force majeure", it should therefore always be reviewed whether this objection is also justified, for example by requesting appropriate evidence and information.

3. Statutory law on defective performance

If, however, contractual provisions on the law on defective performance, such as "force majeure" clauses, are missing or are only very succinctly worded and/or ineffective, the statutory law on defective performance shall apply.

In this context the principle applies that contracts must be observed ("pacta sunt servanda") which means that, as a rule, the right to postpone or refuse performance does not arise from mere complications in performance. An obligor must in principle take responsibility for his ability to perform and to make every effort in good faith to ensure that performance is made.

If the obligor is unable to render performance due to extraordinary circumstances, these cases are to be judged by law according to the legal institutions of impossibility (section 275 German Civil Code (BGB)) or the discontinuation of the basis of the transaction (section 313 BGB).

In the case of temporary impossibility and thus delay of performance, the obligor is released from his primary obligation to perform for the duration of the impediment in accordance with section 275 BGB; any action for performance would be dismissed as "currently unfounded" during the release from performance in accordance with section 275 BGB. Impossibility in this context may mean that performance is impossible for anyone (objectively) or only for the obligor (subjectively). Furthermore, a right to refuse performance can also exist for the obligor if the effort to be made by it and the creditor's interest in performance are disproportionate (section 275 (2) BGB).

Assuming that a vaccine is developed and the spread of the virus is contained as soon as possible, the quarantine and the closure of the business are to be regarded as temporary impediments which will not permanently exclude deliveries in the future, but will lead to a temporary impossibility.

In the event of price increases or other impediments to performance, on the other hand, it is necessary to consider on a case-by-case basis whether these lead to a freedom to perform.

The obligor could demand compensation for delayed performance if the requirements of default within the meaning of section 286 BGB are fulfilled. According to this provision, default exists if the obligor fails to perform in response to a reminder after the due date or - as a rule in the economy - at a contractually agreed time, the performance can generally still be made up for and has not been failed to be made due to a circumstance for which the debtor is not responsible (section 286 (4) BGB). The obligor bears the burden of proof for the latter. If, for instance, official orders that were not foreseeable at the time of the conclusion of the contract have led to the obligor not being able to render performance on time, he shall not be liable for default. In this case, the creditor only has the option of withdrawing from the contract after a reminder and setting a grace period. However, in most cases this will not make much sense if the supplier product cannot be easily replaced on the market.

It becomes difficult to work with situations in which there is a lack of binding official measures and the company only implements recommendations for health care thus making the provision of services impossible. However, in the current exceptional situation, in which the responsibility of each individual is being called upon, it is to be expected that in a subsequent assessment courts will not impose liability disadvantages on a company that follows clear official recommendations.

The legislator only provides for a discontinuation of the basis of the business transaction in exceptional cases, and according to section 313 BGB it is possible, if circumstances have changed after the conclusion of the contract which the parties have expressly made the basis of their business and the parties would not have concluded the contract or would not have concluded it with this content had they been aware of the changed circumstances. Legal consequence of the discontinuation of the basis of the transaction is an adjustment of the contract to the changed circumstances or - if this is not reasonable for at least one contractual partner - a cancellation of the contract. In each such case, it is a matter of sensitive subsequent disturbance of the interest in equivalence between performance and consideration. In other words, it must be reviewed here whether the corona pandemic or associated protective measures have changed circumstances which were expressly the basis of the supply relationship in such a lasting manner that an adjustment or cancellation of the contract is imperative. Such a case could arise, for instance, if the buyer recognizably purchases the product for the seller exclusively for a certain use which is now no longer permitted, at least for a longer period of time, due to an official order. In contrast, the mere change in consumer behaviour as a result of the corona pandemic and its economic consequences should not justify the discontinuation of the basis of the transaction. Similarly, short-term business closures which can also occur for other reasons and are part of the general business risk, do not generally justify an adjustment or cancellation of the contract. Price increases as a result of the corona pandemic (construction companies report significant price increases for raw materials, such as steel) only justify the discontinuation of the business basis in the absolute exceptional case.

4. Conclusion for start-ups

In the event of defective performance, the contractual provisions, in particular the existence of so-called "force majeure" clauses, are decisive. In most cases, "force majeure" clauses will probably justify defective performance attributable to the corona epidemic.

However, even in the absence of contractual provisions to this effect, the statutory law on defective performance provides for mechanisms which can be used to resolve supply problems.

In conclusion, though, it should be noted that contractual partners who have to put up with the mere delays in deliveries caused by protective measures against corona often have to accept this. The reasons for their own delivery obligations and any delays in delivery must be carefully documented.

The legal situation outlined above, which applies without restriction in the absence of contractual provisions, can of course be modified and supplemented by the parties. The reference to "force majeure", which is frequently mentioned in connection with measures to contain the coronavirus and which can lead to a temporary suspension of contractual obligations for the parties, is not a formulation of the German law of obligations, for instance, but rather the typical "force majeure" clause which is found in many contracts but whose application to corona-related impediments to performance must be carefully examined in each individual case (cf. Coronavirus: Consequences in contractual relationships). A "force majeure" provision is also to be found in the UN Convention on Contracts for the International Sale of Goods which may also be applied in an international supply relationship as a component of German law, unless it has been expressly excluded (Art. 79 CISG).

For a start-up, the objection of "force majeure" raised by the contracting party or by itself is a double-edged sword as the suspension of contractual obligations leads to a standstill in the business relationship which usually quickly becomes a threat to the existence of a start-up. With regard to the duties of the management, in particular the duty to monitor solvency and the resulting liability risk, please read here.

Since waiting for the conclusion of new supply contracts is often not an option, particularly for companies in the start-up phase, and new business relationships must therefore be established despite uncertain future forecasts, special attention should be paid here to ensuring that the uncertain situation is expressly taken into account by means of flexible regulations (e.g. shorter terms, variability in purchase quantities, price adjustment clauses, etc.). The problem with new contracts currently being concluded is that the corona pandemic and its performance-impairing potential are already known in principle so that a loss of the basis of the business or "force majeure" can hardly be considered an objection, even if the effects of the coronavirus on the supply relationship increase in the future. Under no circumstances should a start-up in the current situation make explicit performance guarantees. All in all, it is important to operate on sight.

Dr André Depping

Christian Timm Neugebauer

Dr Florian Weichselgärtner

+++ Update as of 04 May 2020 +++

After long negotiations between the Federal Ministry of Economic Affairs and the Federal Ministry of Finance as well as VCs and start-ups, the matching fund for start-ups is finally a done deal!

The official press release of the Federal Ministry for Economic Affairs and Energy (BMWi) can be found here. The corresponding statement of the German Start-ups Association (Bundesverband für Deutsche Start-ups) can be found here.

The following has been decided:

• In addition to the measures implemented so far, the government is making a total of EUR 2 billion available to support start-ups.
• Both start-ups that are already VC-financed start-ups and those that are not will be eligible for support.
• The support for VC-financed start-ups will be administered by KfW Capital and the European Investment Fund, enabling them to support a financing round with up to 70 percent as long as 30 percent is contributed by private investors.
• Non-VC-financed start-ups are to be supported via state institutes for business promotion: The German Development Loan Corporation KfW will grant global loans to the state institutes for business promotion which will strengthen their existing instruments for financing start-ups.
• Details are further being mapped out how private investors such as business angels can also participate in a 70/30 solution.

+++ Update as of 15 April 2020 +++

The KfW Instant Loan is online: LINK

This means that companies with more than 10 employees that have been on the market since at least January 2019 and have made a profit in the sum of the years 2017-2019 or in 2019 can take out a loan from their regular bank for purchases and running costs (e.g. rent, leasing instalments, etc.) of up to EUR 500,000 with up to 50 employees, which is subsidised by KfW. The term is up to 10 years with up to 2 grace years on request. KfW assumes up to 100% of the default risk vis-à-vis the principal bank.

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Maintaining liquidity - for many start-ups this is currently the most urgent question in the corona crisis. German policy has already taken far-reaching measures to support small and medium-sized enterprises in the current situation but not all are eligible for start-ups. This is because start-ups are usually equity-financed and only rarely via loans. In this respect, the German government's package of measures provides only limited help for the following reasons:

Short-time allowance

Most start-ups have few employees who must be retained by all means in order to keep the operative business running. To this extent, the simplified application for short-time work benefits, which is to be welcomed, will only be taken into consideration for a few German start-ups.

Tax deferrals

Young companies in particular make losses at the beginning so that no or little tax is payable, which would have to be deferred.

Reduced tax prepayments

This is an effective means of reducing the pressure on liquidity but it presupposes that revenues are already being generated which is by no means the case for all start-ups.

KfW Entrepreneur Loan

The company must have been on the market for at least five years which means that most start-ups are already excluded.

Federal state-related specific support and guarantee programmes

These loans and subsidies are granted by the specific infrastructure banks of the respective federal states (e.g. WI-Bank in Hesse or Investitionsbank Berlin) but always require the involvement of the main bank which must also be included in the liability. If there is a corresponding regular bank at all in the case of start-ups, lengthy application and procedural processes will tend to prevent rapid assistance. In addition, a joint liability of the founders is usually required which can only rarely be secured.

It is thus to be appreciated that initiatives have already been formed which are trying to influence politics in order not to forget start-ups which have regularly been on the market for only a short time, make few sales and/or many losses and are financed by equity capital and not by free capital when considering the aid and subsidies which have now been set in motion. The Federal Association of German Start-ups, for instance, is advocating that appropriate measures be defined and the Business Angels Network Germany has already made a proposal on how the existing INVEST - Venture Capital Grant Programme can be used to mobilise private capital to overcome the crisis. Although VCs will tend to be rather reserved with new investments in the short term and financing rounds will be much more strongly supported by existing investors - but this could be the hour of the business angels who can provide a boost to young companies in particular even in times of crisis.

UPDATE: On 19 March 2020, the Bundesverband Deutsche Startups e.V. published a proposal for a comprehensive protective umbrella for start-ups which can be found here: https://deutschestartups.org/wp-content/uploads/2020/03/20200319_SchutzschirmfuerStartups_StartupVerband.pdf

Dr Gesine von der Groeben
(Lawyer)

A little more than ten days after the publication of the post on the venture capitalist's website, German politicians - with a view to Italy - are taking increasingly drastic steps to slow down the spread of the coronavirus. For start-ups as young companies with strong growth and low capital stock, the crisis comes - if one excludes the few winners - in a rather bad phase of company development. The question therefore arises as to what start-up companies can do to survive this phase or, ideally, to emerge from it stronger.

Please find here (Link) the reference to the article of my colleague Dr Daniel Walden regarding the specifications of the management of start-ups in crisis situations of the present kind.

When analysing the scope for action and recommendations, a distinction must first be made between early stage start-ups on the one hand and later stage start-ups on the other. Due to their different degrees of development, both groups of companies have different options for reacting to the crisis.

I. Later Stage Start-ups

If one starts with the later stage start-ups, the best entry for considerations is the planning calculation of the respective company - in whatever form it is available; be it in the form of a business plan or, for example, an integrated planning calculation.

a) Step 1: Extend Runway

It is to be expected that not only will further funding become more difficult in the coming months and the processes more difficult and time-consuming but also - as is currently the case with the vast majority of companies - sales will decline.

The existing planning should therefore be revised to the extent that the runway needs to be extended: The same money has to last longer. Accordingly, the sales forecasts and, correlating to this, the marketing must be adjusted.

However, in order not to ruin oneself now and to use the time in which less sales are generated for the further development of the IP or the business, the announced state aid will also play an important role for later stage start-ups as bridge financing. We will keep you up to date here. How the state rescue plan will be structured and whether it is really suitable for later stage start-ups as bridge financing, especially whether it makes sense to raise these external funds compared to a small interim financing round with the existing investors, will only be known in the next days and weeks - we will keep you informed here.

In the event that the government funds are not suitable or not available and the existing investors do not agree to a bridge financing round either, one should think about arranging a small round of convertible loans and, as usual, offering the lenders a discount on the upcoming financing round which will only take place once we are out of the worst of it.

b) Step 2: Other Measures

In order to address all the issues involved in the adjustment of planning, other measures to reduce costs in times of declining sales must of course also be considered, in particular by making use of all the possibilities offered by labour law. Our labour law experts will provide further information on this shortly.

Finally, the subject of filing for insolvency must of course also be kept in mind - here too, there are currently considerations of suspending or postponing the obligation to file for insolvency; we will keep you informed about these considerations as well.

II. Early Stage Start-ups

Whether it will become more difficult for early stage start-ups to adapt to the current situation is not yet clear.

What is certain is that only a few weeks ago, VC funds were able to successfully collect money. So capital is available and wants to be invested. However, the funds have considerably more time to distribute this capital than start-ups looking for initial financing. Due to the current uncertainty, it can be assumed that we will see fewer financing rounds in the coming weeks. However, promising start-ups will also receive financing in the coming months. It is questionable though whether evaluations will be the same as in recent months.

It therefore seems most reasonable to wait and see for early state start-ups as well. However, since there is regularly no cash flow here yet, this wait-and-see approach must be structured differently than for a later-stage start-up. As far as it is not possible to finance the start-up from own funds and in the broadest sense to bootstrap it, it will be necessary to raise capital. We will keep you informed whether the announced government financial support will also be available for early stage start-ups. At the moment we see no reason to believe that this will not be the case. Apart from that, those start-ups that do not receive any financing or only for an evaluation that they do not want to accept, should also consider convertible loans. The major criticism of convertible loans is regularly that the question of evaluation is not solved with the convertible loan. Many therefore speak of a postponed date. It is precisely this disadvantage that can offer an advantage in the current situation.

Christian Philipp Kalusa