Founded in 2013 and headquartered in Saarbrücken, Germany, tec4U-Solutions GmbH develops software solutions and data services for material and product compliance management. Through its "DataCross" platform, the company supports manufacturers, distributors and importers in complying with international regulatory requirements, including REACH, PFAS and the EU Deforestation Regulation (EUDR).

Banyan Software is a global acquirer of specialized software businesses pursuing a long-term buy-and-hold strategy. With the acquisition, the company further strengthens its presence in the European vertical market software sector. tec4U-Solutions GmbH will continue to operate independently from its Saarbrücken headquarters.

ADVANT Beiten regularly advises Banyan Software on acquisitions in the German-speaking region and continues to support the company in executing its long-term growth strategy. This latest mandate highlights the firm's extensive expertise in cross-border M&A transactions in the technology sector and its longstanding experience in advising international software and technology companies.

Advisors to Banyan Software:
ADVANT Beiten: Christian Burmeister (Berlin and Freiburg, lead, Corporate/ M&A), Damien Heinrich (Freiburg, Corporate/M&A), Mathias Zimmer-Goertz, Christian Döpke (both Dusseldorf, IP/IT), Michael Riedel (Berlin, Employment Law).

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

In early 2025, KARL MAYER announced its strategic decision to focus on its core business areas of Warp Knitting, Warp Preparation and Technical Textiles. As part of this realignment, the flat knitting machine business operating under the STOLL brand was discontinued and the production site in Reutlingen was closed in October 2025.

The agreement now signed provides for the transfer of selected assets to the CIXING Group. The scope of the transaction includes, in particular, the STOLL brand, selected materials and inventories, as well as certain technological assets. Completion of the transaction remains subject to customary closing conditions.

STOLL, defined by German engineering excellence and over a century of continuous innovation, stands for first-class knitting technology. In industrial applications, STOLL machines go far beyond the fashion sector: they are used for a wide range of purposes, such as manufacturing car seat covers, medical bandages, high-performance uppers for sports shoes, and even 3D fiber composites for the aerospace industry. Currently, around 130,000 modern STOLL flat knitting machines are in use worldwide.

As an industry leader with annual revenue of approximately EUR 290 million, Cixing possesses strong industrial manufacturing capabilities, a robust supply chain, and an extensive sales network within the global computerized flat knitting machine sector. The acquisition aims to leverage Cixing’s industrial resources to drive new growth for STOLL, revitalize business operations in Europe and China, and ensure that customers worldwide regain access to high-quality, competitive knitting solutions. This acquisition marks a pivotal milestone in Cixing’s international growth strategy and is expected to fundamentally transform the global supply chain landscape for knitting machines and high-quality textiles. 

ADVANT Beiten advised the CIXING Group on all legal aspects of the asset deal. The transaction once again highlights ADVANT Beiten’s strong expertise in German - Chinese investments and cross-border M&A transactions. An international team worked closely across offices and jurisdictions to efficiently coordinate and implement the legal requirements of the transaction in Germany and China.

Advisors to CIXING Group:
ADVANT Beiten: Dr Barbara Mayer (Freiburg), Christian Burmeister (Berlin and Freiburg, both lead), Dr Christian von Wistinghausen (Berlin), Damien Heinrich (Freiburg), Susanne Rademacher, Lelu Li (both Beijing, all Corporate/M&A), Heiko Wunderlich (Tax, Munich).

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

1. Key Amendments in the New EU FDI Screening Regulation

The revised regulation introduces several significant changes aimed at harmonising and enhancing the effectiveness of FDI screening across the EU.

 (a) Mandatory Screening Mechanisms

Under the new regulation, all Member States are required to establish and maintain screening mechanisms for foreign investments. This marks a departure from the previous framework, which allowed Member States to voluntarily adopt such mechanisms. While almost every Member States already have screening regimes, the regulation ensures consistency across the EU.

(b) Expanded Scope

The new regulation broadens the scope of investments subject to screening: 

• Intra-EU Investments by Foreign-Controlled Entities: Investments made by EU-based subsidiaries controlled by foreign investors are now explicitly covered, addressing potential loopholes where non-EU investors could gain indirect access to sensitive sectors through EU intermediaries. 
• Greenfield Investments: Contrary to earlier interpretations, the regulation does not impose a mandatory requirement to screen greenfield investments in sensitive sectors. Instead, Member States retain discretion to decide whether to include such investments in their screening mechanisms. 

(c) Harmonised Review Timelines

To streamline the screening process, the regulation introduces a standardised initial review period of 45 calendar days for phase one reviews. This procedural harmonisation reduces uncertainty for investors and ensures timely decision-making. 

(d) Enhanced Cooperation and Transparency

The regulation strengthens the cooperation mechanism between Member States and the European Commission. It mandates broader information exchange, including the establishment of a secure EU database to facilitate data sharing and improve coordination for multi-jurisdictional filings. 

(e) Common Minimum Scope

The regulation defines mandatory sectors for screening, including 

• Dual-use items (civilian products capable of being repurposed for military use);
• Defense-related products and technology;
• Advanced technologies, specifically semiconductors, quantum technology, and artificial intelligence, including research-only activities;
• Transport, energy, and digital infrastructures;
• Critical raw materials, covering exploration, extraction, recycling, recovery, and stockpiling, as defined by the Critical Raw Materials Act;
• Financial market infrastructure and systemically important financial entities, including central counterparties, central securities depositories, operators of regulated markets, operators of payment systems other than central banks, other systemically important institutions, and global providers of specialized financial messaging services; and
• Electoral operations management (voting systems and election-management systems)

Member States must ensure that investments, other than greenfield investments, in these sectors undergo prior authorisation. 

2. Implementation Timeline

The new regulation will enter into force 20 days after its publication in the Official Journal of the EU, expected in mid-2026. Member States will then have 18 months to amend their national frameworks to align with the new requirements. Full transposition is anticipated by end-January 2028. 

3. Impact on Germany’s FDI Screening Mechanism

Germany operates one of the most robust FDI screening regimes in the EU, governed by the Foreign Trade and Payments Act (AWG) and Ordinance (AWV). The new regulation will require several adjustments to ensure compliance: 

(a) Alignment with Mandatory Scope

Germany will need to expand its list of sensitive sectors to include those mandated by the EU regulation, such as electoral operations management. 

(b) Procedural Changes

The current timeline in the screening process needs to be revised to incorporate the 45-day initial review period. This may streamline the preliminary examination phase, which currently lasts up to two months. 

(c) Greenfield Investments

Germany retains discretion over whether to include greenfield investments in its screening mechanism. While the EU regulation encourages screening of such projects, it does not mandate their inclusion. 

(d) Expanded Criteria for Assessing Foreign Investors

The regulation introduces additional criteria for assessing foreign investments, including scrutiny of the foreign investor’s ownership structure, links to foreign governments or armed forces, and risks of pursuing third-country policy objectives through coercive means.

(e) Enhanced Cooperation

The German Federal Ministry for Economic Affairs and Energy (BMWE) will benefit from the secure EU database, which will provide access to broader intelligence on foreign investments in the EU. However, this increased transparency may also subject German cases to closer scrutiny from other Member States and the Commission. 

4. Broader Implications for Investors

The revised EU FDI Screening Regulation advances harmonization while preserving Member State autonomy, falling short of a centralized regime like CFIUS. Investors face significant practical implications: early due diligence is crucial to identify screening requirements, especially for EU subsidiaries of non-EU investors. Coordinating multi-jurisdictional filings simultaneously demands robust cross-border planning. Fragmented Phase II timelines and call-in risks post-closing add complexity, requiring regulatory buffers in transaction timelines. Strategic planning and proactive compliance are essential to navigate this evolving framework.

5. Conclusion

The adoption of the revised EU FDI Screening Regulation marks a watershed moment for foreign investment control in the EU. By mandating screening mechanisms, expanding scope, and enhancing cooperation, the regulation aims to address emerging security risks while ensuring consistency across Member States. For Germany, the changes will necessitate certain adjustments to its already robust screening regime. As the regulation becomes fully operational by early 2028, investors must prepare for a more structured and harmonised screening process across the EU. 

Lelu Li

As part of the funding round, Isar Aerospace secured funding of up to EUR 270 million. In particular, the funding is intended to support the expansion of production capacities and the further scaling of launch vehicle production. The aim is to set up highly automated series production with a capacity of up to 40 Spectrum launch vehicles per year. In addition, the funding strengthens the development of independent European launch capacities for government and commercial satellite missions.

The capital increase was driven by strong interest from international investors. Previous funding rounds have already been supported by the NATO Innovation Fund, Eldridge Industries and Porsche SE, among others.

Island Green Capital (IGC) is a discrete, inflection focused venture capital firm that invests broadly across focus sectors for the US and Allied Nations. These include Aerospace & Defense, AI, Specialty Manufacturing & Robotics, Financial Services, and Software. With a flexible investment approach, IGC evaluates companies from Series A through pre-IPO.  Aside from being true partners at the board and company level, IGC helps with the less visible but often critical work such as structuring non-dilutive debt, employee liquidity programs, and resolving cap table complexity. With its commitment to Isar Aerospace, its first in Germany, IGC underlines its interest in European technology leaders and the increasing importance of the space industry as a key sector for economic and geopolitical sovereignty.

ADVANT Beiten advised Island Green Capital on all legal aspects of the transaction, including the negotiation and review of the relevant transaction documentation as well as the structuring and implementation of the investment. The retention was based on the recommendation of the US law firm Massumi + Consoli, with which ADVANT Beiten advised on the transaction in close coordination. The successful cooperation underlines the law firm's international network as well as its special expertise in complex cross-border venture capital and growth funding. At the same time, the retention confirms ADVANT Beiten's strong position in advising international investors on investments in German and European technology companies, especially in innovation-driven industries of the future such as SpaceTech, DeepTech and DefenceTech.

Advisors to Island Green Capital:

ADVANT Beiten: Dr Dominik Moser, Tassilo Klesen (both Venture Capital/Private Equity, Berlin), Dr Marion Frotscher (Taxes, Hamburg).

Public Relations

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

The transaction involved the acquisition of essentially all of Sympatex Technologies GmbH’s assets, in particular its trademark rights and other key intangible assets. With this acquisition, Pidigi ensures the continuation of the day-to-day operations of the long-established trademark Sympatex.

ADVANT Beiten provided Pidigi with comprehensive advice on all legal aspects of the transaction, including the structuring and execution of the asset deal, as well as matters relating to corporate law, intellectual property law and labour & employment law.

Advice on the Italian legal aspects was provided by Stefano Dindo, a lawyer at the law firm Dindo, Zorzi e Associati in Verona which referred the matter to ADVANT Beiten.

Since 1986, Sympatex Technologies GmbH has been developing innovative, PFAS-free membrane technologies for functional clothing, footwear, protective clothing and technical applications. Pidigi S.p.A. has been operating internationally since 1953 as a supplier of materials to the footwear, leather goods and sportswear industries.

Advisor to Pidigi S.p.A.:
ADVANT Beiten: Matthias W. Stecher (in charge, IP/IT), Virginia Mäurer, Maike Pflästerer (both Labour & Employment), Christoph Heinrich (Antitrust), Tanja Hogh Holub and Christian Hess (both IP/IT), Mario Weichel (Corporate/M&A).

Dindo, Zorzi e Associati: Stefano Dindo

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

spectrumK is a service provider specialising in the healthcare sector and a contractual partner of statutory health insurance funds. The company develops and organises healthcare delivery and contractual models in various areas of healthcare and supports health insurance companies in particular in realising cost-effectiveness and healthcare delivery potential. The areas of activity include contract management for pharmaceuticals, medical aids, and other service areas of the healthcare sector.

The tender for exclusive rebate agreements for interchangeable biologics now being conducted by spectrumK is the first procedure of its kind in Germany. Contracts were awarded for a large part of the active ingredients tendered and the agreements were implemented on time. The participating health insurance companies thus benefit from cost-effectiveness potential that can be realised at an early stage, while the awarded manufacturers receive planning security for production and supply chains.

The start of the agreements comes in a phase of intensive health policy discussions about the future design of biologics rebate agreements. The Federal Ministry of Health recently spoke out in favour of stopping ongoing tenders without a contract award and reviewing agreements that have already been concluded. However, the agreements concluded by spectrumK were concluded on the basis of the legal situation in force at the time of the tender and the contract award.

According to ADVANT Beiten's legal assessment, there are currently good reasons to assume that the agreements that have already been validly concluded and started since 1 June 2026 will continue to exist. The agreements are based on a completed tender process and establish rights and obligations for the companies involved. The manufacturers have assumed supply obligations and aligned their production and logistics processes with the start of the agreement. In addition, wholesalers, pharmacies and other market participants were involved in the implementation on time and the necessary adjustments were made in the relevant systems.

Against this background, a subsequent reversal would not only raise complex legal issues but would also entail considerable practical challenges for the market players involved. Legal certainty and reliability are essential prerequisites for investments, supply commitments and a stable healthcare delivery, especially in the highly regulated healthcare market.

In addition, the agreements that have now been started can provide important insights for the political and regulatory discussion about the future design of biologics rebate agreements. The practical implementation offers the opportunity to gain experience with regard to cost-effectiveness, security of supply and market conduct and thus to create a reliable basis for future legislative decisions.

ADVANT Beiten has many years of experience in advising companies and institutions in the healthcare sector as well as in public procurement and healthcare law. The law firm regularly advises on complex tendering and contractual models at the interface of regulation, competition and healthcare.

Advisors to spectrumK:
ADVANT Beiten: Dr Silke Dulle, Christian Hipp, Max Stanko (all Berlin).

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

A Framework for Strategic Growth

Entering into force on July 1, 2026, the new regulations represent China's commitment to advancing "high-level opening up" and promoting the "high-quality development of outbound investment". This comprehensive approach consolidates previously scattered rules across various ministries and provides Chinese investors with clearer guidance on how to successfully expand internationally while maintaining compliance with both Chinese and foreign regulations.

Key provisions of the new framework include:

• Comprehensive scope and application: The regulations apply to all outbound investments by Chinese investors, including direct or indirect acquisitions of enterprises, assets, or related rights in other countries or regions. Investments in Hong Kong, Macau, and Taiwan are managed under similar rules. 
• General principles governing outbound investment: The framework emphasizes adherence to the overall concept of national security, strengthening the management and service system for outbound investments, and improving the quality and level of such investments. It aligns with high-standard international economic and trade rules, promotes high-quality Belt and Road Initiative cooperation, and fosters international collaboration in industrial and supply chains. Investors are encouraged to make outbound investments on a market-oriented basis.
• Comprehensive service systems: The regulations establish enhanced overseas comprehensive service systems, with provincial and central government departments improving public service capabilities. Professional service institutions are explicitly supported to provide high-quality specialized services to Chinese investors. Industry associations, chambers of commerce, and trade and investment promotion organizations are encouraged to offer information consultation and rights protection services.
• Regulatory oversight and supervision: The framework introduces improved regulatory measures, implementing categorized and graded full-process supervision to strengthen risk prevention and enhance the scientific and secure nature of outbound investments. Investors must comply with national regulations for filing approvals, information reporting, and cross-border capital registration. They are also required to take primary responsibility for the compliance and risk management of their outbound investment activities and avoid disrupting the outbound investment market order.

Enhanced Protection for Chinese Investors

One of the most significant aspects of the new regulations is their focus on protecting Chinese investors' legitimate rights and interests abroad. The framework includes:

• Monitoring mechanisms: Mechanisms to strengthen monitoring, early warning, and risk assessment to help investors prevent security risks
• Mechanisms for investigating investment barriers: New mechanisms to investigate and address discriminatory practices against Chinese investors 
• Dispute resolution support: Encouragement of multiple dispute resolution methods including consultation, mediation, arbitration, and litigation
• Reciprocal countermeasure mechanisms: Authority to take appropriate measures in response to discriminatory restrictions or prohibitions imposed on Chinese investors by foreign jurisdictions, including, where applicable, measures available under the PRC Anti-Foreign Sanctions Law and other relevant Chinese legislation.

Germany: A Strategic Destination for Chinese Investment

These developments come at a particularly relevant time for Chinese-German investment relations. Germany continues to be an attractive destination for Chinese investors, particularly in high-tech manufacturing and advanced services sectors. The new Chinese regulations align well with Germany's own evolving foreign investment framework, which is expected to be updated in line with new EU standards by mid-2026.

For Chinese investors considering German opportunities, the new regulations provide several advantages:

• Clearer compliance pathways: The consolidated framework reduces regulatory uncertainty and provides clearer guidance on approval processes
• Enhanced government support: Improved public services and professional guidance for overseas investments
• Better risk management: Systematic approaches to identifying and mitigating overseas investment risks

The Critical Role of Legal Compliance

The new regulations underscore the importance of professional legal guidance in cross-border transactions. Chinese investors must navigate not only the new Chinese outbound investment framework but also German and EU foreign investment controls, competition law, and sector-specific regulations.

Key compliance areas include:

• Outbound approval processes: Ensuring proper Chinese regulatory approvals and filings
• German investment screening: Navigating Germany's foreign investment control regime under the AWG (Foreign Trade and Payments Act) and AWV (Foreign Trade and Payments Ordinance)
• Ongoing compliance: Meeting reporting requirements and operational restrictions in both jurisdictions

Looking Forward: Opportunities in Uncertainty

While global investment flows face various challenges, the new Chinese regulations demonstrate Beijing's continued commitment to international economic integration. The framework's emphasis on "market-oriented principles" and alignment with "international high-standard economic and trade rules" suggests opportunities for well-advised Chinese investors to continue expanding globally.

For Chinese companies considering German investments, the key to success lies in early engagement with experienced legal counsel who understand both Chinese outbound investment requirements and German regulatory frameworks. This dual expertise is essential for:

• Structuring transactions to meet both Chinese and German regulatory requirements
• Identifying potential compliance risks before they become problems 
• Developing strategies that align with both countries' policy objectives
• Ensuring smooth transaction execution and post-closing compliance

Conclusion

China's new outbound investment regulations represent an evolution, not a retreat, in Chinese international investment policy. By establishing clearer frameworks and stronger support systems, these regulations can facilitate more strategic and sustainable Chinese investment abroad. For Chinese investors with German ambitions, success will depend on understanding and embracing these new compliance requirements as a foundation for long-term international growth.

The regulatory landscape may be complex, but with proper legal guidance, Chinese investors can continue to find significant opportunities in Germany's dynamic economy while meeting the highest standards of international compliance.

Dr Jenna Wang-Metzner
Lelu Li

Introduction: A New Era of Legal Confrontation in EU-China Trade Relations

The European Union's ambitious Foreign Subsidies Regulation (FSR) has rapidly become a central instrument in the EU's competition policy toolbox, aimed at safeguarding the level playing field in the Single Market. However, its vigorous application, particularly against Chinese companies, has triggered a formidable legal and political counter-reaction from Beijing. A pivotal moment arrived on 15 May 2026, when the Chinese Ministry of Justice, jointly with the Ministry of Commerce, issued an official announcement (Announcement No. 5) declaring the EU's FSR cross-border investigation practices against the Chinese security scanner company Nuctech as an instance of "improper extraterritorial jurisdiction" according to Articles 3 and 6 of the Regulations on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Measures (the "Blocking Regulations"). These Blocking Regulations explicitly order all organisations and individuals not to comply with or assist the EU's investigation. This move marks the first operational use of China's newly enacted legal framework, which entered into force on 7 April 2026 (our related blog articleChina's New Counter-Sanctions Rules: Growing Risks for Global Companies | ADVANT Beiten) against foreign extraterritorial jurisdiction, transforming trade tensions into a direct clash of legal systems and sovereignty claims.

The EU's Tool: The Foreign Subsidies Regulation in Action

The FSR, which entered into force in 2023, empowers the European Commission to investigate financial contributions from non-EU governments to companies active in the EU that are deemed to distort competition. While not country-specific, enforcement has prominently focused on Chinese entities. The Commission has initiated several in-depth and ex officio investigations, with cases involving CRRC, Nuctech, Temu, Goldwind and, more recently, JD.com.

The Nuctech case is particularly emblematic. The company, a global leader in security scanning equipment, faced a "dawn raid" by Commission officials at its European offices in April 2024. This escalated into a formal in-depth investigation launched in December 2025. The Commission's probe seeks to determine whether Nuctech's success in EU public procurement procedures was facilitated by distortive Chinese state subsidies. From the EU's perspective, this is a legitimate exercise to protect fair competition within its market against foreign subsidies that undermine it.

Similarly, the scrutiny of the proposed acquisition of CECONOMY by JD.com highlights the expanding regulatory landscape. The transaction, announced in July 2025, requires clearance not only from the German Federal Cartel Office (which was granted) but also under the German investment screening and the EU FSR screening mechanism. Under FSR, the Commission is examining whether JD.com received subsidies from the Chinese government that could have given JD.com an unfair advantage in the acquisition process, potentially distorting competition in the European market. This adds a significant regulatory hurdle, with the deal's completion now contingent on these clearances.

The Chinese Response: Legal Blocking and Accusations of Protectionism

China's reaction to the FSR, culminating in the May 2026 blocking order, is rooted in a narrative that frames the FSR as a unilateral, protectionist tool. Beijing's objections are not new. In January 2025, the Chinese Ministry of Commerce (MOFCOM) concluded a six-month investigation, branding the FSR a "trade and investment barrier" that selectively targets Chinese companies, uses vague definitions, and creates undue burdens.

The 15 May 2026 Announcement represents a qualitative leap from diplomatic complaint to legal countermeasure. The core Chinese arguments are threefold:

1. Extraterritorial Overreach: The EU is accused of grossly overstepping jurisdictional boundaries by demanding data and documents located within China, including sensitive corporate and policy information, thereby violating Chinese sovereignty.

2. Conceptual Overreach: China argues the FSR illegitimately classifies standard industrial policy tools—such as tax incentives and R&D support available to all high-tech firms—as "distortive subsidies".

3. Placing Companies in an Impossible Bind: Chinese firms like Nuctech are described as being caught in a "protracted" process, compelled to choose between violating Chinese data and state secrets laws by complying with EU demands, or facing severe EU penalties for non-compliance.

A Deepening Conflict: Sovereignty vs. Market Integrity

The standoff represents a fundamental conflict of principles. From the EU's perspective, this is about defending the integrity of its internal market. The Commission sees itself as enforcing rules against economic distortions that originate abroad, a logical extension of its competition policy in a globalised economy. The FSR is portrayed as a necessary defence mechanism.

From China's perspective, this is about resisting "long-arm jurisdiction" and defending national sovereignty and the legitimate rights of its companies abroad. Beijing views the FSR's investigatory reach into its domestic sphere as an unacceptable infringement. The blocking order is thus framed not as protectionism, but as a lawful defence against what it deems extraterritorial overreach, providing a "legal shield" for Chinese enterprises.

Practical Implications for Businesses and Legal Practitioners

This evolving conflict creates a highly complex and risky compliance environment for companies operating across these jurisdictions.

For Chinese Companies in the EU: Firms face heightened legal uncertainty. They must navigate the stringent demands of the FSR while being legally prohibited by their home government from fully complying if those demands are deemed extraterritorial. The risk of being caught between conflicting legal orders and facing penalties from both sides is real and acute.

For EU Companies and Transactions Involving Chinese Parties: Deals like the JD.com/CECONOMY acquisition face prolonged uncertainty and potential derailment due to FSR reviews. More broadly, any commercial partnership, merger, or public procurement bid involving Chinese state-linked investment or subsidies is now under a brighter spotlight.

For Legal Advisors: The role of legal counsel has never been more critical. Advising clients requires a delicate, dual-track understanding. On one hand, expertise in EU competition law and FSR procedure is essential to navigate the European regulatory landscape. On the other, a deep grasp of China's evolving counter-sanction and blocking statutes is necessary to assess and mitigate the risks of non-compliance from the Chinese perspective. This complex situation demands strategic advice that anticipates regulatory clashes.

Conclusion: Towards Dialogue or Decoupling?

The EU's FSR enforcement and China's blocking response have moved bilateral trade frictions into the realm of legal and systemic rivalry. This is no longer just about tariffs or market access, but about conflicting views on jurisdiction, sovereignty, and the very rules governing globalisation.

In the short term, this escalation increases compliance costs and legal risks for businesses, potentially chilling investment and cooperation. The pending FSR investigation into JD.com's acquisition plans underscores how this tool can impact major corporate strategies.

The long-term trajectory depends on whether Brussels and Beijing can find a modus vivendi. The EU insists on its right to protect its market, while China insists on its sovereign right to reject external legal intrusion. A path of escalating tit-for-tat measures risks fragmenting the regulatory landscape. A more sustainable path, though challenging, would require renewed dialogue to define clearer boundaries, improve transparency, and establish mutual recognition of certain regulatory processes. For now, companies must brace for continued turbulence, navigating a world where the laws of one major economic actor are met with direct legal countermeasures from another.

Lelu Li

This obligation to repair upon consumer’s request does not only apply in cases where the product was defective at the time the risk passed to the consumer, but also, for example, where a consumer has damaged the product themselves. Thus, the right to repair exists independently outside the seller's contractual liability under statutory warranty provisions. 

Companies introducing such products from outside the EU, i.e. importers, should consider in their business case that they may be subject to repair obligations: the right to repair will apply to the product irrespective of its origin and therefore to the company commercialising the product in an EU-country s. The directive establishes a special liability system:

• Primarily, the manufacturer is obliged to fulfil the "right to repair" obligations.
• If the manufacturer is established outside the Union, its authorised representative must perform the obligation of the manufacturer.
• If the manufacturer has no authorised representative, the importer of the good concerned is responsible.
• In exceptional cases where there is no importer, the distributor of the goods concerned shall fulfil the manufacturer's obligation.

Each of these parties may subcontract repair services to fulfil their obligation to repair.

Any obligated party must make information about its repair services available to consumers free of charge (at least for the duration of the repair obligation) in a clear, easily accessible, and comprehensible manner. Repairers shall be found by consumers easily through a new online European Repair Platform, which is expected to become operational in 2027.

The obligation to repair applies to the products listed in the implementing regulations under the Ecodesign Directive 2009/125:

• Household washing machines and household dryers
• Household dishwashers
• Refrigerators
• Electronic displays
• Welding equipment
• Vacuum cleaners
• Servers and data storage products
• Mobile phones, cordless phones, and slate tablets
• Household tumble dryers
• Goods containing batteries for light vehicles

The DGQ is a leading German professional association for quality management and quality assurance. Since its foundation, it has been committed to developing and promoting quality expertise in business, public administration and society. The DGQ’s key areas of focus include continuing professional development, personal certification, professional exchange, and the promotion of modern management systems and sustainable organisational development.

DQS stands for the German Society for the Certification of Management Systems. The organisation was founded in 1985 by DGQ, DIN and other German industry associations, and is now an international provider of certification, auditing and business assurance services, with clients in more than 60 countries. DQS supports companies across all sectors with regulatory requirements, quality standards, and ESG and compliance issues.

Montagu is an international private equity investor specialising in the healthcare, financial services, technology and industrial sectors. The firm supports its portfolio companies in achieving sustainable growth, realising operational potential and strengthening their market position over the long term. Montagu’s investment is intended to support DQS through its next phase of growth. In particular, the firm plans to invest in digitalisation, international expansion and the broadening of its service offering in the areas of digital trust, medical devices and ESG. With extensive industry experience and a clear focus on value creation, Montagu is one of the established investors in the European mid-market segment.

ADVANT Beiten comprehensively advised DGQ on all legal aspects of the transaction.

Advisors to Deutsche Gesellschaft für Qualität e.V. (DGQ):
ADVANT Beiten: Dr Christof Aha, Mark Thönißen (both Corporate/M&A, Frankfurt), Prof. Dr Christian Heinichen (Antitrust), Dr Markus Ley (Corporate/M&A, both Munich).

Advisors to DQS Holding:
act legal: Christoph O. Breithaupt, Julia Rosigkeit, Sandra Ryssok, Christoph Tornau 
Houlihan Lokey as M&A Berater: Christian Keller, Kevin Rogstad, Alexander van Aubel, Jack de Laney

Advisors to UL Solutions:
Eversheds Sutherland: Anthony Cross, Dr Johannes Pfeiffer 

Advisors to DIN e.V.: 
PwC Legal: Thomas Moritz, Alexander Friedheim

Advisor to VDMA e.V.:
LPA Law: Dr Leif Gösta Gerling 

Advisor to ZVEI e.V.:
Baker Tilly: Jens Suhrbier

Advisor to SPECTARIS e.V.:
Grothmann Geiser: Frank Geiser

Advisor to HDB e.V.:
Inhouse: Dr Henning Koewius

Advisor to Montagu: 
Linklaters: Dr Ralph Drebes, Dr Christian Hundeshagen, Dr Johannes Porsch, Anna Tamara Castaner Coll

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

Dr Christof Aha
Lawyer
ADVANT Beiten 
+49 69 756095-451
christof.aha@advant-beiten.com

1. TARIFF REDUCTION: SIGNIFICANT OPPORTUNITIES – BUT NOT AUTOMATIC

At the core of the agreement is the gradual reduction of tariffs, which to date have been substantial across many sectors. In the automotive industry, tariffs have reached up to 35%; in mechanical engineering, they have often ranged between 14% and 20%; and for chemical products, duties have in some cases been as high as 18%. Under the agreement, these tariffs will be progressively reduced, and in many instances eliminated altogether.

For businesses, this creates tangible competitive advantages in South American markets. However, these benefits are not available automatically. Companies must actively comply with the agreement’s requirements and provide the necessary documentation. It is at this point that the real need for action begins.

2. RULES OF ORIGIN: A PREREQUISITE FOR ANY CUSTOMS DUTY SAVINGS

For customs duties to be reduced or waived under the agreement, goods must comply with the so‑called rules of origin. The decisive factor is whether a product is considered to have preferential origin. These requirements are particularly relevant for exports, as it is the exporter who must demonstrate that the goods meet the applicable criteria in order for tariff preferences to be granted in the country of destination.

In practice, this means that a product must either have undergone sufficient value creation in the country of origin – i.e. a substantial part of its manufacture or processing must have taken place there – or meet specific production or processing requirements. These requirements are precisely defined in the agreement and vary depending on the product category.

In many cases, verifying compliance is complex. The entire supply chain must be taken into account, and origin rules can differ significantly between products. For companies with international supply chains in particular, this raises a key question: do their products meet the relevant origin requirements, or are adjustments to sourcing or production processes necessary?

3. LONG-TERM SUPPLIER DECLARATIONS (LTSDs): THE KEY PRACTICAL TOOL

A crucial aspect of the agreement – and one that is often underestimated in practice – is the long‑term supplier declaration (LTSD). In the context of customs and foreign trade, these are formal declarations in which a supplier confirms to its customer that the goods supplied meet specific rules of origin. LTSDs typically apply to deliveries over an extended period, provided the goods are expected to retain the same origin status.

They form the essential basis on which an exporter can issue a declaration of origin and, in turn, benefit from preferential customs treatment. The EU–Mercosur Agreement introduces changes that directly affect how these declarations must be handled.

What is changing:

• Mercosur countries may be included in LTSDs with effect from 1 May 2026
• The countries must be listed individually (e.g. Brazil, rather than “Mercosur”)
• Existing declarations cannot be reused automatically

In practice, difficulties often arise because many long‑term supplier declarations were issued years ago and have not been reviewed since. As a result, origin information frequently no longer complies with the rules currently in force. In addition, supply chains may have evolved over time without corresponding updates to the supporting documentation.

Incorrect or outdated LTSDs can have significant consequences. These include the loss of tariff preferences, retroactive customs duties, and potential liability towards customers. Issues may also arise in the course of customs inspections or audits.

What companies should do now:

• Thoroughly review and update existing LTSDs
• Ensure Mercosur countries are correctly and individually listed
• Reassess applicable rules of origin
• Clearly define internal responsibilities

4. CONTRACTS, DISPUTES, AND COMPLIANCE: ADJUSTMENTS REQUIRED AS TRADE INTENSIFIES

As trade with Mercosur countries increases, existing contractual arrangements should be reviewed and, where necessary, adapted. Many supply and framework agreements have historically been designed with a primary focus on European markets and often take limited account of the specific characteristics of trade with Brazil, Argentina, Paraguay and Uruguay.

In particular, contractual provisions relating to Incoterms, delivery timelines, transfer of risk and payment terms become more critical when dealing with longer distances and differing commercial practices. At the same time, higher trade volumes inevitably increase the risk of disputes, for example in relation to delivery delays, quality defects or payment defaults. Companies should therefore address potential conflict scenarios at an early stage and clearly determine how and where disputes will be resolved, whether through jurisdiction clauses, arbitration agreements or other dispute resolution mechanisms.

Alongside the economic opportunities, compliance and supply chain requirements are also becoming more demanding. Obligations relating to environmental and social standards, contractual assurances given to business partners, and expanded documentation requirements are no longer limited to large corporations; they are increasingly affecting small and medium-sized enterprises as well. The EU-Mercosur Agreement reinforces this development, making it necessary to systematically review and, where appropriate, adapt existing compliance and governance structures.

5. CONCLUSION: ACT NOW RATHER THAN FIXING ISSUES LATER

The entry into force of the EU-Mercosur Agreement marks the start of an ongoing adjustment process for small and medium‑sized enterprises. While the gradual elimination of tariffs offers considerable economic opportunities, the extent to which these benefits can actually be realized depends largely on effective and compliant implementation in practice.

Particular attention should be paid to the rules of origin and long‑term supplier declarations. Only companies that carefully review and update these instruments – and align their supply chains accordingly – will be able to make full use of the intended preferential treatment. Failing to do so may result not only in the loss of tariff savings, but also in legal risks arising from incorrect origin declarations, retroactive customs duties or administrative penalties.

At the same time, the agreement’s entry into force presents an opportunity to reassess existing legal and organizational structures and adapt them where necessary. If you would like to review whether your long‑term supplier declarations, proofs of origin or contractual arrangements comply with the new requirements, we would be pleased to assist you with legally sound implementation and classification. An early review ensures legal certainty and enables businesses to take consistent advantage of the agreement’s economic benefits from the outset.

Dr Philipp Sahm
Katharina Reichert
Kevin Einert

• Regulations on the Security of Industrial and Supply Chains (Regulation No. 834) 
• Regulations on Counteracting Unjustified Foreign Extraterritorial Jurisdiction (Regulation No. 835)

Both regulations came into force upon publication and expand the legal framework developed since 2020, through which China responds to economic and political pressure from abroad. The previous legal framework prior to the enactment of Regulations No. 834 and 835 included:

• Provisions on Unreliable Entity List (UEL), MOFCOM regulation from September 2020: The UEL is an economic and security policy instrument aimed at sanctioning foreign organizations and individuals that, from China's perspective, jeopardize national sovereignty, security, or development interests, or discriminate against Chinese companies or harm them for non-market reasons (e.g., supply stoppages) or violate applicable trade principles. Sanctions under the UEL include import/export bans, investment bans, entry restrictions for personnel, revocation of work/residence permits, and fines.
• Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures (Blocking Rules), MOFCOM regulation issued in January 2021: These rules aim to protect Chinese companies and citizens from the extraterritorial application of foreign laws and to counter  foreign regulations that apply extraterritorially (i.e., outside the territory of the foreign country) and impede Chinese parties in their normal business activities.
  
  The Blocking Rules do not target specific organizations directly, but rather foreign laws, sanctions, embargoes, or export controls that compel companies outside the respective third country to comply and that China deems "unjustified". The rules apply to organizations and individuals in China subject to such foreign regulations. Key provisions include: 
  • Reporting obligation: Affected parties must report if they are impacted by foreign extraterritorial regulations. 
  • Prohibition orders: Chinese authorities can order that the affected foreign regulations must not be followed. 
  • Civil lawsuits: Affected parties can claim damages in Chinese courts if they suffer harm due to the application of such foreign rules. 

  • Exemptions: Companies can apply for permission to comply with foreign regulations.

     

• Anti-Foreign Sanctions Law (AFSL), enacted by the Standing Committee of the National People's Congress of China in June 2021:
  The AFSL is China’s core legal instrument for countering discriminatory or internationally unlawful foreign sanctions. Specifically, it addresses third-country  sanctions targeting China, Chinese organizations, or citizens that are regarded as interference in internal affairs or violations of international law. The AFSL applies to:
  • Foreign states and their authorities. 

  • Organizations and individuals involved in imposing or implementing sanctions against China or supporting or enforcing such sanctions.

    Key countermeasures under the AFSL include: 

  • Sanctions list: Inclusion of individuals/organizations involved in foreign sanctions. 
  • Countermeasures: E.g., entry bans, freezing of assets in China, prohibition of transactions with Chinese partners, other necessary measures. 
  • Extended scope: Countermeasures may apply to affiliated companies and family members. 
  • Enforcement obligations: Organizations and individuals located in China must comply with China’s countermeasures. 

  • Civil lawsuits: Affected parties can claim damages in Chinese courts if harmed by the implementation of foreign sanctions.

     

• AFSL Implementing Regulations issued by the State Council of China in March 2025: These regulations specify, structure, and expand government powers to implement measures under the AFSL. They clarify and broaden measures generally mentioned in the AFSL, particularly:
  • Seizure, confiscation, and freezing of various assets (including financial assets, IP rights, etc.). 
  • Prohibition or restriction of transactions and collaborations (also cross-sectoral, e.g., trade, education, technology). 
  • Possibility of "other necessary measures" (general clause).

Additionally, the regulations focus on institutional and procedural design:

• Responsibilities of various authorities (e.g., foreign, trade, security authorities) are clearly distributed. 
• Introduction and clarification of investigative powers (investigations, evidence collection), decision-making procedures (listing, measure orders), and coordination mechanisms between authorities.

The Blocking Rules do not target specific organizations directly, but rather foreign laws, sanctions, embargoes, or export controls that compel companies outside the respective third country to comply and that China deems "unjustified". The rules apply to organizations and individuals in China subject to such foreign regulations. Key provisions include: 

New Regulations No. 834 and 835

The two regulations No. 834 and 835, introduced in April 2026, add new instruments and consolidate existing mechanisms within the legal framework described above.

What’s new:

• Supply chain information gathering: Organizations are prohibited from conducting supply chain-related investigations or information collection activities in China that violate Chinese regulations. The broad wording potentially covers activities such as ESG audits (e.g., on forced labor or CO₂ footprint assessment), supply chain mapping identifying critical nodes, capacities, or substitution strategies, questionnaires, or on-site inspections of Chinese suppliers by foreign entities. There is also a risk that this restriction under Regulation No. 834 may conflict with due diligence obligations of foreign companies arising from EU/US supply chain requirements.
• Risk of sufficient harm: Chinese authorities may initiate investigations and take measures if foreign organizations or individuals "disrupt normal transactions" or "take discriminatory actions" against Chinese business partners, and such conduct causes or could cause substantial harm to China's supply chains security. Although compliance with foreign sanctions or export controls is not explicitly mentioned, the regulation is broad enough to potentially include business decisions, such as terminating supply relationships or suspending transactions with Chinese business partners, especially if such actions are in response to foreign regulatory requirements. Chinese countermeasures can also apply to entities controlled by foreign organizations, potentially affecting subsidiaries worldwide.
• Malicious Entity List (MEL) and liability extension rules: The "malicious entity" designation is new. It refers to organizations promoting or implementing foreign extraterritorial measures deemed impermissible by China. By including the term "promote," the scope of sanctionable actions extends beyond direct implementation to supportive or advocacy actions. Additionally, the scope is extended to organizations controlled by or affiliated with those listed in the MEL. 
• China’s assertion of extraterritorial jurisdiction: China reserves the right to exercise its jurisdiction over extraterritorial actions with a reasonable connection to China. This marks a shift from a defensive blockade against extraterritorial provisions to proactive actions asserting jurisdiction over foreign activities. In practice, this could mean extending Chinese decisions abroad if the impacts on Chinese companies or interests are deemed sufficiently connected. 
• Criminal liability: Regulation No. 835 also establishes criminal liability for individuals that  violate its provisions, expanding liability beyond previously stipulated administrative measures and travel bans and heightening personal risks for executives based in China. 

What has been consolidated/adjusted:

• The consequences for listed entities (trade restrictions, asset freezes, visa bans, etc.) remain largely identical under the UEL, AFSL, and the new MEL.  
• Regulation No. 834 requires organizations and individuals in China to strictly implement countermeasures taken by the Chinese government. Thus, subsidiaries and executives of foreign companies based in China remain obligated to comply with Chinese countermeasures, even if these directly conflict with foreign sanctions or global compliance guidelines. 
• The core prohibition on complying with foreign measures has existed since MOFCOM’s Blocking Rules and is now also enforced through prohibition orders issued by the Ministry of Justice. 
• The right of Chinese companies to sue parties that comply with foreign measures, derived from the AFSL and Blocking Rules, is reaffirmed.

Outlook and Recommendations
The instruments under the aforementioned norms operate cumulatively, meaning that a specific action can trigger sanctions from various authorities in China. Furthermore, the risk increases that business decisions in China directly conflict with foreign compliance obligations. For example, terminating a contract with a Chinese supplier to comply with US export controls could simultaneously trigger inclusion in the UEL, measures under the AFSL, investigations under Regulation No. 834, measures under extraterritorial jurisdiction under Regulation No. 835, and civil lawsuits by the terminated party. Actions must therefore be considered comprehensively under the existing regulations and not just under one part of the norms. In such cases, it should also be considered whether, for instance, an alternative adjustment/suspension of the contract might be appropriate instead of termination.

Regulation No. 835 includes provisions referring to potential criminal liability under applicable law, thereby expanding liability beyond previously prescribed administrative penalties and travel bans and increasing personal risks for executives in China. If such risks are identified, exposed personnel should refrain from traveling to China. 

Significant uncertainties remain regarding the implementation of the above-mentioned legal provisions. For example, it is unclear what constitutes "disruption of normal transactions," where the boundaries of "impermissible extraterritorial jurisdiction" lie, and what qualifies as "promotion" in connection with the MEL. In the worst case, public advocacy, lobbying, or urging industry peers to sever ties with Chinese companies could be considered "promotion," even if such advocacy does not lead to direct implementation. 

Therefore, companies operating in China should closely monitor how the implementation of these regulations evolves. Already, it is evident that China’s enforcement of countermeasures is increasingly becoming operational practice, as evidenced by the growing number of entries in the UEL and the AFSL sanctions list: the UEL was introduced at the end of 2020, with no entries until February 2023, three entries in 2024, and 67 entries in 2025. By 2025, over 100 entries in the AFSL sanctions list were known. Published cases also show that the option of civil lawsuits under the AFSL/Blocking Rules is being utilized.

Since Regulation No. 834 introduces new restrictions on gathering supply chain information, conducting ESG, forced labor, or supply chain audits in China to comply with EU/US supply chain obligations may conflict with the information-gathering restrictions under Regulation No. 834. Therefore, supply chain audits should be reviewed and, if necessary, adjusted.

General corporate policies that automatically mandate compliance with foreign sanctions across all global business areas (including Chinese subsidiaries) could be considered "implementation" or "promotion" of impermissible extraterritorial jurisdiction under Regulation No. 835 and should be adjusted accordingly.

Susanne Rademacher

Klinikum Westbrandenburg – with its two paediatric and adolescent clinics in Potsdam and Brandenburg an der Havel – was transferred back to its two shareholders, Klinikum Ernst von Bergmann and Universitätsklinikum Brandenburg an der Havel, following a demerger carried out under the law governing corporate conversions. The Potsdam site will now become part of the Klinikum Ernst von Bergmann whilst the Brandenburg an der Havel site will continue to operate as part of the Universitätsklinikum Brandenburg an der Havel.

The Ernst-von-Bergmann Group with more than 4,500 employees is currently undergoing a comprehensive reorganisation process. The current integration at the Klinikum Ernst von Bergmann in Potsdam will establish clear and sustainable structures for paediatrics and adolescent medicine whilst strengthening collaboration between the specialist departments.

ADVANT Beiten has provided comprehensive advisory services to the Klinikum Ernst von Bergmann regarding its restructuring, most recently in connection with the sale of its majority stake in Lausitz Klinik Forst GmbH.

Advisors to Klinikum Ernst von Bergmann: 
ADVANT Beiten: Dr Karl-Dieter Müller (Berlin, in charge), Benjamin Knorr, Robert Schmid, Dr Thomas Jilg (all Corporate/M&A, Berlin), Dr Silke Dulle (Medical Law), Dr Dietmar Müller-Boruttau, Wolf J. Reuter, Dr Martin Kalf (all Labour & Employment, Berlin), Helmut König (Tax, Dusseldorf)

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

Klinikum Ernst von Bergmann has sold its majority stake in Lausitz Klinik Forst GmbH to the Foundation Stiftung Evangelische Diakonissenhaus Berlin Teltow Lehnin as part of a structured bidding process.

Advisors to Klinikum Ernst von Bergmann:

ADVANT Beiten: Dr Karl-Dieter Müller (Berlin, in charge), Robert Schmid, Benjamin Knorr, Dr Thomas Jilg (all Corporate/M&A, Berlin), Dr Silke Dulle (Medical Law, Berlin), Helmut König (Tax, Dusseldorf), Christoph Heinrich (Antitrust, Munich)

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

Dr. Karl-Dieter Müller
Lawyer, Tax Consultant
ADVANT Beiten 
+49 30 26471-262
Karl-Dieter.Mueller@advant-beiten.com

Last week, the European Commission presented its proposal for an EU Inc. In the following, we outline the key elements of the current initiative and consider how the proposed legal framework may take shape from both legal and tax perspectives.

Status Quo

Against the backdrop of corporate structures that have existed for decades, the concept of a European legal form — an EU Inc. — has emerged. While Europe constitutes one of the world’s largest internal markets in economic terms, it remains a regulatory patchwork. This presents particular challenges for innovative companies that depend on access to venture capital, pan-European mobility, scalability, a highly skilled workforce and long-term investment. To date, businesses operating — or seeking to operate — across borders have been required to invest significant time and resources in navigating divergent national regulatory regimes.

The existing European legal form available to companies, the Societas Europaea (SE), introduced in 2001, does not adequately address these challenges. As a result, it has not become the standard vehicle for start-ups. It is widely regarded as overly complex. In addition, it requires a minimum capital of €120,000 and leaves key governance matters to be determined by national laws.

EU Inc. Legal Form

After years of limited political traction, the idea of a European company form has regained momentum, driven in part by initiatives from European technology companies, investors and start-up associations.

The EU Inc. is envisaged as a uniform company form operating across Europe within a legal framework designed as a “28th regime”, existing alongside the national regimes of the 27 Member States. It is intended to be incorporated entirely digitally, with a minimum share capital of just €1, and could be established within as little as 48 hours. Start-up costs are expected to be capped at approximately €100.

Companies would therefore be able to operate under uniform capital requirements, supported by a central EU register, standardised investment documentation and a harmonised employee share ownership scheme across Europe.

If realised, the EU Inc. would offer clear economic advantages for both entrepreneurs and investors. Scaling businesses would become more straightforward, and investment processes could be accelerated — for example, through potentially shorter and more streamlined due diligence procedures.

National Tax Sovereignty Remains in Place

The intended simplicity and speed of incorporation should not be undermined by additional registration and onboarding requirements imposed by public authorities. In practice, obtaining a company registration number from the Federal Employment Agency, opening a business bank account and securing a tax registration number have proved particularly time-consuming. A meaningful reduction in administrative burdens would therefore be highly desirable.

However, as the proposed 28th regime is primarily focused on company law, no immediate simplifications in tax rights and obligations are expected. According to statements by the European Commission, certain areas of tax law may also be subject to future harmonisation, although the precise scope remains unclear. Any such measures would, in any event, likely require the unanimous consent of the Member States. Nevertheless, it would make sense to:

• remove tax barriers to cross-border business activities to ensure transparency and simplification; and
• establish uniform criteria for determining administrative headquarters to avoid the double taxation of companies.

Yet, the EU’s tax policy to date makes one point unmistakably clear: the harmonisation of cross-border taxation among Member States remains highly contentious.

Taxation lies at the heart of national sovereignty, as it constitutes the primary source of public revenue. Against this backdrop, the national tax regimes of the Member States will continue to apply within the framework of an EU Inc. Member States will retain full control over tax rates, assessment and enforcement. In practice, an EU Inc. would be treated in the same way as a German private limited liability company (GmbH) and, as a legal entity subject to unlimited tax liability, would be liable to corporate income tax and trade tax where it has its registered office or place of effective management in Germany, as well as to value added tax (VAT) to the extent that it supplies goods or services within Germany. 

Given the extensive harmonisation of VAT rules under the VAT Directive — Member States differ primarily in their rates, which range from approximately 16% to 25% — tax competition in the area of direct taxation will remain largely unaffected and may even intensify as a result of the EU Inc. As the EU Inc. is intended to simplify company formation and expansion (with incorporation possible within 48 hours, a minimum capital requirement of €1 and no need for notarial involvement), businesses will find it significantly easier to relocate their formal seat to any Member State. This is likely to increase competition between jurisdictions for corporate establishments.

As a result, the choice of seat may increasingly be driven by tax considerations, as other factors — such as legal form, administrative burden and costs — become less decisive. Member States will therefore need to offer more attractive tax frameworks to attract new businesses. In this respect, the EU Inc. would strengthen tax competition within the EU without harmonising substantive tax law. A greater alignment of the corporate tax base across Member States — similar to what has already been achieved in VAT — would enhance transparency in tax competition.

From a German policy perspective, the gradual reduction of the overall corporate tax burden to an internationally competitive level of no more than 25% by 2032 represents a key measure in maintaining the attractiveness of Germany as a business location.

Outlook

With its proposal for an EU Inc., the European Commission has sent a clear signal: the European Union intends to significantly simplify company formation and further strengthen the freedoms of establishment and movement of capital. The aim is to enable businesses to operate and raise capital across Europe as seamlessly as they do in jurisdictions such as the United States or China.

However, for all its potential, the transition to a new European corporate framework will be complex. Key considerations — including legal structuring decisions, employment law implications and integration into existing organisational models — will require careful planning and thorough preparation.

Markus P. Linnartz
Dr Christian Osbahr
Selina Köker

Founded in 2025 by Philipp Engelkamp and Andrew Welling and headquartered in Munich, the company is developing a novel, next generation drilling system for accessing deep geothermal resources. The company’s objective is to make geothermal energy more accessible, affordable and safer as a reliable renewable energy source.

The funds raised will be used primarily to further develop the technology, expand the team, launch initial pilot projects and prepare for market entry.

ADVANT Beiten provided Telura with comprehensive advice on the structuring and execution of the funding round.

Advisors to Telura:
ADVANT Beiten: Christian Burmeister (in charge, Corporate/M&A, Freiburg and Berlin), Julius Bauer (Corporate/M&A, Freiburg)

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

The following article is intended to shed light on central problem areas that repeatedly lead to conflicts in practice.

1. Unclear Inspection Deadlines Depending on the Type of Goods - Differentiation Between Open and Hidden Defects 

A central practical problem of Section 377 of the German Commercial Code (HGB) lies in the close connection between two questions: How long is the buyer allowed to investigate and what defects should have been detected in the process? The uncertainty surrounding the applicable inspection period is directly linked to the difficult distinction between apparent defects and hidden defects.

1.1 No Fixed Deadlines - Case-by-Case Assesment

The Federal Court of Justice (BGH) emphasizes in established case law that there are no fixed deadlines for the investigation. Rather, the relevant assessment depends on criteria such as:

• the nature and characteristics of the goods
• the scope and complexity of the delivery
• customary practices within the relevant industry
• the organization of the buyer’s business operations

decisive. 

Irrespective of these criteria, it can be stated that a strict standard applies in commercial transactions. An initial, random inspection must regularly be carried out within one working day of delivery. In the case of perishable goods, testing must begin immediately – in fact immediately – whereas in the case of technically complex products, on the other hand, the duration of the examination can extend to several days, in exceptional cases, up to approximately one week.

1.2 The Distinction as the Decisive Factor for Liability

Whether a defect is to be classified as “apparent” "concealed" determines the start of the period – and thus often the existence or loss of warranty rights.

Apparent defects are those that are easily recognizable during a proper examination, whereas hidden defects, as the name suggests, cannot be detected even after a careful initial inspection.

The practical difficulty lies in the fact that the question of whether a defect was “apparent” is assessed retrospectively based on the objectively owed intensity of the investigation. The standard is therefore not what the buyer has actually checked, but what he would have had to check if he had been properly organized.

This intertwines both problem areas:

If the inspection period is interpreted narrowly, the likelihood increases that a defect will be classified as apparent, which means that the complaint period begins to run as soon as it is delivered. If no immediate notification is then made, the fiction of approval under Section 377 of the German Commercial Code (HGB) applies.

In the case of latent defects, by contrast, the notification period begins only upon discovery of the defect. However, disputes frequently arise as to when the defect could have been detected through a proper inspection—an issue that often requires expert assessment.

2. Evidentiary Issues in Cases of Failure or Delayed Notice of Defects

In contentious disputes, the allocation of the burden of proof often determines the success or failure of a claim. The relevant principles are as follows:

• Delivery of the goods: burden of proof on the seller
• Timely inspection: burden of proof on the buyer
• Non-detectability of a latent defect: burden of proof on the buyer
• Time of discovery: burden of proof on the buyer
• Timely dispatch of the notice of defects: also burden of proof on the buyer

It is therefore advisable for merchants to design internal audit and documentation processes in such a way that the investigation and complaint remain provable in the event of a dispute (e.g. audit protocol, e-mail archiving, goods receipt documentation).

3. Particular Challenges in Drop Shipment Transactions 

In modern commercial traffic – especially within the framework of just-in-time structures – so-called drop shipping is becoming increasingly important. This is a model in which a seller sells to a first buyer, who then resells the goods to a second buyer. However, the delivery is made directly from the seller to the second buyer as the end customer. In fact, the first buyer never gets possession of the goods.

3.1 Complaint Along the Contractual Hierarchy

Due to the principle of relativity of contractual obligations, the notice of defects must generally be transmitted along the contractual chain:

Second buyer → initial buyer → seller

Between the second buyer and the initial buyer, notice must be given without undue delay. Subsequently, the initial buyer must also notify its seller without undue delay.

A direct notification from the second buyer to the seller may only suffice in individual cases to influence the relationship between the seller and the first buyer within the time limit.

3.2 No Access to the Goods by the Original Buyer 

A key point of tension arises from the fact that the initial buyer in drop shipping often has no actual possibility of inspection due to a lack of de facto possession of the goods. Nevertheless, he continues to be subject to the obligation to complain pursuant to Section 377 of the German Commercial Code (HGB).

He can de facto leave the inspection to the second buyer but must ensure that the initial buyer informs him immediately of any defects.

The constellation becomes particularly problematic if the second buyer is not a merchant. Although Section 377 of the German Commercial Code (HGB) only applies directly to commercial purchases by both parties, the obligations under commercial law continue to apply in the relationship between the initial buyer and the seller. Under the recourse provisions of §§ 478 (1), 445a (4) and § 327 (5) of the German Civil Code (BGB), the initial buyer is treated as if he had received the goods himself and had them properly inspected.

If avoidable delays occur, the initial buyer must bear the legal consequences under Section 377(2) of the German Commercial Code (HGB).

However, the same strict standards regarding the speed of notification cannot be applied in cases where delivery is made directly to the initial buyer. It would be contradictory if the seller agreed to a direct delivery, but at the same time demanded a notification of defects as quickly as it would be possible with its own incoming goods inspection.

3.3 Expectations and Reasonableness

In practice, sellers frequently adopt unrealistic expectations, assuming that notices of defects in drop shipment transactions must be given “immediately”.

However, the objective standard of immediacy remains decisive. The decisive factor is therefore the immediate reprimand by the second buyer against the first buyer and the immediate forwarding by the first buyer to his seller.

In principle, only culpable delays lead to the loss of rights.

3.4 Modification by General Terms and Conditions (GTC)

Companies regularly try to modify the obligation to complain by means of general terms and conditions – for example, by shortening or extending deadlines. However, a deviation in the form in the case of open defects regularly violates Section 307 (1), (2) No. 1 of the German Civil Code (BGB), as it is incompatible with the basic idea of Section 377 of the German Commercial Code (HGB).

In an individual contract, however, § 377 of the German Commercial Code (HGB) can be waived in favor of the buyer if the agreement does not violate § 138 of the German Civil Code (BGB).

4. Conclusion

The obligation to investigate and complain pursuant to Section 377 of the German Commercial Code (HGB) is not a mere formal instrument, but a course set the course under liability law. Unclear deadlines, problems with the burden of proof, difficulties in distinguishing between open and hidden defects as well as complex supply chains regularly lead to considerable losses of rights in practice.

Companies are therefore well advised to align their internal processes with the requirements of commercial law and to make clear contractual and organizational regulations, especially in drop shipments. Clear goods receipt processes, documented inspection standards, escalation and forwarding mechanisms or even training of employees should be in place. In addition, it is advisable for entrepreneurs to have their existing contracts regularly reviewed by a lawyer and, if necessary, to have them adjusted by a lawyer in order to avoid ambiguities and to reflect the requirements of Section 377 of the German Commercial Code (HGB) as clearly as possible in the contract. This is the only way to avoid the considerable risks of a late or omitted letter of notification of defects.

Moritz Kopp
Katharina Reichert

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 locations in Canada, the United Kingdom and the DACH region. 

Gini was founded in 2011 and has established itself over more than a decade as a trusted provider of document and payment AI platforms. Among other things, its solutions simplify invoice payments, automate data capture and are firmly anchored in the work processes of leading financial institutions. Under Banyan's new ownership, Gini will continue to expand its market presence, particularly in the banking sector, private health insurance and e-commerce. 

Following the transaction, the company's location and product development will continue.

ADVANT Beiten regularly advises Banyan Software on the implementation of its growth strategy in the DACH region, most recently in June 2025 on the acquisition of star/trac.

Advisor Banyan Software:

ADVANT Beiten: Christian Burmeister (Lead), Damien Heinrich, Julius Bauer (all Corporate/M&A), Heiko Wunderlich, Fabian Moser (both Tax), Mathias Zimmer-Goertz, Christian Döpke (both IP/IT), Michael Riedel (Employment Law).

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

The NIS-2 Implementation Act changes the Act on the German Federal Office for Information Security (Gesetz über das Bundesamt für Sicherheit in der Informationstechnik, BSIG) and introduces new, stricter cyber security obligations. The group of companies that must implement cyber security measures will be significantly expanded compared to the previous group of addressees.

After the legislative process had been interrupted by the new elections in spring 2025, it went faster than expected. As the transposition deadline of 17 October 2024 had long since expired and the European Commission had already initiated infringement proceedings against the Federal Republic of Germany, the German legislator adopted the NIS-2 Implementation Act in an accelerated manner towards the end of the year 2025. It is therefore not surprising that the Act already entered into force one day after its promulgation in the Federal Law Gazette and without any transitional periods. For the companies concerned, this means that they must now implement the new cyber security obligations at very short notice. They are obliged to take suitable and proportionate technical, operative and organisational measures to ensure IT security in the company.

The NIS-2 Directive (NIS = Network Information Security), which was passed by the European Parliament on 10 November 2022, belongs to a series of EU legal acts that are part of the digital strategy of the European Commission. An evaluation of the European Commission had shown that the previous NIS Directive and its implementation in the individual EU member states had not led to a sufficient level of cyber security in the EU. Therefore, the cyber security obligations are tightened by NIS-2.

Scope Of Application: Which Companies Are Subject To The New Cyber Security Obligations?

Previously, the BSIG differentiated between three categories of companies: (1.) operators of critical infrastructure (Section 8a BSIG), (2.) providers for digital services (Section 8c BSIG) and (3.) companies in the special public interest (so-called "UBI", Section 8f BSIG).

Now, Section 28 BSIG (new version) differentiates between so-called particularly important facilities (Section 28 (1) BSIG) and important facilities (Section 28 (2) BSIG). The exhibits 1 and 2 to the BSIG define, when a company - depending on the affiliation to a particular sector / an industry - is to be qualified as a particularly important or important facility.

The following criteria are decisive for determining whether a company falls within the scope of application of NIS-2: (1.) the classification as a critical infrastructure operator ("KRITIS-Betreiber") (i.e. as a particularly important or important facility), (2.) the affiliation to a sector / an industry and (3.) the size of the company.

In addition to operators of critical installations, providers of qualified trust services and providers of telecommunications services or operators of telecommunications networks, companies that employ at least 250 people and have an annual turnover of more than EUR 50 million or an annual balance sheet total of more than EUR 43 million are also particularly important facilities.

However, important facilities are not only critical infrastructure companies but also manufacturing industrial companies with more than 50 employees and an annual turnover of more than 10 million euros, provided that they belong to one of the sectors / industries mentioned in exhibit 1 or 2 of the BSIG.

Therefore, the scope of application has been significantly extended compared to the previous NIS Directive of 2015.

NIS-2 is of particular importance for the "manufacturing" sector. For the first time, it is covered by the new cyber security obligations. Many companies, whose business models are neither digital nor have a special relation to data, will therefore have to deal with cyber security compliance in more depth for the first time.

Tightened Cyber Security Obligations Pursuant To The BSIG

In the implementation of the NIS-2 Directive, the BSIG significantly extends the scope of application of cyber security obligations. Compared to the NIS Directive, the NIS-2 Directive also contains a much more comprehensive catalogue of cyber security obligations. Violations of cyber security obligations are also to be severely sanctioned. According to the Act on the German Federal Office for Information Security (BSIG), fines of EUR 100,000 to 10 million are provided for violations. In addition, registration and reporting obligations are introduced for companies in the event of a cyber security incident.

Cyber Security Measures And Risk Management

Pursuant to Section 30 (1) sentence 1 BSIG, so-called particularly important and so-called important facilities are obliged "to take suitable, proportionate and effective technical and organisational measures in order to avoid disruptions to the availability, integrity and confidentiality of information technology systems, components and processes, that they use for rendering their services, and to minimise the impact of security incidents."

In doing so, the extent of risk exposure, the size of the facility, the implementation costs, the probability of occurrence and severity of security incidents and their effects must be taken into account, cf. Section 30 (1) sentence 2 BSIG.

The obligations for risk management include, among others, the following measures, to which Section 30 (2) BSIG refers as minimum requirements:

• Concepts relating to risk analysis and security for information systems
• Security incident management
• Maintaining operations, such as backup management and recovery after an emergency
• Crisis management
• Ensuring security in the supply chain
• Vulnerability management
• Risk management in the area of cyber security
• Training on cyber security
• Concepts and processes for using encryption technologies
• Personnel safety: access control and authorisation management
• Multi-factor authentication or continuous authentication
• Secured voice, video and text communication and, if necessary, secured emergency communication systems

Obligation To Register And Report Significant Security Incidents

Moreover, an obligation to register has been introduced, cf. Section 33 BSIG. The responsible German Federal Office for Information Security (Bundesamt für Sicherheit in der Informationstechnik, BSI) provides for a two-step registration process for facilities in Germany concerned by the NIS 2 Directive:

First, companies should create an account with "My company account" ("Mein Unternehmenskonto", MUK), in order to register in the second step with the MUK user account with a BSI portal newly developed for NIS 2. The BSI portal has been activated since January 2026. Among other things, it serves as a reporting office for significant security incidents. The deadline for the initial registration of companies with the BSI portal is 6 March 2026 or three months from the date when a company falls into the category of the important or particularly important facility.

Companies that fall within the scope of application of NIS 2 are therefore recommended to register via the BSI portal by 6 March 2026 at the latest. On the one hand, this is in order to comply with their obligation to register, and on the other hand to be able to report IT security incidents electronically within the prescribed deadlines.

The obligations to report significant security incidents have also been tightened, cf. Section 32 BSIG. Within 24 hours (so-called early initial report) or 72 hours (so-called report), reports on significant security incidents must be given in stages. After one month at the latest, a summary final report must be submitted. This entails a considerable administrative burden for companies, as they do not only carry out measures to maintain operations or to restore their IT systems in the event of a cyber-attack, but must report to authorities on type, scope and measures taken.

Cyber Security As A Compliance Issue And Liability Of The Management

In particular, the monitoring obligation of the management pursuant to Section 38 BSIG is new. The board or the management must ensure that suitable and proportionate technical and organisational measures are taken within the company to minimise cyber risks. Moreover, companies are obliged to offer training on IT security for leadership personnel and other employees. 

These obligations cannot be delegated completely. There remains always an ultimate responsibility at the management level. If the management violates these compliance obligations, it will be liable to pay damages to the company. 

The violation of cyber security obligations, thus, constitutes a substantial risk for the management. This risk could be hedged by a D&O insurance if necessary. Companies concerned should review existing insurance contracts. Moreover, it is recommended to evaluate whether it is worth taking out cyber insurance.

Pursuant to Section 91 (3) German Stock Corporation Act (Aktiengesetz, AktG), the establishment of a risk management system is already part of the obligations of the board of a stock corporation and, thus, part of general compliance obligations of the management of companies. However, the extension to cyber security obligations is new.

Practical Note

After the NIS 2 Implementation Act entered into force without transitional periods, it is high time for the companies concerned to act. The following summary shall provide the companies concerned with a (non-exhaustive) guide on the most important points to be clarified as a matter of priority, in order to implement the new cyber security obligations.

Clarification of applicability of NIS 2 and obligations to register: First, it should be clarified, whether and to what extent NIS 2 is applicable to the respective company and whether obligations to register exist with the BSI. This must be determined in the individual case based on the product/service portfolio of a company.

Inventory and documentation: Cyber security concepts already existing should be reviewed, risks should be evaluated and the required documentation, such as cyber security concepts, emergency plans, etc. should be developed together with technical and legal experts. 

Prevention of cyber-attacks: Investments in cyber security pay off, as they are an important contribution to protecting the corporate know-how against industrial espionage and to minimising the risk of high business interruption damage in the event of a cyber-attack. Prevention and timely preparation make the decisive difference here.

Compliance and liability: In the age of Industry 4.0 and with a view to the legal innovations, IT security should become a "matter for the boss" in companies. EDP and IT security are to be understood as management tasks in a company. This does not mean that managing directors and board members must be IT experts. Rather, they should consult IT security experts. However, it is not possible to delegate the responsibility completely, as the ultimate responsibility lies with the board or the managing director.

IT security in the supply chain: Even if a company does not fall within the scope of application of NIS 2, it will have to meet the NIS 2 requirements for its clients sooner or later. Companies will be confronted with the fact that their clients will pass on their cyber security obligations to their suppliers. 

The factual scope of application of NIS 2 is thus even wider. Numerous companies delivering to companies that must meet the new cyber security requirements pursuant to NIS 2 are indirectly affected. This applies, for example, to suppliers to the medical technology and pharmaceutical industries, but also to the manufacturing industry which only produces parts for use in the automotive industry, various areas of mechanical engineering or electrical engineering.

In fact, almost every company will sooner or later have to deal with the topic of IT security.

Dr Birgit Münchbach

TriSol GmbH specialises in the development of grid-connected battery storage systems and has a portfolio of six BESS projects with a total capacity of 185 MW. The portfolio consists of an operational standalone BESS project and 5 projects in advanced stage of development and are designed to make a significant contribution to grid stability and the integration of renewable energies in Germany.

The transaction strengthens BESST Energy's position in the European market for large-volume energy storage. 

Advisor to BESST Energy:
ADVANT Beiten: Dr Christof Aha and Mark Thönissen (both Corporate/M&A, Frankfurt).

Advisor PowerGen:
LPA Law: Oliver Kirfel, Dr Bernd Spieth (both Corporate/M&A, Munich).

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

Introduction

Generative AI not only supports the writing of texts and the creation of images but increasingly also the programming of software. This can have an impact on the applicability of copyright protection to software. This is also important in the case of company acquisitions. Where the software has been largely developed by AI, it may lack copyright protection which affects the intrinsic value of the target company. This must be taken into account in the context of due diligence as well as in the drafting of contracts.

Legal Context

Computer programmes are protected by copyright if they represent individual works in the sense that they are the result of their author's own intellectual creation. According to this principle, computer programmes have usually been protected by copyright until now. Since generative AI has also found its way into software development, the question arises as to how this affects the protectability. In essence, a computer programme will be able to protect if a human uses AI only as a subordinate tool. This will be the case if, for instance, AI tests the software to be developed and uncovers inconsistencies. If, however, relevant parts of the code are generated by AI, they will in many cases lack protectability. The exact distinctions are currently still subject to further development. Nevertheless, one should not be too hasty to speak of a gray area overall. The principles are already relatively clear but the specific outcome depends highly on the facts of each individual case.

All this applies regardless of whether the AI provider grants the user (i.e. software developer) all rights to the work results of the AI. If no copyright is created because the human contribution is too small, no copyright can be transferred.

Effects on due diligence

Nowadays, software developers can hardly do without the use of AI in development. The question is thus less whether AI will be used but rather how it will be used. And this question should also be asked as part of the due diligence. Disclosed internal guidelines and documentation on employee training on the use of AI can provide information, as can relevant license agreements. In addition, it is advisable to consult dedicated experts so that the actual use can be verified as accurately as possible. With only superficial due diligence, risks could be overlooked; if W&I insurance is to be taken out as part of the transaction, the associated policy could cancel or reduce the scope of the guarantee to the extent that gaps have been identified in the due diligence. 

Effects on contract documents

In addition to general guarantees of ownership of all relevant intellectual property rights (IP), there are separate guarantees with regard to the use of AI, for which attachments with specific descriptions or disclosures may then be manufactured. If the guarantee clause were too generic, there would be a risk that, in the event of an (alleged) breach of the guarantee, legal ambiguity would arise as to whether the particular case falls under the guarantee or not. 

Other legal issues: Third Party Rights, AI Act, Scraping and Data Licenses, International Aspects

A question that must be separated from the above considerations but is nevertheless related, is whether any AI-generated code infringes the rights of third parties. This could be the case, for example, if the AI largely reproduces the foreign code – with which it was trained. The risk can be reduced with a software scan but not completely eliminated; on the other hand, there is also the risk of foreign code being incorporated when human programmers are used. On the other hand, there is likely to be a greater risk if visual content is AI-generated. However, this is not the subject of this article.

If the software solution in question itself represents AI as part of the target company or as an asset to be transferred, not only the AI Act should be kept in mind but also the origin of the datasets with which it was trained. If these are due to web scraping (automated reading of data on websites using software bots or scripts), copyright and data protection questions may arise. Even the acquisition of a license from a commercial provider is only useful if the latter in turn has all the necessary rights himself; a look at the license terms is advisable in any case (for instance, with regard to limits of use by the licensee).

In cross-border company acquisitions, particularly when the target company operates internationally or even globally, the copyright challenges relating to AI-generated software are even greater. Copyright is basically national law, although the requirements for the creation of copyright protection are similar in most countries and thus also the principles for the legal issues relevant here. However, developments are still ongoing at the international level, and a Chinese court may decide the legal issues raised here differently than an American court. The guarantee declarations of the transaction documents should also contain flexible wording that takes into consideration the different legal frameworks in the jurisdictions concerned. 

Conclusion and recommendation for action

If AI is not only used as a subordinate tool in the creation of software, the software may not be eligible for protection. The software development process should therefore be scrutinized as part of the due diligence process. The findings will have to be reflected in the contract documentation when the company is acquired. Other follow-up issues such as third-party rights, AI Act, scraping and data licenses as well as international aspects must also be considered. 

Dr Andreas Lober
Tassilo Klesen

The agreement marks a milestone in trade relations between Europe and South America, creating one of the largest free trade zones in the world with over 780 million consumers. Mercosur (Mercado Común del Sur – Common Market of the South), with Argentina, Brazil, Paraguay and Uruguay as members, represents the fifth largest economy outside the EU with a gross domestic product of 2.7 trillion euros (as at 2024).

Removing trade barriers instead of creating new trade barriers and tariffs is a welcome political signal for the economy and strengthens the EU's strategic position.

Opportunities for companies

The central element of the agreement is the gradual reduction of customs tariffs over the next few years. Many industries are to benefit from the agreement, such as mechanical engineering, the automotive industry, chemicals and pharmaceuticals. In addition to tariffs, non-tariff trade barriers are also to be eliminated, for example by harmonising technical standards and labelling regulations. However, the agreement will also cover the services sector, opening up previously protected sectors to competition and allowing EU companies to bid on public procurement in Mercosur countries on an equal basis with local companies. In addition, the posting of personnel will be facilitated. 

The European Commission forecasts that EU exports to Mercosur will increase by 39 percent (48.7 billion euros), with the largest gains in motor vehicles, machinery and equipment, and chemicals. Exports from Mercosur to the EU are expected to increase by 16.9 percent (8.9 billion euros). 

However, the economic opportunities go beyond a mere increase in trading volume. Since Mercosur has only a few free trade agreements, it offers a first-mover advantage to European companies. Furthermore, it is to be expected that the agreement also offers potential for strategic alliances and repositioning in global supply chains. Mercosur countries can become a more attractive destination for foreign direct investment through preferential access to the European market and the agreement could thus lead to greater integration of Mercosur countries into European value chains.

Legal Mechanics - Two Agreements

The EU-Mercosur agreement is divided into two legally distinct but interrelated treaties:

Interim Trade Agreement (ITA): 

ITA covers only trade-related provisions, including tariff dismantling, rules of origin, services, public procurement and intellectual property rights. It falls entirely within the exclusive competence of the EU under Article 207 of the Treaty on the Functioning of the European Union (TFEU). Approval is granted by a Council decision after obtaining the consent of the European Parliament in accordance with Article 218(6) TFEU. Ratification by the national parliaments of the EU member states is not required. 

A key mechanism of the ITA is the possibility of provisional application under Article 23.3 of the ITA. This allows the EU and individual Mercosur states to put the ITA into force as soon as the respective internal procedures (of the EU and the Mercosur signatories) have been completed. This will allow trade benefits to be realised even before the full ratification of the Comprehensive Partnership Agreement. 

EU-Mercosur Partnership Agreement: 

This more comprehensive agreement contains provisions on political dialogue and cooperation in addition to the trade pillar. It must first be ratified by all 27 EU member states according to their respective procedures. Once fully ratified, the ITA will be replaced by the Partnership Agreement and the ITA will cease to be in force.

ADVANT Spanish & LatAm Desk

At ADVANT, we guide our clients through complex legal landscapes across Europe. For the Mercosur countries, our Spanish & LatAm Desk is at your side. We support you in solving legal challenges and making the most of your economic opportunities.

Dr Philipp Sahm

Such claims can be very expensive: In the case of commercial agents, the claim may be an average annual commission, and in the case of distributors, the equivalent (calculation: complicated – more on that another time). 

Manufacturers often want to avoid such claims: the distributor has earned well during the cooperation. Why should he still receive money after that? The perspective of the distributor is exactly the opposite: Where would the manufacturer be without us? We built up the market for him in the first place. So, it is only fair that we participate in it now, when the harvest is brought in. 

If manufacturers want to prevent having to pay indemnity after the end of the contract, then they must first know what the requirements are for this and, if necessary, design the contract accordingly. The decisive course is set in the drafting of the contract. And conversely, it is important for distributors to recognise which arrangements generate - or prevent - an indemnity claim.

In particular, the following approaches may be particularly important:

1. Section 89b of the German Commercial Code can only be applied if German law is applicable. In the case of cross-border contractual relationships, a court located within the EU would apply the law of the state in which the distributor has their "habitual residence" (Art. 4 para. 1 f) Rome I Regulation), unless the parties have agreed otherwise. If this country is Germany, what is explained in the following paragraphs applies. If this country is not Germany, then a different law applies. Both parties to the contract would then do well to determine whether or not there is an indemnity claim for distributors in that other country. This varies greatly around the world (in Belgium, for example, it is expensive, in England there is no indemnity, in Austria the analogy requirements are different than in Germany). Whether the parties, if the distributor is active in Germany, can effectively agree that another legal system applies, is disputed, if and to the extent that this results in no indemnity claim arising. The Berlin Court of Appeal (Kammergericht) ruled (indirectly) in 2025 that this was permissible and valid. However, other courts are not bound by this decision. In any case, in a constellation where both parties are German and where no other relevant elements are located outside Germany, such a choice of law would clearly not be effective with regard to the indemnity claim (Art. 3 para. 3 Rome I Regulation). It can be attractive for manufacturers to choose a foreign legal system that does not have an indemnity claim for distributors. And distributors should therefore (also) from this point of view not consider the choice of law to be of only secondary importance and, if necessary, insist on the application of German law.
2. If, according to the above statements, German law is to be applied, the question arises as to whether the criteria for analogy are met, i.e. the prerequisites for the provision of section 89b German Commercial Code applicable to commercial agents to be applied in the specific case. It is necessary for the contractual relationship to be so similar to a commercial agent relationship that it is appropriate to apply commercial agents law in this respect. The case law proceeds in two stages:
   1. At the first stage, it is verified whether the distributor is integrated into the manufacturer's sales organisation in the same way as a commercial agent. This is usually done with the help of a catalogue of criteria, which is used to check the written contract and the established contractual practice. The overall picture is decisive, not necessarily that all criteria can be affirmed. Important criteria include the existence of a sales obligation, the allocation of a contract territory, control rights of the manufacturer, reporting obligations of the distributor, etc. The manufacturer who wants to avoid an indemnity claim may consider how demanding he wants to make the catalogue of obligations of the distributor and, if necessary, waive obligations that are less important to him if this reduces the probability that he will have to pay indemnity one day. Conversely, the distributor could work to ensure that the contract provides for intensive integration. However, he should take into account that it is likely to seem strange and suspicious if he asks for the imposition of further obligations. Such approach would probably only be able to work if the distributor submits the first draft of the contract.
   2. At the second stage - i.e. only if the first stage (see paragraph above this) has been affirmed - the courts then examine whether the distributor was or is contractually obliged to transfer the customer base, i.e. to transmit the necessary customer data to the manufacturer that enables the manufacturer to contact the customers without significant intermediate steps. It is important to note that the prevailing opinion (at least still) requires that it be a contractual obligation. According to this, it is not sufficient that the manufacturer actually knows the customers, e.g. because the market is so small, or the distributor transmits the customer data without being asked. All of this is criticised and controversial for good reasons, and it may be that this analogy feature will be abandoned or modified in the foreseeable future. At present, however, one should still expect a court to demand such a contractual obligation. If a contractual obligation does not exist, there is no indemnity claim. And this results in several possibilities for the manufacturer to avoid having to pay indemnity by drafting the contract: He can simply refrain from providing for such an obligation in the contract. It is even better to explicitly write in the contract that the customer data should not be transmitted (e.g. in the context of any reporting obligations). But beware: You have to live it that way and as a manufacturer you must not demand the submission of customer data. Otherwise, there is a risk that a court will derive a tacitly agreed obligation to transfer the customer base from the lived contractual practice. If the contract does not provide for an obligation to transfer and the manufacturer asks for customer data, the distributor may conversely consider whether he complies with this request despite the fact that the obligation does not exist, and documents everything thoroughly and thus gives himself an improved chance of receiving indemnity later. Sometimes, of course, the manufacturer wants to have the customer data. But even then, there are approaches whose pursuit prevents the arising of an indemnity claim: For example, it can be regulated that the distributor does not have to transmit customer data, but can transmit it voluntarily - then in return for benefits to be agreed. Here, a certain degree of finesse is required to ensure that the arrangement does not result in an invalid circumvention of case law. It is also conceivable to regulate that the customer data is not to be transmitted to the manufacturer, but to an external marketing agency, and that this agency uses the data for the manufacturer's purposes during the term of the contract, but no longer thereafter. Other approaches that go in this direction are conceivable and, in some cases, have also been tried and tested in court. Distributors who see such provisions in draft contracts should recognise that the avoidance of an indemnity claim can be the background and objective and carefully examine whether they accept this as appropriate and fair or, if necessary, whether they want to demand further consideration. If they are assured in an open discussion that it is not at all a question of avoiding an indemnity claim, it may be advisable to counter this with the demand for an express regulation on the indemnity claim. This will probably be met with little approval, but it may reveal the true motives.
3. If, according to the preceding paragraphs, the application of German law is to be assumed and the two analogical criteria are also met, it could seem tempting from the manufacturer's point of view to simply exclude the annoying indemnity claim at the stroke of a pen by means of a corresponding contractual clause. However, this is not effectively possible if the distributor has to operate within the European Economic Area (EEA = EU + Iceland, Liechtenstein, and Norway), as the German Federal Court of Justice ruled in 2016: The indemnity claim is mandatory for commercial agents (section 89b para. 4 of the German Commercial Code) and this, according to the German Federal Court of Justice, also applies to distributors by analogy. However, the situation is different if the distributor has to operate outside the EEA: In that case, Section 92c of the German Commercial Code (HGB) allows the exclusion of the indemnity claim, at least in individually negotiated contracts. However, it has not been conclusively clarified how this applies to arrangements based on standard terms and conditions.

Oliver Korte

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 ADVANT team headed by Dr Christof Aha had already advised LUEHR FILTER GmbH in 2021 on the sale of its 50% stake in EWK Umwelttechnik GmbH to the Swedish Valmet Group.

LUEHR FILTER GmbH has been successfully operating in the field of air and gas purification for 85 years and specialises in dry flue gas cleaning systems in particular.As a third-generation family-run business, it combines flexibility with technical expertise and, with more than 300 employees and a large number of references, is now a globally respected partner for gas purification systems in almost all branches of industry.

MARTIN GmbH für Umwelt- und Energietechnik is one of the world's leading suppliers of thermal waste treatment plants. Following the integration of LAB SA in 2022, the MARTIN Group is gaining another renowned supplier with the acquisition of LUEHR, consolidating its role as an innovative full-service provider in the field of flue gas cleaning.
 

Advisor to LUEHR Filter GmbH:
ADVANT Beiten: Dr Christof Aha, Dr Markus Ley (both lead), Mark Thönißen (all Corporate/M&A) and Christoph Heinrich (Antitrust Law).

Advisor to MARTIN GmbH:
Rödl & Partner: Patrick Satzinger and Frederic Wolff

PR
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

ADVANT Beiten's interdisciplinary team supported Zoot throughout the entire acquisition process - from the legal and tax due diligence to the structuring and negotiation of the transaction agreements through to the successful closing.

Zoot Sports was founded in 1983 in Kona, Hawaii - the birthplace of the Iron Man triathlon. The company specializes in innovative clothing, shoes and equipment for triathletes and endurance athletes and is one of the world's leading brands in this segment. Zoot stands for technical precision, high quality and athlete orientation and sells its products in over 25 countries. Since 2023, Zoot has been part of the Italian MVC Group, an international sporting goods company based in Italy.

Tailwind Brands is a company based in Bönen, which specializes in the distribution and brand management of premium sports and lifestyle brands. The company has an established distribution network in the DACH region as well as long-standing partnerships with leading sports retailers and online platforms. Tailwind has made a name for itself as a competent partner for the development and expansion of international brands in the European market.

With the acquisition of Tailwind Brands, Zoot Sports is laying the foundation for accelerated expansion in Europe. The combination of Zoot's international brand strength with Tailwind's regional market and sales expertise offers considerable growth potential in the coming years.

Advisor Zoot Sports:
ADVANT Beiten: Dr Markus Ley (Corporate/M&A, Munich), Dr. Erik Schmid, Virginia Mäurer (both Employment Law, Munich), Susanne Klein, Jason Komninos (both IP/IT, Frankfurt), Markus Linnartz (Tax, Dusseldorf), Petra Fendt (Banking & Finance, Munich), Anja Fischer (Real Estate, Munich).

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

In addition, six colleagues were elected Local Partners and nine colleagues were elected Salary Partners. The newly elected partners are from all six German offices of the law firm, working in seven different areas of competence.

Dr Florian Weichselgärtner handles a large number of liability cases every year, both in the area of manager liability and the liability of lawyers, tax advisors, insolvency administrators, corporate and restructuring advisors and auditors. His area of activity further comprises advice to companies on the processing of liability cases and compliance violations. The interdisciplinary advisory service of ADVANT Beiten enables Dr Florian Weichselgärtner to comprehensively handle the often complex liability cases across all legal areas (tax law, criminal law, labour law, capital market law, insolvency law, etc.). Due to his many years of advisory practice, he has proven experience both in conducting and defending actions for damages as well as in out-of-court dispute resolution.

These are our new Local Partners in alphabetical order:

• Sascha Opheys (Public Sector, Dusseldorf)
• Max Stanko (Public Sector, Berlin)
• Dr Philipp Sahm (Corporate/M&A, Frankfurt)
• Haide Spanier (Banking, Finance & Restructuring, Frankfurt)
• Mark Thönißen (Corporate/M&A, Frankfurt)
• Dr Mark Zimmer (Labour Law, Munich)

Our newly elected Salary Partners are listed in alphabetical order:

• Regina Dietel (Labour Law, Munich)
• Gamze Dogan (Tax Law, Dusseldorf)
• Verena Nader (Real Estate, Munich)
• Dr Christian Osbahr (Corporate/M&A, Freiburg)
• Robert Schmid (Corporate/M&A, Berlin)
• Simon Schuler (Corporate/M&A, Freiburg)
• Etienne Sprösser (Corporate/M&A, Freiburg)
• Maximilian Steffen (Tax Law, Hamburg)
• Ulrike Stöhr (Tax Law, Munich)

"The appointment of our new partners shows how closely we work together across offices and between our practice groups - supported by diverse industry expertise," explains Dr Guido Krüger, Managing Partner of ADVANT Beiten, adding: "The fact that we have had successful elections at all three seniority levels underlines the continuous development of outstanding talent in our firm. Accompanying our colleagues on their path to partnership is one of our central tasks."

ADVANT Beiten also continues to follow its strategy of targeted growth by lateral hires in selected areas. The following Local and Salary Partners reinforced the firm last year:

• Tanja Ehls (SP, Public Sector, Frankfurt)
• Julian Gruß (SP, Real Estate, Dusseldorf)
• Peter Meisenbacher (SP, Public Sector, Freiburg)
• Ansgar Messow (LP, Real Estate, Dusseldorf)
• Johannes Voß-Lünemann (SP, Public Sector, Berlin)

PR
Frauke Reuther
Manager Communication
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

The new Measures on National Cybersecurity Incident Reporting issued by the Cyberspace Administration of China (CAC) and coming into effect on 1 November 2025 require much faster action - between 1 and 4 hours if network operators detect a cybersecurity incident that has caused harm to networks and information systems, or their data and business applications, and has a negative impact on the country, society, or economy due to human factors, network attacks, vulnerabilities, software or hardware defects or failures, force majeure, etc.

Who is governed by the new Measures?

All network operators are governed by the new Measures, that is, everyone who, as an owner or administrator of networks or network services, builds, operates, or provides services through networks within China. This includes but is not limited to critical information infrastructure (CII) operators (so-called CIIOs, i.e., enterprises that operate CIIs and that have been notified by the competent authorities that they are categorized as CIIOs) as well as government entities.

What is considered a cybersecurity incident under the new Measures?

The new Measures divide such incidents into four different levels based on their severity and impact: 

Note: If any one threshold is met for one of the four incident levels, the network operator must be classified under the higher level of cybersecurity incident that has been met.  In other words, the thresholds for each incident level should be read independently, not cumulatively.

What are the reporting and other obligations under the new Measures?

Once a network operator becomes aware of a cybersecurity incident involving its own network/business, it must conduct an incident assessment following the Guidelines for the Classification of Cybersecurity Incidents which are appended to the new Measures. 

The new Measures allocate different reporting obligations depending on the nature of the network operator and the severity of the incident: 

CAC provides different reporting channels such as the telephone hotline reachable at 12387, as well as email (12387@cert.org.cn) and other reporting modes, all accessible via the CAC’s website https://12387.cert.org.cn/index.html. 

The reporting timelines are calculated from the point in time when the network operator becomes aware of the incident. If the circumstances of the incident cannot be determined in full within the statutory notification deadlines, the network operator shall submit a preliminary report (containing whatever information is available at that time) and then provide an updated comprehensive report as soon as possible once more information becomes available. 

In addition, interim updates on major developments, as well as a final summary report, shall be provided within 30 days after the incident has been remedied (including information on the cause of the incident, remedial measures taken, scope of impact, accountability, and improvements made).

Reports should include the following information:

• Affected entity and system
• Time, place, type, and level of incident; impact, damage, measures taken and results thereof
• Preliminary analysis of the cause of the  incident
• Suggested remedies and support
• Security measures in place at the time of the incident
• Potential attacker information, attack path, vulnerabilities, and, in the case of ransomware incidents, the ransom amount requested and payment method
• Other facts material to the incident

In addition, if for certain industry sectors special reporting obligations apply, these shall be followed as well and in case of any illegal or criminal activities being suspected, PSB must always also be notified.

If network operators employ external IT service providers, the contracts between them must require such providers to immediately notify the network operators of any incidents in their networks and to assist with the mandatory reporting thereof.

Any failure to comply with reporting obligations under the new Measures exposes network operators and their responsible employees or agents to liabilities under the Chinese Cybersecurity Law, Data Security Law, Personal Information Protection Law and other applicable Chinese laws and regulations. Fines can range from RMB 50k to RMB 50 mil depending on the seriousness of the incident and the type of data involved and network operators are exposed to heavier consequences if they delay of proper reporting caused more serious consequences. Any reasonable and necessary protective measures taken by the network operator may mitigate such liability. 

How should network operators react to the new Measures?

Considering the new Measures, network operators should review, revise, prepare and verify: 

• Incident response policies and plans to align with the accelerated notification requirements
• Internal procedures to ensure timely escalation of cybersecurity incidents to the appropriate personnel
• Report templates to align with the information requirements under the new Measures
• External IT service contracts to ensure they stipulate immediate notification and assistance obligations, or are amended accordingly

Susanne Rademacher
Dr Jenna Wang-Metzner
Kelly Tang

machn GmbH sees itself as an innovation hub and is firmly anchored in the Freiburg start-up scene. In July 2025, the company was awarded the Freiburger Innovationpreis for the "Freiburger Bierle" - a recognition that underlines the company's contribution to promoting entrepreneurial innovation and regional economic development.

machn GmbH's range of services is primarily aimed at established companies and supports them in developing and implementing strategic objectives, in organisational, technological and cultural transformation processes as well as in identifying and validating new business models. In addition, the company advises in the area of company succession and accompanies transition and succession processes.

Advisors to Leonard Sportleder/machn GmbH:
ADVANT Beiten: Dr Barbara Mayer (Lead Partner) and Julius Bauer (both Corporate/M&A, Freiburg).

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 57
frauke.reuther@advant-beiten.com

Dr Barbara Mayer
Rechtsanwältin
ADVANT Beiten
+49 (761) 150984 - 14
barbara.mayer@advant-beiten.com

As part of the restructuring, the company structure was streamlined through a total of four mergers. In doing so, Medizinisches Versorgungszentrum (MVZ) was merged with Poliklinik Ernst von Bergmann GmbH. On the other hand, Innovation-Transfer-Gesellschaft mbH, Diagnostik GmbH and Servicegesellschaft were directly incorporated into Klinikum Ernst von Bergmann gGmbH. Thus, Ernst-von-Bergmann-Gruppe has successfully reduced the number of its subsidiaries from 15 subsidiaries to eleven strong units. 

Ernst-von-Bergmann-Gruppe with more than 4,500 employees is currently undergoing a comprehensive reorganisation process. The corporate restructuring in the form of the mergers carried out is a fundamental component in this context to simplify the structures, to organise processes more efficiently and to strengthen the ability of Ernst-von-Bergmann-Gruppe to act in the increasingly complex health market.

Advisors to Klinikum Ernst von Bergmann gGmbH:

ADVANT Beiten: Dr Karl-Dieter Müller (Lead Partner), Benjamin Knorr, Robert Schmid, Dr Thomas Jilg (all Corporate/M&A, Berlin), Dr Silke Dulle (Medical Law), Wolf J. Reuter, Dr Martin Kalf, Marie von Hammerstein, Lisa Brix (all Labour Law, Berlin), Helmut König (Tax, Dusseldorf).

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

The full article is available in the attached PDF.

As early as in June 2024, ADVANT Beiten has provided comprehensive legal advice to the two shareholders Stefan Brückner and Andreas Ebner on successfully completing the two transactions in their home region South Baden. As part of a succession plan, the entrepreneur duo was able to take over the two companies FREMA and Schwörer und Offenburger. By merging the two companies, the two shareholders would like to use synergies and standardise processes to position themselves for the future. The trademarks FREMA and Schwörer und Offenburger continue to exist as protected trademarks under the newly renamed ZABYX GmbH & Co. KG.

The two now merged companies have been operating in the area of mechanical engineering, special machine construction, plant construction and toolmaking for several decades. The two trademarks continue to complement each other ideally in terms of process technologies, the resources at two independently operating production plants, but also in the necessary experience to meet customer requirements in a targeted manner. ZABYX stands for more than 60 years of experience, reliability and origin.

Advisors to Shareholders:
ADVANT Beiten: Dr Barbara Mayer (Lead Partner) and Dr Christian Osbahr (both Corporate/M&A, Freiburg).

Notary: Dr Johannes Weber, Freiburg

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

Dr Barbara Mayer
Lawyer
ADVANT Beiten
+49 (761) 15 09 84 - 14
barbara.mayer@advant-beiten.com

Sebastian Diehl joins from Standard Chartered Bank in London where he led the legal coverage on multiple of the group’s M&A and venture capital transactions, including in Europe, Asia and North America. Prior to Standard Chartered, Sebastian Diehl spent several years in the London office of a leading German law firm, most recently as Associated Partner. There he regularly advised strategic clients and financial investors on cross-border M&A projects and PE/VC transactions with a focus on Germany.

With London, ADVANT Beiten is opening its tenth office and its fourth international presence outside of Germany. The new office will be based in Mayfair within the premises of its alliance partner ADVANT Nctm, whose London office has been established since 2008. With this expansion, the firm strengthens its visibility on the European market, expands its advisory services for cross-border transactions and further intensifies the co-operation within the alliance. A cross-practice team of ADVANT Beiten partners will be regularly present in London.

"In Sebastian Diehl, we have found an experienced partner for our new location who has an excellent network. Specialising in cross-border transactions and private equity, he brings in many years of experience in all areas of transaction advisory services and will work closely with our teams in Germany and worldwide," comments Dr Guido Krüger, Managing Partner of ADVANT Beiten.

"London is one of the world's leading financial and economic centres with a broad infrastructure for capital markets, asset management and private equity," says Dr Barbara Mayer, member of the Steering Committee at ADVANT Beiten, adding: "The city connects entrepreneurs, fund managers, banks and institutional investors. Together with our local colleagues from ADVANT Nctm and the addition of Sebastian Diehl, we are further expanding our transaction-orientated advisory services."

With London as one of the most active cross-border transaction markets in Europe, the city plays a key role in many German investments – particularly in the upper German SME segment which is facing the challenge of company succession. ADVANT Beiten is taking account of this multifaceted market environment with the opening of the new office – both locally and across borders. 

For more information, see our Spotlight London.

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

1. EU Innovation Fund – Funding Procedure and Project Selection 

1.1. What is the EU Innovation Fund?

The Fund was launched in 2020 and is executed by the European Climate, Infrastructure and Environment Agency (CINEA). It is fully financed by the EU Emissions Trading System (ETS). From 2020 to 2030 revenue procured from the auctioning of 530 million ETS allowances have been allocated towards the Fund, resulting in an estimated total funding pool of 40 billion EUR (based on current carbon price of 75 EUR/tCO2). 12 billion EUR have already been granted to 214 projects (another 4.6 billion EUR are earmarked within running award procedures), still leaving future projects with a substantial funding capacity of 23.4 billion EUR until 2030. Funding per project averages 57 million EUR.[2] While Fund projects are locally bound to EEA state territory, project participation is open to non-EU entities. Currently only 10 out 472 participants are located outside of the EEA: five from the US, two from South Africa, two from Australia and one from Canada. 

1.2. How are projects selected? 

The majority of project selections are structured around a yearly application process, initiated by multiple grant calls for proposals. Nine calls have been completed since 2020. The calls cover a generalized topic field in accordance with current EU policy directions. For the latest calls in 2024 these were "Net Zero Technologies" offering 2.4 billion EUR in grants and "EEV Batteries" covering 1 billion EUR. The "Net Zero Technologies" call was broken down into 5 subcategories: Three general decarbonization topics differentiated by project size: large-scale (CAPEX above €100 million), medium-scale (CAPEX between €20 million and €100 million) and small-scale (CAPEX between €2.5 million and €20 million), a clean-tech manufacturing topic (manufacturing equipment and components for renewable energy, energy storage, heat pumps and hydrogen production) and pilot project topic for highly innovative technologies. 

Applicants first undergo a general financial and operational capacity check. Specific projects are then selected through a scoring system by an independent group of outside experts based on the following award criteria: degree of innovation, greenhouse gas-avoidance potential, project maturity (technical, financial, operational), cost-efficiency and replicability.[3]

Recently the calls have emphasized “supply-chain resilience and strategic autonomy” as a goal for funding projects, especially in regard to critical raw materials.[4] As of 2024 "Contribution to Europe's industrial leadership and competitiveness" was introduced as an explicit assessment factor, making up 7 % of awarded points in the general decarbonization topic and 9 % within the clean-tech-manufacturing topic. [5]

Resilience related requirements can also be found in the new competitive bidding mechanism of the Fund. This funding format was introduced in 2023 and has been focused on the production of renewable hydrogen. The 2024 Hydrogen Auction and the current draft of Terms and Conditions for the 2025 Hydrogen Auction for example both include explicit caps on the amount of project electrolysers originating from China.[6]

1.3. How is project funding executed? 

A Grant Agreement (GA)[7] sets the framework for the funding and its terms and conditions, in particular concerning deliverables, reporting and payments. The funding awarded through the grant calls is provided through a fixed lump sum grant. Up to 60 % of calculated project costs can be reimbursed. Interim payments for contributions to the project can only be requested upon completion of predetermined work stages or triggering of milestones set out in the GA. The eligibility of costs and contributions is based purely upon the achievements of results and therefore no cost reporting is necessary. Parties to the GA may keep any grant surplus, but bear the risks of overrunning costs, since the lump sum is not increased.

Up to 40 % of the maximum grant amount can be paid out until financial close, while the remaining amount of at least 60 % is reserved for the reporting periods after financial close; at least 10 % is reserved for a three-year period after entry into operation. Financial close represents the moment in the project cycle where all the financing agreements and permits have been signed and all the required conditions met. The maximum grant amount will only be paid out, if over the entire project course duration, the project reaches at least 75% of its greenhouse gas emissions reduction target. 

2. Project participation options 

The most relevant options for project participation are the roles of beneficiary, affiliated entity and subcontractor. The participation forms correspond to the level of project involvement and legal liability towards the granting authority. 

Beneficiary

Beneficiaries are the only participants who sign the GA. They are jointly liable for the technical implementation of the project and individually financially liable for their own costs, as for the tasks performed by their subcontractors and affiliated entities. A single beneficiary acts as contact point with the CINEA, so called Coordinator. They submit the deliverables and reports triggering payments in the system. It is mandatory for multiple beneficiaries to a grant to conclude a consortium agreement. Payments are made only to the coordinators bank account and it is an internal matter of the consortium how the payments are then distributed to each beneficiary. 

Affiliated Entities 

Affiliated Entities do not become party to the GA but are in many ways treated like beneficiaries. Affiliated Entities must have a permanent legal or capital link to the beneficiary, which is neither limited to the action nor established for the sole purpose of its implementation (see Art. 190 (1) (b) Financial Regulation 2024/2509)[8].

Affiliated entities must fulfil the same conditions for participation and funding as the beneficiaries. They can charge lump sum contributions to the project under same conditions and must implement certain project tasks attributed to them in the GA. The work for these tasks is carried out under their full and direct control, but the beneficiary remains responsible toward the granting authority for the work carried out by them and must ensure that all their obligations under the GA also apply to the affiliated entity. The granting authority may require joint and several liability of an affiliated entity, if the financial capacity of a beneficiary is weak and the beneficiary mainly coordinates the work of its affiliated entity.

Subcontractors

Subcontractors also do not become party to the GA. They preform project tasks attributed to them in the GA similarly to affiliated entities but do not charge costs to the grant. The GA must specify which actions tasks will be subcontracted and the estimated subcontracting amounts but does not require naming of a specific subcontractor. The subcontractor is paid by the beneficiary in exchange for its work and the beneficiary remains fully responsible towards the granting authority for tasks performed by its subcontractors and must ensure that their contractual obligations also apply to the subcontractor. The beneficiary must award the subcontracts based on best value for money and absence of conflict of interest. The eligible cost covered by the grant is the price of the subcontractor charged to the beneficiary, containing a profit margin directly for the subcontractor. 

3. The Legal Framework for participating Foreign Entities 

3.1. Open to Foreign Investment

The legal body surrounding the Fund applies to all project participants, including non-EU participants. The regulatory framework for the Fund can be found in the EU Financial Regulation (FR) 2024/2509, which sets out common rules for budget implementation through award procedure under the direct management of a commission agency like the CINEA. Foreign entities within the award procedure must make standard declarations regarding a common list of exclusion criteria found in the Financial Regulations. 

3.2. FSR

When participating in projects supported by the Fund, foreign investors must take into consideration the Foreign Subsidies Regulation 2022/2560 (FSR)[9]. Whereas the legal body governing the Fund does not foresee the application of the FSR in the award procedure, Art 143 (1) (e) Financial Regulation states that the addressee of a decision under the FSR rules, prohibiting the award of a contract for having received foreign subsidies distorting the internal market shall be rejected from an award procedure.

Art. 1 FSR clarifies that distortions created by foreign subsides can arise with respect to any economic activity, thus including the realization of grant projects in the EU. To date, there is no precedent indicating that the Commission would generally treat a foreign investor participating in a Fund award procedure and having received foreign subsidies in the same way as a subsidized foreign undertaking in a tender (Art. 5 (1) (e) FSR) within a procurement procedure. 

However, for the newer Fund programs that use auction and bidding formats, more closely resembling a procurement process, bidders must provide information on foreign subsidies beforehand, and, in case extraordinarily low bids are received, an investigation under the FSR can be initiated ex officio by the Commission.[10]
 

Dr. Christian von Wistinghausen
Johannes Supp

[1] Calls for proposals - European Commission

[2] Innovation Fund Project Portfolio - Innovation Fund - Portfolio of signed projects | Arbeitsblatt - Qlik Sense

[3] Example of award criteria point system for the 2024 Large scale project call, Page 19; Call document for the call "Innovation Fund call 2024 Net Zero Technologies"

[4] call-fiche_innovfund-2023-nzt_en.pdf, Page 9, 11. 

[5] Call document for the call "Innovation Fund call 2024 Net Zero Technologies" Page 25.

[6] IF25 Hydrogen Auction, Draft Terms and Conditions; ee3b468a-ee39-4748-b3be-5ce8f0fd4652_en 2.1 General Auction design elements, 1.14. 

[7] Model Grant Agreement for all Innovation Fund Projects till 2027, non-negotiable and applies as is;ls-mga_innovfund_v1.1-01102023_en.pdf

[8] EU Financial Regulation, Regulation - EU, Euratom - 2024/2509 - EN - EUR-Lex 

[9] Foreign Subsidies Regulation EU 2022/2560, EUR-Lex - 02022R2560-20221223 - EN - EUR-Lex 

[10] Questions and Answers, Innovation Fund 2024 Auction, Question 16, Page 6,7fc59da6-15a1-46a1-a015-fa9645789601_en

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

Summary of Facts

Just imagine: A guest orders "strawberries" in a restaurant. He then gets the strawberries (and only them), but he complains to the waiter: "It goes without saying that cream is a natural addition to strawberries!" The waiter calls the owner, who confirms the waiter's appraisal: It is perfectly reasonable to eat strawberries with cream, a win in terms of taste - but if the guest wishes this delight, then he has to order it that way.

The case recently decided by the Higher Regional Court of Frankfurt am Main was similar: The third-party manager of a GmbH (German limited liability company) was dismissed for cause, which led to a legal dispute. The Regional Court of Frankfurt am Main ruled in summary proceedings that the dismissal may not be enforced for the time being meaning that the former managing director dismissed by the contested decision must continue to be treated as managing director and allowed to continue his activities as managing director and representative of the GmbH. The GmbH complied with this and reappointed the dismissed managing director as managing director. However, the GmbH no longer paid him a salary - unlike before his dismissal. The plaintiff, who had successfully argued that the dismissed managing director is to continue to be treated as a managing director for the time being, believes that this constitutes an infringement of the decision of the Regional Court. From the point of view of the plaintiff, "in the case of an employed third-party manager, the payment of his remuneration is of course included."

Decision of the Higher Regional Court of Frankfurt am Main

The Higher Regional Court of Frankfurt am Main, which dealt with the matter as the appellate court, rejected the claim as unfounded. The (challenged) decision on the dismissal of the managing director on the one hand and a potential remuneration entitlement on the other hand, are possibly related in fact, but not in law, according to the Higher Regional Court. In principle, the status as executive body alone does not entitle the managing director to remuneration for his work performed for the company. Such an entitlement always requires a separate contractual basis.

Comments and consequences for practice

The decision is not objectionable, on the contrary: In pleasing clarity, it underlines the importance of a careful regulation of the conditions under which a managing director enters service with a GmbH.

As a managing director is not an employee by definition, many (practical) arrangements may be made in his service agreement, that an employer can otherwise only dream of. In particular, a coupling of the status as executive body and employment is possible. And as the status as executive body, in principle, can be revoked at any time, the agreement can also be designed to be terminable at virtually any time.

But there is also freedom of legal arrangement in the other direction - since not every managing director wants to take a seat on the ejection seat, managing director service agreements often contain long (fixed) terms, that secure a livelihood for the managing director, even if he or she is replaced as managing director (possibly for reasons for which they are not even responsible). And provision can also be made in this respect: Some managing director service agreements even provide for an entitlement to a position as managing director.

Particular caution is advised when "promoting" an employee to managing director. It is often overlooked that the "old" service agreement of the employee, if it is not properly terminated upon promotion, will continue to exist in the background. If the GmbH then pulls the emergency brake at some point and again dismisses the person promoted as managing director, the agreed coupling clause applies, and the managing director service agreement is automatically terminated. But at that moment, the old service agreement revives - and the person who has just been dismissed continues to receive their salary as former employee.

The decision makes it clear: ius scriptum vigilantibus - laws (and menus) are written for attentive people. Failure to exercise due care when structuring the legal relationship between a GmbH and its managing director often leads to disputes later on. And this often ends with a hefty severance payment for the dismissed managing director.

Higher Regional Court of Frankfurt am Main, decision as of 30 December 2024 - 26 W 1/24

Dr Jan Barth
Julius Bauer

This post also appears in the Haufe Wirtschaftsrechtsnewsletter.

Through a media investment in the low single-digit million range, the investment arm of ProSiebenSat.1 for early-stage start-ups is participating in the striving start-up vivido. The first TV spot will be broadcast on ProSiebenSat.1 stations and platforms at the start of the campaign in October. As part of a long-term media partnership, an extensive TV and digital campaign will increase brand awareness and advertising recall for the start-up and positively boost the company's brand image.

vivido travel GmbH is a technology-based tour operator for experience-oriented travel. The team around the founders Tobias Boese and Karl B. Bock, both experienced in the tourism industry, has set itself the task of bundling special experiences into travel packages and making them available to book online within minutes. A team of travel professionals makes a suitable selection of flights and accommodation in advance which match the respective experience and can be individually configured on the start-up's website. The carefully tailored experience trips are rounded off with additional experiences that can be integrated into the itinerary. The range of short trips is organised thematically and offers a wide variety of experiences.

Advisor to vivido Travel GmbH:
ADVANT Beiten: Prof. Dr Hans-Josef Vogel and Sarah Heinrichs (both Corporate/M&A, Dusseldorf)

Advisor to SevenAccelerator:
P+P Pöllath + Partners Rechtsanwälte und Steuerberater mbB

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

Laumann Group, a family-owned group with headquarters in Sendenhorst in the Northwest of Germany, is a leading provider of building-related product solutions and IT-services. The Group's range of services extends from PVC profiles for windows and doors ("VEKA" and "GEALAN"), aluminium profiles, PVC panel and façade solutions to surface technology and IT consulting. It generates annual sales of EUR 1.6 billion.

Epwin Group is listed on the London Stock Exchange and generates annual sales of over EUR 380 million. The company is a leading British manufacturer of PVC and aluminium profiles for windows and doors, finished windows and doors, façade systems, decking and GRP building products. Apart from that, Epwin Group is also active in the trading and recycling of building materials.

The merger control workstream of the transaction is being led by ADVANT Beiten Partner Christoph Heinrich who is coordinating the proceedings with the UK Competition and Markets Authority (CMA) in collaboration with Euclid Law (London). ADVANT Beiten is also advising on the future integration of the target business into Laumann Group.

ADVANT Beiten regularly advises Laumann Group and its subsidiaries, such as on the acquisition of the aluminium system manufacturer Procural in 2023 and the façade specialist Vinylit in 2021.

Advisors to Laumann Group:
ADVANT Beiten: Christoph Heinrich (Munich, Antitrust Law), Dr Guido Krüger (Dusseldorf, Tax Law), Dr Christian Ulrich Wolf (Hamburg, Corporate Law)
Euclid Law: Oliver Bretz, Becket McGrath (both London, Antitrust Law)
Osborne Clarke: Jonathan King, Ed Nisbeth, Stuart Miller, Oliver Woods, Tim Rouse, Dominic Ross (all London, Corporate & Finance), Olexiy Oleshchuk (Munich, Finance)
Inhouse: Björn Baltes, Raphael Nießen

Advisors to Epwin Group: 
Eversheds Sutherland UK (Corporate)

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

Christoph Heinrich
Rechtsanwalt 
ADVANT Beiten
+49 (89) 35065 - 1332
Christoph.Heinrich@advant-beiten.com

Main part

This obligation to provide information continues to apply to the managing director even after his recall and even after termination of his managing director service agreement to a certain extent. Scope and content of this post-contractual obligation to provide information are determined by the need for information of the company and by the scope and content of the managing director activities at that time. What information a former managing director must provide depends on what can be demanded in good faith in view of his previous tasks, the customs in business transactions and the purpose pursued by the company with the request for information.

If the company needs information of the former managing director to initiate liability proceedings against him, a need for clarification and information of the company already results from the justified suspicion of a breach of duty and the probability of resulting damage. The obligation to provide information of the managing director is also not restricted by the fact that the managing director would reveal his own breach of duty with the requested information.

The Brandenburg Higher Regional Court has recently addressed this issue.

Background (simplified)

In the proceedings decided by the Brandenburg Higher Regional Court, the plaintiff limited liability company (German GmbH) asserted comprehensive claims for information against its former managing director on the grounds of violations of the non-competition clause incumbent upon him and further breaches of duty. The information served to enforce claims for damages and liability of the company against the former managing director.

The Brandenburg Higher Regional Court ruled that the former managing director remains under a comprehensive obligation to provide information even after his recall and termination of the managing director service agreement. According to the decision of the Brandenburg Higher Regional Court, however, the obligation to provide information is not unlimited, but essentially depends on the need for information of the company. If the information is requested - as in the present case - to assert any main claims (here: claims for damages against the former managing director), the claim for information is determined by the need for clarification of the company. A need for clarification of the company can already be assumed if the justified suspicion of a breach of duty by the managing director exists and it is probable that the company is therefore entitled to claims. In the present case, there were sufficient grounds to suspect that the former managing director had breached his duties in several respects: in addition to breaches of the contractual and statutory non-competition obligation, the former managing director had also demonstrably withdrawn business opportunities from the company on several occasions and had used them for himself personally. It was also sufficiently probable that the company incurred damages to be compensated by the former managing director due to the aforementioned breaches of duty.

The obligation to provide information was also not restricted by the fact that the managing director would reveal his own breach of duty with the requested information. The unlimited obligation to provide information does not infringe the fundamental rights of the former managing director at least if a self-incrimination enforced outside the criminal proceedings is accompanied by a prohibition of exploitation under criminal law. This was true for the present case. For the same reasons, the constitutional principle of freedom from self-incrimination did not preclude the claim for information.

In contrast, the former managing director was not obliged to provide information, insofar as the company was not dependent on the requested information, as the company itself possessed the information.

Comments and practical advice

If a managing director behaves unlawfully towards the company, the company may enforce comprehensive claims for information - by compulsory measures if necessary - against the former managing director even after termination of the status as executive body and the managing director service agreement. The claim for information also includes the obligation of the former managing director to submit documents and records relating to the obligation to provide information. On this basis, the company is then in a position to claim damages from the former managing director. In terms of process tactics, it is recommended to assert claims for information and damages together in an action by stages (Stufenklage) against the former managing director.

Gerhard Manz
Lisa Werle

This post also appears in the Haufe Wirtschaftsrechtsnewsletter.

ApoBank and the AXA Insurance Group have been cooperating in the sale of financial and insurance products for more than 25 years. Both companies now want to bundle the sales activities of their mobile sales companies apoFinanz and Deutsche Ärzte Finanz more closely. 

As part of the restructuring, apoFinanz will be merged with Deutsche Ärzte Finanz. At the same time, apoBank acquires additional shares in Deutsche Ärzte Finanz. The merger creates the largest financial sales organisation for academic health professionals in Germany. With around 500 independent financial advisors, the new company will serve more than 320,000 customers. The merger will be completed in August 2025. A cross-office team from ADVANT Beiten is providing apoBank with comprehensive legal advice.

With more than half a million customers and total assets of around EUR 52 billion, apoBank is the largest cooperative retail bank in Germany and the number one financial services provider in the healthcare sector. Its customers are primarily members of the healthcare professions, their professional organisations and associations, healthcare facilities and companies in the healthcare market.

With the reorganisation of their joint sales subsidiaries, the partners want to combine the strengths of the companies and use the synergies for additional growth. 

Advisors to apoBank: 

ADVANT Beiten: Heinrich Meyer, Rainer Süßmann (both lead partners in charge, Banking/Finance, Frankfurt), Dr Christian Ulrich Wolf, Maren Dedert (both Corporate/M&A, Hamburg), Christoph Heinrich, Prof Dr Christian Heinichen (both Antitrust Law, Munich), Oliver Korte, Christopher D. Harten (both Commercial, Hamburg), Dr Thomas Drosdeck, Dr Gerald Müller-Machwirth (both Labour Law), Susanne Klein, Lennart Kriebel and Daniel Trunk (all IT- and Data protection Law, all Frankfurt)

Advisor to AXA: Hengeler Mueller

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

Heinrich Meyer
Rechtsanwalt 
ADVANT Beiten
Phone: +49 69 756095-414
heinrich.meyer@advant-beiten.com

Background

In civil proceedings, the parties must introduce all facts favourable to them into the proceedings (so-called principle of principle of party presentation). These facts may also be trade secrets. For example, a party may find itself in a situation where a trade secret is disclosed to the opponent without protection or the case is lost in favour of protecting the trade secret. Since the principle of publicity of the hearing also applies in accordance with Section 169 GVG (German Courts Constitution Act), there is also a risk that a trade secret introduced into the proceedings could even be made public.

Previously, the protection of trade secrets in civil proceedings was regulated solely in Sections 172 No. 2, 174 (3) GVG. Accordingly, "The court may exclude the public from a hearing or from a part thereof if an important business, trade, invention or tax secret is mentioned, the public discussion of which would violate overriding interests meriting protection". The adjudicating court was also able to oblige the persons still present to maintain secrecy about the disclosed facts.

However, trade secrets submitted in written submissions or as evidence were not protected. Furthermore, the protection did not continue after the conclusion of the civil proceedings. Rather, the special protection rules of Sections 16 to 20 GeschGehG (German Trade Secrets Act) only applied in proceedings in which claims were asserted under this Act or in patent litigation. The legislator has recognised this conflict and addressed it with the new provision of Section 273a ZPO.

New regulation

Section 273a ZPO came into force on 1 April 2025 in order to close the protection gaps identified. It states:

"At the request of a party, the court may classify all or part of the information in dispute as confidential if it may constitute a trade secret pursuant to Section 2 (1) of the German Trade Secrets Protection Act; Sections 16 to 20 of the German Trade Secrets Protection Act shall apply accordingly."

Sections 16 to 20 GeschGehG now apply to all civil proceedings. Trade secrets under the GeschGehG is information that

(i) is not generally known or readily accessible and therefore of commercial value

(ii) is the subject of confidentiality measures that are reasonable under the circumstances by its legitimate owner, and

(iii) for which there is a legitimate interest in confidentiality.

Section 273a ZPO covers all trade secrets that are introduced into the proceedings or become known in the course of the prosecution or defence.

According to Section 273a ZPO, a party's application is required for the court to classify information as confidential. The applicant must present all of the above-mentioned facts and make them credible. In addition, it must clearly mark the passages relating to a trade secret in the documents submitted.

If the court considers the facts of Section 273a ZPO to be fulfilled, it is at its discretion to classify the information in dispute as confidential in whole or in part by means of an order. The further consequences are then governed by the GeschGehG. Pursuant to Section 16 (2) GeschGehG, the parties must treat the information confidentially and may not use or disclose it outside the court proceedings. Pursuant to Section 18 sentence 1 GeschGehG, this obligation continues to apply even after the conclusion of the court proceedings. In the event of a breach of this obligation, the court may order an administrative fine or imprisonment in accordance with Section 17 GeschGehG.

The right of third parties to inspect files is restricted in accordance with Section 16 (3) GeschGehG by making trade secrets unrecognisable or removing them before granting access to the files. In addition, the court may, at the request of a party in accordance with Section 19 (1) GeschGehG, restrict both access to the documents requiring secrecy and access to the oral hearing to a certain number of so-called "reliable persons".

Practical Note

The application pursuant to Section 273a ZPO should always be filed when a trade secret is introduced into the proceedings. The party whose trade secret is affected is authorised to file an application. This applies regardless of who introduced the trade secret into the proceedings. It can also happen that the opposing party introduces the trade secret into the process. In these cases, too, the application pursuant to Section 273a ZPO should be filed in any case.

If a party intends to introduce its trade secret into the proceedings itself, the application should always be made with the proviso that the complete documents should only be introduced into the proceedings and made accessible to others if the court grants the application. This ensures that the information is only disclosed to the other party if the court classifies it as confidential or the party decides to disclose the information without special protection.

The possible exclusion of the public and the obligation of the other party to maintain confidentiality are effective instruments for protecting trade secrets. However, if information that does not constitute a trade secret in the narrower sense is also to be protected, or if the public is to be excluded in any case, it is advisable to agree arbitration in contracts.

Simon Schuler

This post also appears in the Haufe Wirtschaftsrechtsnewsletter.

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

This goal is also served by the Omnibus Package IV, published on 21 May 2025, which proposes a new category for companies located between traditional SMEs (small and medium-sized enterprises) and large companies – the so-called SMCs (Small Mid-Cap Enterprises).

SMCs are supposed to be companies that are no longer formally SMEs but still do not have the structure or resources of large companies. Specifically, according to the proposal, a company is an SMC if it

• employs more than 249 and less than 750 employees, and
• either generates an annual turnover of more than EUR 50 million and less than EUR 150 million or has a balance sheet total of more than EUR 43 million and less than EUR 129 million.

With this new classification, the EU wants to ensure that medium-sized companies are not crushed between the sets of rules for SMEs and large companies.

The new definition is to be incorporated into several EU directives and regulations – with the aim of providing targeted relief to SMCs:

1. General Data Protection Regulation (GDPR): Currently, certain companies with up to 250 employees are exempt from the obligation to keep records of processing activities. This threshold is to be extended to SMCs. In addition, the obligation is to apply only to particularly risky data processing.
   According to the Commission, the projected savings potential is up to EUR 66 million per year.
2. Prospectus requirements for listed companies: A simplified EU Growth Issuance Prospectus is planned for SMCs. This significantly reduces the expenses for corporate actions and IPOs.
   Projected savings potential: up to EUR 20,000 per issue and up to EUR 12.7 million total savings potential for affected companies.
3. Finally, (1) SMCs are to be exempted from due diligence and traceability obligations in connection with the supply chain for battery raw materials (Batteries Regulation), (2) access to a special helpdesk that can assist them with trade complaints in the area of dumping and subsidies (basic Anti-Dumping and Anti-Subsidy Regulations) is to be opened up for SMCs, and (3) the registration requirement for importers of equipment containing fluorinated greenhouse gases is to apply to SMCs only if the product is actually affected by reporting obligations or limitations (F-gas Regulation).

Notes and Practical Advice

Many SMEs in Europe are now confronted with an excess of bureaucracy that was originally intended for large companies. Especially in capital market-related areas (e.g. IPO), the effort is often a deterrent. Omnibus IV addresses this malpractice.

If the Commission's proposals are implemented, SMEs could be significantly relieved – financially, in terms of personnel and organisation. This will not only improve competitive conditions but also access to the capital market.

It remains to be seen whether and in what form the European Parliament will accept the Commission's proposals. What is clear, however, is that the new SMC category brings much needed differentiation to corporate regulation – and thus gives many medium-sized companies in Europe hope for noticeable relief.

A ray of hope in the thicket of EU regulations – and perhaps a first step towards a real SME agenda at European level.

Gerhard Manz
Julius Bauer

This post also appears in the Haufe Wirtschaftsrechtsnewsletter.

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

CATT operates its first plant outside China in Arnstadt, Thuringia. With 1,700 employees, the plant is the largest foreign subsidiary of the battery manufacturer. Existing customers in Germany include companies such as BMW and Mercedes-Benz. In addition to the site in Germany, the expansion plans focus in particular on the sites in Hungary and Spain.

CATL has made a profit of approx. 4.6 billion dollars with the stock exchange listing in Hong Kong. The final price per share was set at 263 Hong Kong dollars, this corresponds to the maximum offer price. The scope of CATL's transaction could increase to 5.3 billion dollars, if a so-called greenshoe option results in the sale of a further 17.7 million shares. The fresh capital will be used in particular to finance CATL's further expansion into Europe. 

CATL Advisor - as a German Legal Counsel:

ADVANT Beiten: Dr Dirk Tuttlies (in charge; Capital Market Law), Dr Christian von Wistinghausen (in charge; Due Diligence), Tassilo Klesen, Danah El-Ismail, Simone Schmatz, Christian Burmeister, Lelu Li, Damien Heinrich, Robert Schmid (all Corporate/M&A), Katrin Lüdtke, Korbinian Goll (Public Law).

Public Relations

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

What is the current situation in the EU?

Securing the supply of critical minerals is becoming increasingly important also for the EU. The EU aims to increase extraction and processing of these minerals within the EU and to increase recycling rates, especially for metals used in technologies for the future, such as offshore wind turbines and electric vehicles. Germany basically follows this principle. There are no plans yet for commercial mining of polymetallic nodules to improve reliability of supplies.

What is the current legal situation with regard to deep-sea mining?

Germany is a member of the International Seabed Authority (ISA). The ISA Mining Code contains rules and regulations for all mining activities on the deep seabed, from prospecting and exploration to the actual extraction of minerals. The legal requirements for deep-sea mining, however, are still being discussed and negotiated. The ISA has undertaken to develop Regional Environmental Management Plans (REMPs) for all deep-sea regions in which mining activities are carried out or planned. Before individual projects are approved, these plans should be considered when deciding on the implementation of specific projects. Opinions differ as to whether they ought to be mandatory. The purpose of these plans is to strike a balance between deep-sea mining and environmental protection, to close knowledge gaps and identify collateral impacts, and to coordinate deep-sea mining with other permitted activities such as fishing and the laying of submarine cables. In 2012, a REMP was adopted for the Clarion-Clipperton Zone in the Central Pacific with the world's largest polymetallic nodule field. Others are being prepared. There are also negotiations going on to standardise the preparation and the contents of such REMPs. Germany submitted a REMP application in February 2020.

The ISA has reacted negatively to the Executive Order issued by President Trump, stating that any project that is not carried out in accordance with the recognised international framework or attempts to circumvent international law entails legal, diplomatic, economic, security and financial risks. Furthermore, a 'circumvention' of the ISA supervisory authority would violate international law. According to the ISA, the parties to the UN Convention on the Law of the Sea (UNCLOS) - which include Germany - are obliged not to recognise the acquisition or exercise of any rights to minerals extracted from the deep sea by any state, individual or legal entity that does not comply with Part XI of UNCLOS.

What does that mean for the German raw materials industry?

Even though the US and the EU have similar interests in terms of reliable supplies of critical raw materials, it remains doubtful whether the EU or Germany will join the US initiative to mine for deep-sea polymetallic nodules in the short term. In the event that polymetallic nodules will be imported to Germany for processing in the future, the question will arise as to whether the extraction has been carried out in accordance with UNCLOS and the ISA requirements, which have been transposed into German national law through the German Seabed Mining Act (Meeresbodenbergbaugesetz).

Dr Christian von Wistinghausen
Danah El-Ismail

While the German export model has occasionally come under pressure, German exports to India were able to increase by EUR 5 billion in the last five years. Overall, German companies exported USD 18.3 billion worth of goods to India in 2024 - 2.6 percent more than in the previous year and a new record. The total value of German imports from India was USD 15.1 billion in 2024. India's growing role as a procurement market for electronics is striking. German imports amounted to approximately USD 1.1 billion (plus 62 percent). According to the German Federal Statistical Office, the bilateral trade in goods between the Federal Republic of Germany and India reached an overall new all-time high in 2024. 

India is pursuing ambitious economic goals. The vision of expanding its own economy to a volume of 30 trillion US dollars is ambitious, but by no means utopian. A growing domestic market, favourable demographic developments and a progressive economic liberalisation make the country an attractive target for investments. Already today, India is the world's fifth-largest economy and a key player in world trade and in global supply chains. With the exception of the coronavirus crisis year 2020, the country has recorded stable economic growth for many years.

Diljinder Singh and Markus Linnartz had the opportunity to attend the conference of the International Bar Association (IBA) in Mumbai from 3 April to 4 April 2025. Under the title "Mergers and Acquisitions in India: A Key Engine to the USD 30 Trillion Goal" more than 230 lawyers and business representatives from more than 20 countries met together - an impressive sign for the growing international importance of the Indian market.

As the M&A activities in India in the financial year 2024-25 amount to almost USD 100 billion due to private equity and structural reforms, the role of M&A as an expansion tool for India's growth trajectory was highlighted at the conference. The IBA Conference was fully booked and offered a variety of exciting insights and perspectives. The increasing importance of financial investors positioning themselves as strategic buyers in India was discussed. The impact of geopolitical developments on international transactions were also intensively discussed. At the same time, it was clear how much technological innovations were now shaping M&A processes and how corporate governance standards for listed companies in the Indian market were evolving.

A panel discussion on private equity and financial investors was of particular practical relevance. The development of transaction structures and strategies as well as current trends were debated. This showed that the Indian market continues to struggle with uncertainties despite progressive legal frameworks such as the Insolvency and Bankruptcy Code (IBC) - among other things, with regard to deadlines, access to information and evaluation criteria. This makes it even more important for activities to be professionally supported by consultants who know the market, the business and the right contacts.

A particularly interesting aspect for international investors was the discussion about the so-called "clean slate" principle. It is intended to ensure that buyers are not liable for the insolvent company's inherited liabilities in the event of a takeover. However, there is still uncertainty, especially when it comes to tax liabilities: is it really guaranteed that any tax debts will be completely waived? This is a crucial point for investors - for, unanswered questions about tax treatment can have a significant impact on the risk assessment and transaction structure in the case of takeovers.

Conclusion and Outlook

Participation in the conference was extremely enriching, instructive and impressively demonstrated: India is not only one of the most exciting growth markets worldwide, but also an increasingly regulated and professional environment for international M&A transactions.  It is still important to always consider economic opportunities in conjunction with the legal and tax framework.

We look forward to contributing our expertise to the India panel at the IHK-Außenwirtschaftstag NRW in June 2025 and to supporting the economy in NRW on its way to India and its organisation.

ADVANT Beiten provides legal and tax advice to medium-sized companies and has been supporting cross-border investments and M&A projects for many years. In recent years, India has played an increasingly important role here - for internationally operating companies or those who would like to become one.

Autor: Markus P. Linnartz
Beteiligter Experte: Diljinder Singh Walia

Naxnova is a global design and technology company providing new generation solutions to global Original Equipment Manufacturers (OEMs) in the automotive, consumer durables & appliances industries in India. Naxnova provides a diverse product range of integrated surface augmentation solutions that includes decals, flexible 3D badges, overlays, smart surfaces and electronic solutions.
HS Products Engineering specializes in premium aesthetics for the luxury automotive sector and stands for innovation, quality and precision. The company has established partnerships with some of the world's most prestigious luxury brands, including Rolls Royce, Bentley, Porsche, Audi and BMW.

The acquisition strengthens Naxnova's product portfolio by combining HSP's expertise in high-end aesthetics with Naxnova's global reach and technological innovations in printed electronics.
Naxnova's growth trajectory continues with this majority stake: the acquisition is the latest in a series of strategic acquisitions to expand its global presence and continuously develop its product portfolio.

Advisor Naxnova:
ADVANT Beiten: Gerhard Manz (Freiburg, Lead), Christian Burmeister (Co-Lead, Freiburg/Berlin), Dr Christian Osbahr, Damien Heinrich (all Freiburg, all Corporate/M&A).

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

With its SolarMe electricity brand, Solarimo offers tenant electricity solutions for the housing industry. With this transaction, 300 photovoltaic systems with an installed capacity totalling 10.3 megawatts are to be transferred to Einhundert's operations by the end of the year. The systems are expected to supply more than 10,000 tenants across Germany with locally generated solar power. This is expected to save around 4,000 tonnes of CO2 per year.

ENGIE Deutschland GmbH is committed to accelerating the transition to a carbon-neutral economy. In Germany, the company plans, builds, operates and markets wind, photovoltaic and hydropower plants as well as pump storage and battery storage systems. Engie trades in electricity and gas and supplies end customers with energy.

The transaction was led by Dr Barbara Mayer, Christian Burmeister and Peter Meisenbacher at ADVANT Beiten. 

Einhundert Energie GmbH has been supporting real estate companies in the electrification and decarbonisation of their building portfolios since 2017. The Cologne-based company enables housing companies and their tenants to participate in the energy transition. The aim is to use 100 per cent CO2-neutral energy from local PV systems.

Consultant Solarimo:

ADVANT Beiten: Dr Barbara Mayer (Corporate/M&A, Freiburg), Christian Burmeister (Corporate/M&A, Freiburg/Berlin), Peter Meisenbacher (Public Sector/Energy, Freiburg/Berlin, all lead partners), Dr Erik Schmid, Alexander Gräßel (Labour Law, Munich/Freiburg).

Consutant Einhundert Energie:

Noerr: Dr Christoph Thiermann, Dr Christian Haagen (Munich/London)

Public Relations

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

Dr Barbara Mayer
Rechtsanwältin
ADVANT Beiten
+49 (761) 15 09 84 - 14
Barbara.Mayer@advant-beiten.com

Christian Burmeister
Rechtsanwalt
+49 (761) 15 09 84 - 18
Christian.Burmeister@advant-beiten.com

The need for innovative technologies for defence, cyber security and reconnaissance is increasing. At the same time, start-ups that provide new impetus for Europe's security architecture with artificial intelligence, robotics and drone technologies are playing an increasingly important role However, one thing remains crucial for this trend to be sustainable: Without sufficient funding from venture capitalists on the one hand and the awarding of public contracts to start-ups on the other, many of these ideas will remain stuck in the early development phase.

Current developments and market trends

For a long time, defence start-ups in Europe were considered a niche phenomenon. But this is changing rapidly. According to a report by the NATO Innovation Fund and Dealroom, around USD 5.2 billion was invested in European defence start-ups in 2024 - an increase of 24 per cent compared to the previous year. Germany has surpassed the United Kingdom as the largest target market for investment in this sector. Munich in particular has established itself as the European centre for defence tech, with almost USD 1 billion in investments in 2024 alone.

Paradigm shift 2025: safety precautions are the new ESG

Since the Munich Security Conference 2025 at the latest, it has been clear that Europe must increasingly stand on its own two feet in terms of security policy. With Donald Trump's return to the White House and the clear strategic reorientation of the USA away from European security guarantees, the era of the American defence umbrella is in fact history. The consequence: Europe must secure its own defence capabilities - technologically, militarily and financially.

This geopolitical upheaval has also changed investment logic.

Just a few years ago, investments in military technologies were often rejected across the board with reference to ESG criteria. The idea that "defence" per se was incompatible with ethical and sustainable investing shaped the investment criteria of many VC funds. Today, this view is considered outdated, as a new understanding now prevails: There is no sustainability without security.

The defence of democratic societies, the protection of critical infrastructure and resilience to hybrid threats have become the central pillars of a new ESG approach - one that does not exclude geopolitical reality but rather integrates it.

This can be seen not least in practice: More and more family offices, sovereign wealth funds and topic-specific VC funds are opening up to investments in security-related start-ups. The NATO Innovation Fund (with a volume of EUR 1 billion), the Estonian DeepTech Defence financing model and new funds such as Helantic are examples of this development.

Helantic - a new defence fund based in Switzerland - plans to invest EUR 100 million specifically in defence and dual-use start-ups. The focus is not only on end products such as drones or robotic systems but also on components such as batteries, sensors or software architectures. What is crucial, according to the founders, is that a specific civil-commercial market is developed and that the founding team has commercial excellence and a sense of responsibility in terms of security policy.

A look at current fund structures in Europe shows a growing diversity of approaches that complement each other: Although Helantic is based in Switzerland, the investment focus is clearly on Germany and Europe. Around half of the planned fund volume of EUR 100 million is to be channelled into German start-ups. The high density of qualified engineers, the excellent research infrastructure and the large number of successful spin-offs from German universities are decisive for this focus. The allocation of funds reflects this strategic focus: 50 per cent of the fund volume is earmarked for Germany, 30 per cent for Central and Eastern Europe and 20 per cent for promising global markets.

Estonia is also increasingly positioning itself as a driving force for defence-related innovations: With a newly created state defence fund totalling EUR 100 million, the Baltic country is investing specifically in military and dual-use technologies. Managed by the investment company SmartCap, the fund supports both start-ups and specialised venture capital funds. The aim is to strengthen the domestic industry, create new jobs and expand Europe's technological sovereignty.

In Germany - especially in Munich, which became a hotspot for defence tech investments in 2024 - almost USD 1 billion has gone into defence-related start-ups. The trend is clear: Investing in security today means investing in stability - and in the future of Europe. 

Successful examples from practice

Taking a look at the start-up landscape reveals that success stories do exist. The Munich-based company Helsing develops AI solutions for analysing sensor data for military systems and closed a financing round of EUR 450 million in 2024. For instance, the German robotics start-up ARX Robotics, which develops modular unmanned vehicles, recently received funding from the NATO Innovation Fund.

Outlook and recommendations

To realise its full potential, the start-up scene needs:

• More specialised venture capitalists with a deep understanding of dual-use technologies,
• More efficient regulatory processes and better interfaces between companies, investors and ministries, in particular the possibility of awarding major contracts to young start-ups instead of only to established companies, and
• A broader social understanding that defence and innovation are not mutually exclusive.

Only if it succeeds in combining key elements - specialised capital, regulatory clarity and social understanding - will Europe be able to compete for security-relevant technologies in the long term. Venture capital plays a crucial role here. However, it is just as important for politicians to take a positive and pragmatic attitude towards the numerous defence start-ups. They should become an integral part of a new procurement strategy for European armies so that the latter can benefit from the fast innovation cycles of start-ups.

The initial positive trends in this field described above must now be transformed by all stakeholders into a sustainable development stage. To achieve this, it is essential to substantially increase the acceptance of both defence tech and venture capital across society as a whole. Only with the help of start-ups will we be able to at least partially close the innovation gap between Europe and the USA and Asia and at the same time improve the European security situation.

Danielle Golinski, LL.M.
Dr. Mario Weichel

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

What can buyers achieve with W&I insurance? It may help to

• increase the prospects for a successful bidding process when offering to acquire a buy-side W&I insurance policy,
• secure payment for warranty breaches,
• extend liability for the so-called enhancements beyond the scope of the SPA,
• protect the business relationship between seller and buyer.

Why is it also attractive for the seller side? It may help to

• receive the full purchase price without deductions, retention of collateral,
• reduce the risk of claims in the event of warranty breaches (clean exit),
• protect sellers who were not involved in the operative business.

With this in mind, it is always worth considering whether W&I insurance can be used in a transaction in a manner to add value to the transaction and achieve the desired result. W&I insurance is certainly not a universal remedy, and the cost incurred cannot be ignored. It should, however, be weighed against the strategic advantages such insurance offers.

Angelika Kapfer
Simone Schmatz

The acquired portfolio consists of three ready-to-build solar projects. The first project is located in Saarland, the second is an innovative Agri-PV project in Mecklenburg-Western Pomerania and finally another Agri-PV initiative in Lower Saxony. These projects are expected to be completed between mid and late 2025.

The ADVANT Beiten team, led by Dr. Christof Aha, regularly advises Trinasolar.

Trinasolar ISBU is the project development arm of Trinasolar and specializes in the development, engineering, procurement, construction, operation and maintenance as well as asset management of solar and battery storage projects worldwide.

Emeren Group is a global developer and operator of solar projects. The shares of Emeren Group Ltd. are listed on the NYSE.

Trinasolar France and Emerem Group have already worked together successfully in the past. With this strategic transaction, Trinasolar strengthens its commitment to expanding renewable energy solutions and promoting sustainable developments across Europe.

Advisor Trinasolar:
ADVANT Beiten: Dr Christof Aha (lead), Mark Thönißen, Felix Busold (all Corporate/M&A), Leopold Linden (Real Estate, all Frankfurt), Katrin Lüdtke (Public Law, Munich).
Inhouse Trinasolar: Esther Muñoz Contreras (Rome)

Advisor Emerem Group:
BNK: Dr. Florian Brahms, Désirée Oberpichler (both Hamburg)
Inhouse Emerem Group: Manuel Ales, Teresa Cera Mora (both Madrid)

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

This is the third post in a series of blog posts on the topic of Football and the Law. While the first post (here) looked at the competitions and the second at the clubs (here), this third post focuses on the players. The article highlights the latest legal developments in relation to players and explains why a large number of further legal disputes (litigation) can be expected.

Fifa Regulations and national law

Professional football players are fundamentally employees, which means that their respective contracts fall under national (employment) law while the rules of the various football associations also apply. These are laid down by FIFA, the world football association, but are implemented by each national association. The FIFA "Regulations on the Status and Transfer of Players" (RSTP) stipulate, among other things, that a professional football player cannot change employers at will. Instead, player transfers must be registered with the national association within certain time frames, the so-called transfer periods, and players are not allowed to participate in competitions without registration. Failure to comply with these rules can result in significant penalties for both clubs and players. Furtherrules of association law can be drastic for professional footballers.

The case of Dani Olmo and Financial Fair Play

The case of Spanish international Dani Olmo is an example of how of the overlaps between national employment law and the self-imposed rules of Football associations can restrict the activities of players and clubs. Following his transfer from RB Leipzig to FC Barcelona, Dani Olmo was recently denied registration and thus eligibility to play in the second half of the Spanish league because his club, FC Barcelona, allegedly failed to comply with UEFA's Financial Fair Play rules. It was only after FC Barcelona had improved its balance sheet by selling usage rights to VIP boxes that the Spanish FA granted temporary permission to play (see reports here Dani Olmo: Barcelona forward granted temporary permission to play - BBC Sport and here: Laporta cierra un acuerdo de 100 millones para inscribir a Olmo y Pau Víctor | Marca). A final decision on the registration is still pending. 

Limits under European law

However, the far-reaching effects of the FIFA Regulations, as illustrated by the Dani Olmo case, are subject to the limits of European law. These limits have been shifted in favour of the players in current proceedings. The proceedings are based on the case of the player Lassana Diarra, whose change of club failed due to a lack of registration in accordance with FIFA rules. The player sued FIFA and the Belgian national football association for damages. The case is pending before the Court of Appeal in Mons (Belgium), which referred the question of whether FIFA's transfer rules (RSTP) comply with European law to the Court of Justice of the EU (CJEU) for a preliminary ruling. 

In its ruling of October 4, 2024, the CJEU (C-650/22 Link: CURIA - Documents) ruled that FIFA's rules on player transfers violate European law. Although FIFA may regulate the transfer market in the interest of sport, it must also respect the free movement of workers in accordance with Art. 45 of the Treaty on the Functioning of the European Union (TFEU) and may not unlawfully hinder competition in accordance with Art. 101 TFEU. The CJEU generally finds that the RSTP violates European law and criticizes in particular the harsh sanctions and the undefined legal terms of the RSTP. 

The Diarra proceedings have not yet been concluded and will continue before the Court of Appeal in Mons (Belgium). However, it confirms a trend that is already known from the Superleague ruling of the CJEU (judgment of December 21, 2023 European Superleague Company, C-333/21, EU:C:2023:1011). In this case, the CJEU also found that competition was unlawfully impeded and ruled that the organisation of football competitions constitutes an economic activity to which European competition law applies. In the Diarra case, the CJEU applied this reasoning to the players. Consequently, the practice of sport by players (as well as the organisation of competitions) is also an economic activity to which the rules of EU law apply. Also with regard to players, the CJEU subjects FIFA and UEFA to stricter control than before and thus continues the development that began with the Superleague ruling (see the first blog post in this series here). Dani Olmo could also benefit from this development.

Effects and Outlook

The CJEU has ruled that FIFA's rules are in principle contrary to European law. However, FIFA's rules could be covered by exceptions, the existence of which must now be decided by the Court of Appeal in Mons. In order to make use of the exceptions, FIFA would have to show that its rules are necessary for the proper conduct of club competitions. 

However, the CJEU's clear criticism of FIFA's transfer rules should prompt FIFA to reform its transfer rules, regardless of the outcome of the Diarra case. The reform should lead to greater flexibility for players when changing clubs. This could in turn lead to lower transfer fees in the future, as the selling clubs would have fewer opportunities to retain a player. The record-high transfer fees of the last transfer period would then be a thing of the past.

In addition, an increase in legal disputes is to be expected. In disputes with clubs, players can invoke the increased control density of European law. At the same time, clubs may be prompted to take action against players in breach of contract using national contract and tort law. For the further disputes to be expected in the area of sport, the applicable arbitration agreements, which can supersede state jurisdiction, must always be taken into account. The Diarra case was also initially brought before arbitration courts before it reached the CJEU. 

We are proud to have qualified in the Legal 500 league as one of the "Firms to watch" in Commercial Litigation (The Legal 500 Germany 2025) with ADVANT Beiten and are happy to advise you on all aspects of dispute resolution in and out of court, whether in or out of sport and whether before arbitration tribunals or state courts.

Philipp Sahm
Chiara-Lucia Peterhammer

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.

FoxInsights, headquartered in Munich, is a spin-off of one of the Top3 Innovation Labs (EnBW Innovation) in Germany. The company offers IoT-based remote tank monitoring solutions. Through digitalisation and data analytics, FoxInsights optimises the sales and ordering process as well as supply chains in the energy, mobility and recycling sectors.

Advisor Banyan Software:
ADVANT Beiten: Christian Burmeister (Lead), Damien Heinrich (both Corporate/M&A), Dr Christian von Wistinghausen, Lelu Li (both Investment Control), Heiko Wunderlich, Fabian Buker (both Tax), Mathias Zimmer-Goertz, Christian Döpke (both IP/IT), Dr Erik Schmid, Alexander Grässel (both Labor & Employment Law).

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

This is the second in a series of blog posts on the topic of football and the law. Based on current developments, the second instalment deals with the question of why football clubs establish cooperatives.

What is a cooperative?

A cooperative is a company the purpose of which is to promote the economic, social or cultural interests of its members through joint business operations. In contrast to other forms of company where the focus is on making a profit, cooperatives focus on the cooperative members and their support. Cooperatives are characterised by the so-called identity principle, which states that the members are at the same time co-sponsors of the cooperative's decision-making, investors by paying into the shares, and business partners of the cooperative. A cooperative is allowed to make profits, but must convert profits into support services (and not just money) for the benefit of its members. Furthermore, the cooperative is described as particularly democratic, as each member has one vote in principle, regardless of how many cooperative shares they have subscribed to. Members of the cooperative are not personally liable.

Cooperatives in professional Football

While the role of cooperatives as banks (providing their members with banking services) or in housing construction (providing their members with housing) has a long tradition in Germany, the interest of football clubs in this legal form is new. In the case of FC Schalke 04 and FC St. Pauli, the clubs want to secure their financing by founding a cooperative, issuing cooperative shares in return for the payment of a sum of money and raising a total of tens of millions. Financing through the issuance of cooperative shares is intended to strengthen equity without the clubs having to borrow money from outside investors. Purchasers of cooperative shares get a say in the cooperative and a share of the profits in return. In fact, according to their own statements, both football clubs have already issued over 10,000 cooperative shares and collected several million each (cf. reports by FAZ and The Athletic).

At both football clubs, the new cooperatives are to operate their respective stadiums. However, the legal form of a cooperative is not suitable for the licensed players' section. These are subject to the so-called 50+1 rule of the DFB statutes. According to this rule, the parent club must hold at least 50% of the voting rights plus an additional voting share. The (controversial) rule deserves its own blog post and is intended to prevent investors from gaining complete control over club teams. Compliance with the 50+1 rule is not possible in a cooperative because each member has one vote. Although multiple voting rights are possible, they are subject to strict limits.

Reform of the Cooperatives Act

The interest of football clubs in cooperatives coincides with a reform of the Cooperatives Act which came into force in January 2025. The aim of the reform was precisely to increase the attractiveness of this legal form. In particular, the cooperative projects at Schalke and St. Pauli directly benefit from the fact that the reform removes the written form requirement. Previously, membership of a cooperative could only be acquired by submitting a written declaration of accession. The legislator no longer considered a handwritten signature on paper to be in keeping with the times. Since the beginning of January, a declaration of accession in text form has been sufficient, meaning that membership can now also be acquired online. It is therefore possible to issue cooperative shares digitally.

The establishment of (funding) cooperatives as a financing vehicle is a form of crowdfunding. It is not limited to football and requires - in addition to compliance with the special features of cooperatives - a wide reach. Football clubs with a large number of members already have the latter. However, there are also large clubs outside of sport for whom this form of financing could be both interesting and viable.

Philipp Sahm
Chiara-Lucia Peterhammer

This is the first post in a series on the topic of football and the law. The series takes current developments in the sport as an opportunity to shed light on legal issues. In this first article, we examine who is allowed to organise football competitions and why the courts are involved. The article shows how litigation has developed and will continue to shape the law of the beautiful game.

The Super League is back

When plans to establish a new European club competition called the „Super League“ were published by 12 football clubs in April 2021, this sparked so much resistance that the project was abandoned within a few days. Now the Super League is back: on 17 December last year, A22 Sports Management S.L. launched a new attempt to obtain official recognition from UEFA and FIFA for the new competition in a modified form and with a new name: "Unify League" (see reports by the FAZ and The Guardian). The project has prominent supporters in Real Madrid and FC Barcelona.

The "constitution" of Football 

Who is allowed to approve football competitions? The question is not only economically exciting, but also legally. This is because there is no special state "football law" or European "sports regulation". Instead, football law is a self-imposed (internal) law of the clubs. So what prevents a private company, such as the initiator of the Super League – now Unify League- , from running its own football competition? The answer: it is the sanctioning power of the associations, in particular FIFA and UEFA. Football is organised by associations in the form of a pyramid. The individual football clubs are subordinate to regional and state associations and, in Germany, to the DFB as the supreme umbrella organisation. In Europe, the "Union of European Football Associations" (UEFA) stands above this. UEFA is in turn one of the six continental confederations of FIFA, the world football association. The upper associations exercise sanctioning power over the subordinate associations.

Although a club could decide to take part in a competition not approved by UEFA, such as the Super League, it would then face sanctions from the associations and could be excluded from playing in the Bundesliga, for example. The football associations can de facto make participation in competitive competitions impossible by imposing severe sanctions and thus act as "gatekeepers" for the market of professional football competitions.

European law and free competition

However, the traditional set up, of football is increasingly being called into question. New court rulings in particular have contributed to this by further developing the application of competition law to football. The starting point for the changes was a commercial court in Madrid, which referred the matter to the Court of Justice of the EU (CJEU) for a preliminary ruling. The CJEU ruled that EU competition law also applies to football and that the monopoly position of FIFA and UEFA is in breach of European law. The Treaty on the Functioning of the European Union (TFEU) is decisive for the question of whether football associations are allowed to prevent competitions. This regulates the European internal market, in particular the free movement of goods and services. As football competitions are a cross-border economic activity, the rules of European competition law apply to them. In the Super League case, the CJEU ruled that the sanctions threatened by the football associations constitute an unlawful restriction of competition. UEFA was exploiting its dominant market position in an unlawful manner. Instead, it must establish transparent and non-discriminatory criteria for the approval of new competitions. In May 2024, the Madrid Commercial Court finally ruled (see reports here by Sportschau and BBC Sport) that UEFA and FIFA had abused their market power by arrogating to themselves the power to prohibit participation in third-party competitions.

What does this mean for the Football associations?

However, the special position of UEFA and FIFA was not completely abolished. On the contrary, the CJEU has even strengthened the role of football associations in certain respects. It has recognised that football has a special social and cultural significance. This, as well as the large number of national and international competitions, justify the standardisation and coordination of football by uniform associations. The associations may monitor compliance with the necessary rules and, if necessary, impose sanctions, without this necessarily constituting an abuse of a dominant position. However, the special characteristics of professional football do not justify UEFA and FIFA being allowed to prevent any competitor from accessing the market. The associations do not have to admit every competitor, but they are obliged to establish transparent and non-discriminatory rules for admission. The decisions of the CJEU and the Madrid Commercial Court therefore do not mean that new competitions cannot be prohibited by the football associations. The CJEU has not fundamentally abolished the commercial monopoly of FIFA and UEFA, but it is subject to stricter controls.

What does this mean for the Super League?

Whether the new UEFA rules meet the legal criteria of the CJEU is already controversial. Due to their economic importance alone, further litigation on the topic of football competitions be expected in the future. It is therefore right to speak of "Super League = Super Litigation" (as Jan Zglinski does in his article "Who Owns Football" which is well worth reading). At this point in time, it is so not clear if any games will ever be played in the Super League (or Unify League). But it is very likely that further court cases will be brought about.

Philipp Sahm
Chiara-Lucia Peterhammer

Once investors have invested in a company, it is common for founders to agree on what is known as vesting clauses. A vesting clause is a contractual provision stating that a founder only acquires the right to certain shares over a fixed period of time, which usually lasts three to four years. Vesting arrangements aim to bind the founders to the company and motivate them to continue to contribute their full expertise. If a founder leaves the company before the end of the vesting period, such founder will only retain the shares earned up to that point during the vesting period. The first shares are, however, often only released after the first year (known as cliff). The Berlin Higher Regional Court (Kammergericht Berlin, KG) recently ruled that a termination clause in the form of a vesting provision for a start-up may be valid. The clause in question stipulated that a shareholder must transfer such shareholder's shares to the co-shareholders at their request if the shareholder's employment relationship with the company is terminated within the first year of the vesting period.

Facts

In the appeal proceedings, the parties disagreed on the shareholder status of the claimant, who was a co-founder of C-GmbH. This company, originally founded as an entrepreneurial undertaking with limited liability, known as Unternehmergesellschaft or UG, signed an investment agreement with investors investing EUR 1.373 million in return for the issue of shares. As part of the deal, the founders agreed to vesting and had to define a corresponding exit provision for their holding company, which stipulated that the founders would lose all shares if their employment contracts were terminated within the first year of the three-year vesting period. The claimant was released from his duties and negotiated his resignation for six months, which was finally confirmed by regular termination. The claimant felt that the purchase option for his shares was contra bonos mores and therefore invalid. The Berlin Regional Court (Landgericht Berlin) dismissed his claim in the lower instance. The claimant's appeal to the Berlin Higher Regional Court was unsuccessful.

Decision of the Berlin Higher Regional Court

The Berlin Higher Reginal Court in its notice to the parties found, among other things, that a termination clause in the form of a vesting schedule is valid if the intention is to link a founder's shareholder status in a start-up company with his continued commitment to the company.

Background and Reasoning

The Berlin Higher Regional Court (Kammergericht Berlin, KG) initially refers to rulings of the German Federal Court of Justice (Bundesgerichtshof, BGH). The BGH considers termination clauses in which the other shareholders of a GmbH (i.e. a private limited liability company under German law) are granted the right to exclude a co-shareholder from the company without objective reason to be null and void. The affected co-shareholder is no longer in a position to exercise his membership rights in the company and meet his membership obligations. This is because the possibility of free termination can actually be interpreted by him as a disciplinary tool ('Damoclean sword') and prevent him from exercising his membership rights. Termination clauses are only justified in exceptional cases if there is an objective reason. If the behaviour of a shareholder is reproachable, it is much easier to objectively justify a termination (bad leaver event). If, however, the termination is not based on reproachable behaviour - as is the case here with the regular termination (good leaver event) - the requirements for the objective justification of a termination clause are higher. However, it is always necessary to analyse all the relevant circumstances of the individual case.

The Berlin Higher Regional Court makes it clear that it could be justified to completely force a founder out of his shareholder position during the first year of the three-year vesting period by means of a cancellation clause. It is true that the founder may lose the rewards of his previous contribution to the (future) success of the company. However, a certain period of time, in this case the first year, may be used to resolve any differences between the shareholders and find workable compromises.

According to the Court, such arrangements were in the interests of both the investors and the founding shareholders: investments in start-ups involve uncertainty for investors, particularly as to whether the company will successfully survive the start-up phase. Investors needed to rely on the founders to continue to contribute their expertise and hard work to the company, particularly because the founders could not offer them any traditional collateral. At the same time, there might be an interest in subjecting the founders to a probation period to avoid having to be more restrictive with regard to placing trust or calculating with an increased failure risk as part of the investment decision.

The KG not only considers the perspective of the investors and their financial risk, but also emphasises that the vesting rule is in the ex-ante interest of the founders. The crucial factor was that the (urgently needed) financial resources could be raised and (future) disagreements among the shareholders could be resolved as easily as possible without the need for the successive retransfer of shares. In this important phase for the company, it was therefore justified to link the continuation of the founder's shareholder status with his continued commitment to the company.

Practical Advice

This decision makes it clear that a termination clause may be effective even when there is no reproachable behaviour, provided there are objective justifications. The notice by the Berlin Higher Regional Court to the parties is fully consistent with the past BGH decisions on termination clauses. The BGH had already previously assumed objective legitimate grounds in several individual cases, such as the temporary 'probation period' of a new partner in a joint practice.

A vesting provision also usually includes arrangements for the amount of severance pay. However, the KG leaves it open whether a severance payment at the nominal price is appropriate in the case of a good leaver clause, as an appropriate severance payment could replace the agreed one. According to established case law, the market value settlement is the standard case. There are limits to the restrictions that may be imposed. In practice, deductions are often made as a percentage of the market value depending on the leaver event. It seems reasonable to assume that bad leavers would lose 40% and good leavers 20%. A distinction is also made as to whether shares that have already been vested are lost or whether only unvested shares are to be transferred back. For bad leavers, a settlement at nominal value is common, as this corresponds to the acquisition costs. In the case of a good leaver, usually only unvested shares are retransferred at nominal value.

Severance pay at the nominal price or with a small premium may also be justified for good leavers. The KG emphasises that the start-up gains considerably in value through investor capital, while the founders have to earn this value over time. 

In practice, it is advisable to use fall-back clauses for retransfers. These stipulate that the lowest permissible severance payment applies if a court declares the original severance payment provision invalid.

Berlin Higher Regional Court, notice of 12 August 2024 – 2 U 94/21

Christian Burmeister
Damien Heinrich

^{This blog post also appears in the Haufe Wirtschaftsrechtsnewsletter.}

The LkSG, which was passed in 2021 by the grand coalition government of the time and deals with companies' obligations to protect human rights, has now been in force for almost two years. Nevertheless, it once again is the subject of many a political debate. Mostly in connection with the topic of red tape and red tape reduction. One could almost get the impression the LkSG had been identified as the main cause of the German economy's problems and that everything would be fine once it was removed. It was suggested that the LkSG 'had to go' (Federal Chancellor Olaf Scholz). There was even talk of chain saws to 'cut away' the Act (Economics Minister Habeck). Beyond the pithy political statements, however, there was some confusion as to the details of what should actually be implemented and how. The 'growth initiative' of the traffic-light coalition initiated in the summer of 2024, which is now a thing of the past, could certainly be understood to merely restrict the scope of the LkSG's application (see Initiative for Growth of the Federal Government of 5 July 2024). According to this initiative, only those companies that must be registered under the requirements of the CSDDD as of 2027 should be subject to the LkSG. In 2028 and 2029, the LkSG's application should then be expanded again in line with the requirements of the CSDDD.

The growth initiative also referred to the fact that the law on the implementation of the Corporate Sustainability Reporting Directive (CSRD) planned for the second half of 2024 would remove the specific reporting obligation set out in the LkSG for companies that prepare a sustainability report in accordance with the CSRD. The corresponding draft bill of the German government was submitted to the Bundestag, the German parliament, in September 2024 (see BT-Drs. 20/12787 (available only in German)). Although the EU Commission has already initiated infringement proceedings against Germany for not having transposed the CSRD into national law in Germany in time (i.e. by June 2024), it is unclear whether this bill will still be passed in the current legislative period after the German traffic-light coalition has failed. This has unpleasant consequences for all those companies that have prepared themselves to produce a mandatory sustainability report in accordance with the CSRD for the first time for the 2024 reporting year. As the CSRD reporting obligation can probably no longer be introduced retroactively for the 2024 reporting year in 2025 (at least according to the IDW in a newsletter to its members dated 14 November 2024 (only available in German)), companies may have to re-plan at short notice and submit a 'non-financial report' again for 2024 to comply with the still existing legal situation. This would render companies' extensive preparations for CSRD reporting obsolete for the time being. Also, the originally planned liberation from parallel reporting under the German LkSG would not materialise either, with the result that these companies would have to prepare an LkSG report for 2024 in addition to the non-financial report. This 'back and forth' is highly unlikely to generate any enthusiasm in corporate circles. 

The Bundestag is now once again addressing the issue of a complete abolition of the LkSG, after a draft by the CDU/CSU parliamentary group for a 'Supply Chain Due Diligence Obligations Cancellation Act' ('Lieferkettensorgfaltspflichtenaufhebungsgesetz') (BT-Drs. 20/11752 (available only in German)) failed only two months ago (in October 2024) due to the opposition of the former traffic-light coalition, after the AfD parliamentary group's attempt had been unsuccessful in early 2024. Following the end of the traffic-light coalition, the CDU/CSU parliamentary group has reintroduced a draft for a 'Supply Chain Due Diligence Obligations Cancellation Act' ('Lieferkettensorgfaltspflichtenaufhebungsgesetz') (BT-Drs. 20/14015 (available only in German)). And now that it has left the Federal Government, the FDP parliamentary group has also introduced a draft bill to repeal the LkSG with the meaningful name 'Supply Chain Freedom from Bureaucracy Act' ('Lieferkettenbürokratiefreiheitsgesetz') (BT-Drs. 20/14021 (available only in German)). The drafts were discussed in the Bundestag in first reading on 5 December 2024 and referred to the relevant committees (for more details see German Bundestag - discussion of drafts to repeal LkSG (available only in German)). It will be interesting to see the outcome of these two current drafts within the short time left of the legislative period, and of the draft CSRD Implementation Act (CSRD-Umsetzungsgesetz), which is already slightly more advanced in the legislative process, (and the numerous other ongoing legislative procedures). 

Even if, in our experience, most of the companies affected have basically come to terms with the LkSG, upgraded their personnel and implemented the necessary due diligence measures, a very dangerous potential earthquake fissure is opening up in day-to-day business. Driven by current political statements, the view that the LkSG does not need to be taken so seriously (any more) is evidently growing at management level. After all, it has already been announced at the highest level that the LkSG is 'going away', especially as there seems to almost be a rare cross-party consensus on this. The situation with the LkSG is, however, somewhat different to that relating to the CSRD Implementation Act. This is because sustainability reporting in accordance with the CSRD still has to be transposed into national law; there will be no mandatory sustainability reporting before then. The LkSG, on the other hand, has been national law for some time, with the result that the addressees of the regulations must fulfil the human rights and environmental due diligence obligations set out therein. And this will remain the case, regardless of the current political discussion, until the Bundestag has passed a law to repeal the LkSG and such law has come into force. However, for the reasons outlined above, it is uncertain whether this will happen in the short term.

For the management, the LkSG will therefore remain part of their general compliance obligations until further notice. In other words, the management is responsible for ensuring that the laws applying to the company (including, for the time being, the LkSG) are indeed observed by the company. If, however, in view of the current political discussion and the expected or anticipated future repeal of the LkSG on this basis, the management now lets go of the reins and company-internal measures to implement the LkSG are no longer pursued with the necessary vigour, it risks coming into conflict with its obligation to comply with the LkSG, which definitely is still currently in force. The (debatable) prediction that the LkSG will soon be repealed does not make any difference in this context. This is because the LkSG contains ongoing obligations, i.e., for example, that the company must perform an event-based risk analysis at any time a reason to assume such risk arises. Preventive measures, too, must be implemented on an ongoing basis. 

Inadequate implementation of the LkSG may constitute an administrative offence and accordingly lead to a fine of up to 2% of annual global sales. If such a fine were to be imposed, the question (that has not yet been answered from a legal perspective) would immediately arise as to whether the company can (and possibly must) seek recourse against the individual members of the management on the ground of inadequate implementation of the LkSG, which may have caused the fine. Even if D&O insurance cover is in place, the defence against such a liability claim by the company is not exactly a pleasure for the defendant director. Not to mention other consequences beyond any personal liability. A prudent and conscientious director (according to the legal model of section 93 of the German Stock Corporations Act (Aktiengesetz, AktG) should therefore ensure implementation of the LkSG for as long as the current political discussion remains a discussion and the LkSG remains applicable law.

The potential hope that the supervisory authority responsible for monitoring the implementation of the LkSG (Federal Office for Economic Affairs and Export Control, Bundesamt für Wirtschaft und Ausfuhrkontrolle, BAFA) will no longer so intensely engage with the LkSG in view of the current political discussion and that any insufficiencies will therefore not lead to a fine seems unfounded to us in this generalisation. In September 2024, the Ministry of Labour and the Ministry of Economic Affairs announced the implementation of an 'Immediate programme for sub-legislative measures for the practical application of the LkSG' ('Sofortprogramm für untergesetzliche Maßnahmen zur praxisnahen Anwendung des LkSG')(for more information in German please follow this link). However, this does not affect the statutory monitoring of compliance with the LkSG by BAFA. Nor the fact that BAFA is said to have meanwhile initiated some 40 (!) administrative offence proceedings in connection with the LkSG.

Dr. Daniel Walden
Dr. André Depping

HECHT Contactlinsen GmbH is the leading manufacturer of custom-made rigid contact lenses in Germany. The company was founded in 1978 and has subsidiaries in Germany, Switzerland and Spain. The company has won multiple awards for its reliability, quality and manufacturing processes.

Novum Capital invests in small and medium-sized companies with annual revenues of up to EUR 200 million on behalf of German and international pension funds, private pension schemes, and endowments. Novum Capital helps its portfolio companies to improve their market position, increase their profitability, enhance the benefits of their business models for society – and increase the value of the companies.

In addition to the comprehensive legal advice provided by ADVANT Beiten under lead partner Gerhard Manz, the law firm Esche Schümann Commichau advised the sellers on tax matters. Löbbecke & Cie. GmbH assisted the seller in the transaction as M&A advisor.

Advisor HECHT Contactlinsen GmbH:

ADVANT Beiten: Gerhard Manz (lead partner), Dr Barbara Mayer, Stephan Strubinger, Damien Heinrich, Dr Christian Osbahr (all Corporate/M&A, Freiburg), Prof Rainer Bierwagen (Brussels), Marcus Mische (Tax) and Dr Andreas Imping (Employment Law, both Dusseldorf).

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

Gerhard Manz
Rechtsanwalt
ADVANT Beiten
+49 (761) 15 09 84 - 11
gerhard.manz@advant-beiten.com

Roularta Media Group N.V., founded in 1954, is a listed media company domiciled in Roeselare, Belgium. Roularta Media Deutschland publishes magazines targeting women and over-50s, fiscal and financial advice magazines as well as the history magazine G/Geschichte. The company employs a total of some 1,200 staff members.

With the acquisition, Herder expands its history segment, taking over the renowned history titles "G/Geschichte" and "G/Geschichte Portait". At the same time, the publishing house enhances the synergy between the magazine and book segments. History is a highly promising area for the publishing house. With the newly won titles and alongside the history titles and magazines of wbg, Herder is now able to serve the history market very comprehensively. Only in January 2024, Herder ‑ also assisted by ADVANT Beiten ‑ took over essential parts of the publishing house Wissenschaftliche Buchgesellschaft (wbg), already then expanding its presence on the historical specialist book and the special interest magazine markets.

In 2023, the publishing house celebrated its 225^th anniversary of its first Herder book of 1798. Today Herder publishes around 350 titles per year and is responsible for more than a dozen magazines. The books focus on politics & history, society, theology, religion, education and lifestyle. The publisher is Manuel Herder in the sixth generation; the publishing house is managed by the two managing directors Simon Biallowons and Philipp Lindinger.

Our team led by Dr Barbara Mayer has advised the publishing group Herder and the publishing family for many years, most recently on a number of acquisitions serving to boost digitalisation within the traditional publishing group.

Advisors to Herder GmbH:

ADVANT Beiten: Dr Barbara Mayer (lead partner), Lisa Werle (both Freiburg), Christian Burmeister (Freiburg and Berlin, all Corporate/M&A).

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

Dr Barbara Mayer
Rechtsanwältin
ADVANT Beiten
+49 (761) 15 09 84 - 14
barbara.mayer@advant-beiten.com 

If a managing director and an authorised signatory (a Prokurist) each grant a power of attorney for the commercial register as 'grantor' in two separate deeds, it cannot be assumed that the power of attorney is granted on behalf of the GmbH. If the applicant refuses to submit the additional documents requested by the registration court, the application for registration must be rejected.

In German limited liability companies, GmbHs, powers of attorney for commercial register matters are granted by as many members of the managing board as are needed to represent the company. These powers of attorney must be notarised. In a GmbH with joint representation, usually two managing directors, or one managing director together with one authorised signatory (Prokurist), are authorised to represent the company. In a recent decision, the Dusseldorf Higher Regional Court made it clear that two separate powers of attorney for commercial register matters, one signed by a managing director and one signed by a Prokurist, are not sufficient for a valid power of attorney. Because in a company with joint representation, two separate powers of attorney do not clearly establish that the undersigned intend to act on behalf of the represented GmbH.

Facts

The applicant is a notary authorised to act on behalf of the GmbH and filed for registration in the commercial register of a joint authorisation to represent the company in legal transactions (Gesamtprokura) for four individuals. The shareholders' agreement of the GmbH provided for joint representation. Two managing directors, or one managing director together with one Prokurist, were entitled to represent the company. B, in the role as an authorised representative of C (one of the managing directors of the GmbH) and D (Prokurist of the GmbH), signed the application for an entry in the commercial register. The request was accompanied by copies of two authorisations, in which C and D as 'grantors' each separately granted B power of attorney. The registration court initially dismissed the application with an informal interim order on the basis that B's power of attorney had not been proved to the registration court in due form. The applicant refused to submit further documents, whereupon the registration court issued the interim order against which an appeal was brought.

Decision by the Dusseldorf Higher Regional Court

The appeal was successful, but only temporarily. The Dusseldorf Higher Regional Court decided, among other things, that B had not been validly authorised. Moreover, the registration court should not have decided by way of an interim order but should have dismissed the application for registration after the applicant's refusal to submit the requested documents.

Background and Reasoning

The Higher Regional Court first clarified that the GmbH may in fact be represented by an authorised person for its registration request. Requesting the registration of a joint authorisation to represent the company in commercial matters (Prokura) in the commercial register is not a strictly personal obligation of a managing director. The senate points out that a registration requires a power of attorney certified by a notary (section 12 (1) sentence 3 of the German Commercial Code (Handelsgesetzbuch,HGB)). In a GmbH, such power of attorney is granted by as many members of the management board as are needed to represent the company.

In this respect, the Dusseldorf Higher Regional Court concludes that the powers of attorney granted by C and D are invalid, as they conflict with the stipulation on the joint representation of the GmbH. One managing director (here C) and one authorised signatory (Prokurist, here D) who each appear as 'grantors' in separate powers of attorney cannot validly grant power of attorney to a third party (here B) for commercial register applications on behalf of the GmbH. As (i) the power of attorney was not signed jointly by C and D, and (ii) the term 'grantor' used in both powers of attorney was not explicit, it cannot be assumed to imply that the power of attorney was supposed to be granted on behalf of the GmbH.

Furthermore, the registration court should have declined the request earlier, i.e. once the unsuccessful informal interim order had been issued. The interim order is an instrument for the registration court to demand the removal of obstacles to registration such as an incomplete filing. The applicant, however, refused to remove the obstacle after an (informal) interim order, insisting on the applicant's original request instead, which the Higher Regional Court finds must be considered a final refusal. This constituted a final obstacle which in turn had to result in a decline of the request for registration.

Practical Advice

In principle, powers of attorney do not have to be in the same form as the legal transaction to which the power of attorney relates (section 167 (2) of the German Civil Code (Bürgerliches Gesetzbuch, BGB)). In derogation from this principle, powers of attorney for commercial register applications must be certified by a notary (section 12 (1) sentence 3 HGB). A representation by power of attorney for commercial register matters is, however, inadmissible, if the applicant has to make strictly personal affirmations - for example as a newly appointed managing director of a GmbH (section 39 (3) of the German Limited Liability Companies Act (GmbH-Gesetz,GmbHG)

In order for a power of attorney to be valid for the entry of the joint authorisation in the commercial register, the power of attorney must be signed by as many members of the company's management board as are required for the company's representation (i.e., if necessary, together with an authorised signatory (Prokurist). The applicant submits the original copy of the power of attorney to a notary who will submit it as an electronically certified copy, together with the actual application, to the registation court.

Two separate powers of attorney, each signed individually by the managing director and an authorised signatory as 'grantors', do not suffice in the case of a joint representation scenario. It is therefore necessary to explicitly clarify in the power of attorney that the authorised persons act on behalf of the GmbH (rather than acting as 'grantors' themselves). We further recommend that the authorised persons sign one and the same power of attorney.

Should the registration court issue an interim order (even an informal one), demanding that the applicant complete the registration filing, the applicant should think twice about refusing to give the requested information and insisting on the original filing. A refusal leads to a rejection of the registration request, with fees still being charged. Until an entry has been made, the applicant can still informally withdraw (revoke) the registration request at any time, which comes at a lower cost than a rejection.

Dusseldorf Higher Regional Court, decision of 29 August 2024 - 3 Wx 115/24

Christian Burmeister
Damien Heinrich

This blog post also appears in the Haufe Wirtschaftsrechtsnewsletter.

The Basics on Typical Silent Partnerships

A typical silent partnership describes a person or a company investing in the commercial business of a company as a silent partner. It is called a 'silent' partnership because the legislature provides for the silent partner to not generally appear in external relationships in contrast to an open participation. The silent partner and the company merely form an undisclosed partnership (Innengesellschaft) based on a partnership and participation agreement.

There are only very few legal provisions concerning silent partnerships, for example in sections 230 et seq of the German Commercial Code (Handelsgesetzbuch, HGB). The distinguishing feature of a typical silent partnership is the share of the silent partner in the profit of the company in return for the contribution of assets (section 231 HGB). Generally, a silent partner also participates in losses of the company up to the amount of such partner's contribution (section 232 (2) HGB). The partnership and participation agreement, however, may provide otherwise. While the typical silent partner has the right to be informed by the company, it does not usually have voting rights nor the opportunity to influence the management. The partner benefits from the economic success of a company but it is not able to exert any influence on it.

Due to the particularities mentioned earlier, a typical silent partnership is an agreement as to the partial absorption of profit and loss (Teilgewinnabführungsvertrag) within the meaning of section 292 (1) (2) of the German Stock Corporation Act (Aktiengesetz, AktG) Although the provision originates from stock corporation law, it is generally accepted that agreements as to the partial absorption of profit and losses may also be concluded with a GmbH. However, the prerequisites as well as the legal consequences in this context greatly vary between a GmbH and an AG with differing effects on the silent partnership.

Typical Silent Partnership with a GmbH

A typical silent partnership is a relatively frequent way of financing for a GmbH. In addition to the usual investors, banks often use this opportunity to participate in companies, often indirectly through their own holding companies. A typical silent partnership is appealing for a GmbH, mainly because it is fairly simple.

An informal partnership and participation agreement between the company and the silent partner suffices to establish a typical silent partnership. While this agreement is usually made in writing for documentation and verification purposes, it is not mandatory to do so. The prevailing opinion is that there are no further validity requirements; at least not if the typical silent partnership has no effects that amend or override articles of association, in particular does not restrict the shareholders' right to participate in the profits, and if the silent partner will not receive the majority of the profits of the company. While there are no strict limits, this should regularly only be the case beyond 50%. In the internal relationship, it is advised that the company passes a resolution in this respect before establishing a typical silent partnership. The same is true for the amendment of a typical silent partnership even if no particular requirements for its effectiveness exist in this respect either.

In accordance with the intentions of the legislature, the silent partner thereby remains anonymous. This makes the typical silent partnership with a GmbH particularly appealing for investors who want to benefit from the economic success of a company but do not want to be disclosed to the public.

Typical Silent Partnership with an AG

Matters are different for an AG. A typical silent partnership is classified as an agreement as to the partial absorption of profit and loss (Teilgewinnabführungsvertrag) which means that the provisions of sections 291 et seq AktG apply. 

In contrast to a GmbH, an AG has to sign a written partnership and participation agreement requiring the consent of the general meeting to be effective. On top of that, a silent partnership must be registered in the company's commercial register - and is therefore not 'silent' but visible to any interested party. The typical silent partnership will only become effective upon its entry into the commercial register. Furthermore, the consent of the general meeting as well as the registration in the commercial register are required not only for the conclusion but also for each amendment of the partnership and participation agreement. These strict validity requirements are mainly in place to protect the shareholders and creditors of the company to a much larger extent in the AG than in the GmbH.

As the anonymity intended by the legislature is lost at the AG, it comes as no surprise that the typical silent partnership is much less popular in practice with an AG than with a GmbH.

Munich I Regional Court - Decision of 25 August 2023

The case recently judged by the Munich I Regional Court (decision of 25 August 2023, 5 HKO 4013/22) illustrates what consequences the differences between a silent partnership with a GmbH and an AG can have.

In this case, a GmbH entered into a written partnership and participation agreement on a typical silent partnership with a silent partner which provided for a share in the profits but not in the losses. When the company later changed their legal form from a GmbH to an AG, the typical silent partnership was continued unchanged but not recorded in the commercial register. Then, the partnership and participation agreement was amended to include a provision stating that the silent partner would also have to share the losses of the company up to a maximum amount in the future. This amendment was not recorded in the commercial register either, nor was the consent of the general meeting obtained. When the share in losses of the silent partner was later taken into account in the annual financial statement of the company, a shareholder filed an action for a declaration of invalidity of the annual financial statement.

The Munich I Regional Court ruled in favour of the shareholder who had brought the action. It decided that considering the obligation of the silent partner to compensate losses in the annual financial statement was a mistake. It argues that instead of a claim, a liability - i.e. the remuneration claim of the silent partner - should have been recorded and that the annual financial statement is therefore void.

In its reasoning, the court explains that the amendment to the partnership and participation agreement is void because neither has the general meeting consented nor has the amendment been recorded in the commercial register. It states that while it is true that the silent partnership as such has not been recorded in the commercial register either, this does not affect the validity of the typical silent partnership as the partnership and participation agreement had effectively been entered into with the company at the time it was signed. The court is of the opinion that the change of legal form from a GmbH to an AG performed in the meantime did not lead to a termination of the typical silent partnership because the company as a legal entity continued to be a contractual party. It comes to the conclusion that registering it in the commercial register has thus at no time been a validity requirement against the background of contract continuity. 

The court argues that this, however, does not apply to the amendments to partnership and participation agreements. As the amendments were made after the conversion to an AG, the court states that the provisions of stock corporation law apply without any restrictions and therefore a resolution adopted by the general meeting as well as a registration of the amendment in the commercial register were mandatory. As neither requirement has been met, the court comes to the conclusion that this results in the silent partner's share in losses as intended by the amendment agreement is void.

Conclusion

As this case illustrates, the differences between a typical silent partnership with a GmbH and a typical silent partnership with an AG are not always taken into consideration in practice with a potential for far-reaching consequences for both the company and the silent partner. In particular where the legal form of a company changes, the impact on existing or intended silent partnerships should therefore not be overlooked.

Gerhard Manz
Stephan Strubinger

Bremen Higher Regional Court (OLG), judgment of 17 March 2023 – 2 U 32/20

Where the purchase is a commercial B2B transaction, the buyer has a duty under section 377 of the German Commercial Code (Handelsgesetzbuch, HGB) to inspect the goods: the buyer must inspect the goods immediately upon receipt to determine whether they are the correct goods, whether the seller has delivered the contractually agreed quantity and whether the goods have any material defects. Such inspection must be made without undue delay once the buyer has received the goods. There is no general definition of the period between delivery and inspection that can be deemed 'without undue delay'. Crucial factors include the nature of the goods, the sector, the size of the business, the organisation of the business and the need for a complex investigation. In the case of perishable goods, only a few hours may be allowed for the inspection of the goods. For complex technical products, an inspection within one to two weeks may still be considered 'without undue delay' in certain cases.

The type, form and scope of the inspection again depend on the nature, quantity and intended use of the goods. The costs incurred for the inspection, the time required, the risk of damage resulting from a defect and the technical inspection options available to the buyer must also be taken into account. The scope of the examination must be within the bounds of what is usual and reasonable. There is no need for an 'all-round inspection' for all potential defects in the goods. For larger quantities of goods, testing in the form of representative random samples is usually sufficient. Where successive and partial deliveries are made, however, the buyer must check each individual delivery separately.

If the buyer discovers defects when inspecting the goods, the buyer is obliged to notify the seller of the defects immediately − this is known as the obligation to give notice of defects. When doing so, the buyer must inform the seller of the nature and extent of the defect. Where larger quantities of goods are involved, a rough estimate of how many individual items are estimated to be defective must always be given. If there are several defects, all defects must be reported. A separate notice of defects must be issued for each partial and successive delivery. As a rule, general complaints are not enough. The notification of defects does not require any particular form, unless agreed otherwise in the relevant contract. It is, however, recommended that the written form be observed as a form of proof. After all, in the case of any doubt, it is the buyer's responsibility to prove that the seller was informed of the defect. Here it is sufficient for the protection of the buyer's rights that the buyer has sent the notification of defects in good time. The actual notification period directly follows the investigation period. Due to today's modern means of communication, it normally is no more than one to two working days. Defects in perishable goods such as fruit or flowers must be notified much earlier, in some circumstances within a few hours.

If the buyer fails to notify recognisable defects or fails to do so in good time, the buyer will lose all claims and rights based on defects that were not notified or were notified too late. This includes all warranty claims in the broadest sense with regard to defects that would have been recognisable if the goods had been properly inspected. If a defect that could not be recognised during a proper inspection of the goods is discovered later, the buyer must notify the seller of the defect as soon as it is discovered. Otherwise, the goods will be deemed approved with this hidden defect; the buyer will lose all rights and claims with regard to such defect.

The Bremen Higher Regional Court recently dealt with questions relating to the obligation to inspect for and give notice of defects in commercial sales of goods.

Background

In the matter at issue, the buyer claimed damages from the seller for the delivery of defective stainless steel elements. To no avail. Some stainless steel components were indisputably defective. Yet, the Bremen Regional Court dismissed the action because the buyer did not report the defect until 15 days after delivery of the stainless steel components and the associated test certificates.

Some of the stainless steel elements were defective because, contrary to the contractual agreement, they did not come from properly registered and certified manufacturers. The corresponding test certificates clearly showed this. The buyer could have discovered and reported the defect if the test certificates had been checked properly and in time. The buyer had in fact performed random checks. Representative samples are, however, only suitable for identical bulk goods to satisfy the inspection obligation. Rather than supplying similar bulk goods, however, the seller had supplied various types of steel elements for the manufacture of complex pipe systems, in different dimensions and strengths. When inspecting the delivery of a large number of parts of different types and dimensions from several manufacturers, the buyer must not merely take random samples if the buyer can verify the agreed quality by comparing documents and a simple visual inspection, as otherwise there is a risk of considerable consequential damage. This was the case here. It was foreseeable for the buyer that the installation of the various stainless steel components would lead to considerable installation and removal costs if defects were found. It would have been possible for the buyer to recognise the defects with reasonable effort by checking the test certificates. The promise of a certain quality by the seller does not release the buyer from the buyer's obligation to inspect the goods and give notice of defects. A (particular) confidence in the existence (or absence) of the relevant quality based on the seller's guarantee does not mean that the buyer may blindly rely on the guarantee and waive the inspection or may exercise less care.

The duration of the investigation period to be granted is influenced by the fact that the investigation depends on the submission of accompanying technical documents. A notification of defects within two weeks, starting from delivery of the goods or from receipt of the test certificates, whichever was later, was nevertheless required. As the buyer did not give notice of the defect until 15 days after receiving the goods and the separately transmitted test certificates, this was no longer 'without undue delay'. The buyer has therefore failed to fulfil the obligation to give notice of defects in due time. As a result, the buyer has lost all warranty rights (section 437 of the German Civil Code (Bürgerliches Gesetzbuch, BGB)) with regard to defects that would have been recognisable during a proper inspection. The same goes for all claims, within the broadest meaning of the word, that are based on defects that could have been recognised during a proper inspection.

Comments and Practical Advice

The ruling of the Bremen Higher Regional Court illustrates the need to know the requirements and the rights and obligations in connection with the obligation to inspect for and give notice of defects in B2B transactions. Reasonable inspection of goods and corresponding notification of defects immediately upon receipt of the goods are indispensable in commercial transactions.

The law does not state exactly how and when the goods are to be inspected. It is therefore advisable to reach individual agreements regarding deadlines and the type and manner of the inspection in order to avoid discrepancies and disputes in advance. It is also permitted to entirely exclude the buyer's obligation to inspect for and give notice of defects − for example with regard to the outgoing goods inspection taking place at the seller's premises. This, however, requires an individual agreement; general terms and conditions or standardised quality assurance agreements will not suffice.

There are particularities in cross-border commercial sales. If the buyer and the seller have not made a choice of law, the obligation to inspect the goods and notify defects is generally determined by the law applicable at the seller's registered office. As a rule, the UN Convention on Contracts for the International Sale of Goods then applies first. The UN Convention also distinguishes between the obligation to inspect the goods and the notification of defects. However, the requirements and the content of the regulations are not synchronised. The UN Convention on Contracts for the International Sale of Goods is more buyer-friendly than German law with regard to the obligation to inspect for and give notice of defects − in particular, the notice period under the UN Convention is much more generous from the buyer's point of view.

Lisa Werle

_{This post also appears in the Haufe Wirtschaftsrechtsnewsletter.}

Amphenol is one of the world’s largest designers, manufacturers and marketers of connectors and interconnect systems, antennas solutions, sensors and high-speed cable.

Luetze International Group is active worldwide and consists of various companies in a holding structure. The group of companies has a tradition of over 60 years in automation and is one of the leading companies in the industry today. Luetze Group offers innovative solutions in the areas of highly flexible cables, cable assemblies, interfaces, power supply and monitoring as well as control cabinet wiring.

Luetze Group's range of services complements Amphenol's portfolio in various segments of the fast-growing electronics market and underlines Amphenol's future-oriented, cross-border positioning.

In this transaction, ADVANT partner firm ADVANT Altana advised on French law, Fox Williams advised on UK law, Havel & Partners advised on Czech law, Kellerhals Carrard advised on Swiss law and E+H advised on Austrian law.

ADVANT regularly advises Amphenol on European M&A projects, most recently ADVANT Altana and ADVANT Beiten jointly advised Amphenol on the acquisition of the CMR Group based in France.

Advisor Amphenol Corporation: ADVANT Beiten: Dr Christian von Wistinghausen, Tassilo Klesen (both lead partners in charge), Olga Prokopyeva (all Corporate/M&A, Berlin), Susanne Rademacher, Lelu Li, Kelly Tang, Dr Jenna Wang-Metzner (all Corporate/M&A, Beijing), Michael Riedel (Labour & Employment, Berlin), Carsten Pütger, Danah El-Ismail (both Real Estate, Berlin), Mathias Zimmer-Goertz, Christian Döpke (both IP/IT/Media, Dusseldorf), Uwe Wellmann (Antitrust Law, Berlin), Christoph Heinrich (Antitrust Law, Munich), Dr Marion Frotscher and Simon Bauer (both Tax, Hamburg).

Advisor Sellers of Luetze Group: Heuking Kühn Lüer Wojtek: Dr. Rainer Herschlein, LL.M., Dr. Emanuel Teichmann (both Corporate/M&A, Stuttgart), Dr. Stefan Bretthauer, Jia-Xi Liu (both Antitrust Law, Hamburg).

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

Dusseldorf-based Flamonitec is a global leader in the development, manufacture and sale of flame monitoring systems and other combustion technology components as well as the development and marketing of environmental technology and processes, particularly in the fields of control, regulation, sensor technology and image processing. The company has an international customer base. The solutions developed by Flamonitec in more than fifty years in the business are protected by numerous patents.

Alder is an investment fund based in Stockholm, Sweden, aiming to ensure the sustainable, long-term development of technology and service companies. Flamonitec is the first acquisition in a consolidation initiative by Alder within advanced measurement and monitoring technology, especially for the combustion industry.

The sales process was structured and organised by the M&A consulting firm Mayland AG of Dusseldorf.

Advisor to Flamonitec | BFI Automation Mindermann GmbH:
ADVANT Beiten: Dr Christof Aha, Maik Merkens (both Lead Partners), Mark Thönißen, Felix Busold (all Corporate/M&A, Frankfurt), Leopold Linden (Real Estate, Frankfurt), Christian Hipp (Public Law, Berlin). 
CMS Wistrand: Sascha Schäferdiek, Louise Berlin

Advisor to Alder AB:
White & Case: Dr Matthias Kiesewetter, Dr Maximilian Eichhorn, Isak Brunecevic, Andreas Lexhag, Dr Nico Frehse

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

Dr Christof Aha
Rechtsanwalt
ADVANT Beiten
+49 (69) 756095 - 451

Facts

The decision is based on the facts concerning the dismissal of the disgraced managing director of Hannover 96 Management GmbH ("GmbH"). The GmbH’s articles of association expressly provide that the competence to remove the managing director does not lie with the shareholders' meeting, but with a voluntarily established supervisory board. Within the scope of a voting commitment agreement, the sole shareholder of the GmbH in addition undertook towards a third company not to amend the articles of association or not to amend them without the company’s prior written consent. According to the agreement, this applies in particular to the passage governing the function and composition of the supervisory board.

The sole shareholder ignored this and adopted the resolution − explicitly breaching the articles of association − to remove the managing director of the company from his role with immediate effect. In preliminary injunction proceedings, the Regional Court of Hanover granted the request of the managing director to be allowed to continue to act as managing director until the decision in the main proceedings was made. The Higher Regional Court of Celle agreed with the opinion of the Regional Court of Hanover and considered the resolution of the shareholders' meeting to be null and void. The defendant filed an appeal on points of law against this with the German Federal Court of Justice (Bundesgerichtshof, BGH).

BGH, Judgment of 16 July 2024 - II ZR 71/23

The defendant's appeal was successful. The BGH considered the resolution to remove the plaintiff from his role as managing director of the defendant to be valid.

Contrary to the opinion of the Higher Regional Court of Celle, the removal resolution is not incompatible with the nature of the GmbH and, thus, not null and void by analogy with section 241 No. 3 of the German Stock Corporation Act (Aktiengesetz, AktG). In contrast to a violation of the law or the articles of association, for which a resolution of the shareholders' meeting can be contested, only a violation of fundamental structural principles of the German legislation regarding limited liability companies (Gesellschaft mit beschränkter Haftung, GmbH) could justify any incompatibility of the resolution with the nature of a GmbH. The nature of the GmbH does not follow from the individual provisions in the articles of association of the company at issue, since the nature of the GmbH is defined by the German Limited Liability Companies Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung, GmbHG) and the abstract general structural features of German legislation regarding limited liability companies (GmbH) and, thus, is not at the shareholders' discretion. These abstract general structural features also include the autonomy of the articles of association, which, however, must not be confused with the specific regulations in the articles of association set out in exercising this autonomy. According to the BGH, provisions in the articles of association which assign the competence to remove the managing director from office to the optional supervisory board of the company do therefore not constitute any fundamental structural principles of the German legislation regarding limited liability companies (GmbH), as the removal right is reserved to the shareholders' meeting by law (sections 45 (2), 46 No. 5 GmbHG).

The disregard of the stipulations of the voting commitment agreement does also not justify the assumption that the removal resolution is incompatible with the nature of the GmbH. Observing such voting commitment agreements is not part of the fundamental structural principles of the German legislation regarding limited liability companies (GmbH). Shareholders of a GmbH could commit themselves to a certain voting at any time. However, this agreement is, in principle, only binding on the contract partner due to the distinction between the level under the law of obligations and the corporate level so that the consequences of a violation are not to be resolved with the company.

The BGH further assumes that the removal resolution is not null and void as an offence against common decency, which would require that the resolution "considered in isolation" was contra bonos mores. Resolutions in which not the actual content of the resolution, but "only" the motive or purpose are against common decency, or in which the offence against common decency lies in the way in which they were adopted, are only contestable.

Accordingly, an invalidity of the removal resolution due to an immoral damage could at best come into consideration if the conduct of the shareholder had not only violated the shareholder’s competence and contractual duties, but circumstances beyond that had justified its reprehensibility. The court of appeal, however, had not found such circumstances in the specific case.

Conclusion

Voting commitment agreements are a common means to ensure a uniform voting of all shareholders or of a group of shareholders. In pooling agreements, which are very frequent in family-owned companies, the parties undertake to exercise their voting rights in a certain way. According to the controversial, but prevailing opinion, such an agreement may also be entered into with third parties.

If a shareholder violates a voting commitment agreement, such shareholder’s vote is generally valid in the shareholders' meeting. The commitment is limited to the contractual relationship of the parties involved and does not affect any third party. After the Higher Regional Court of Celle had partially eroded this principle, the BGH emphasises with welcome clarity that a distinction must be made between the level under the law of obligations and the corporate level and that a contractual breach of duty does not directly affect the shareholder relationship. Accordingly, the contract partners regularly only have the option to enforce the voting agreed under the law of obligations against the shareholder violating the agreement in court. Whether the voting behaviour contrary to the agreement is immoral and the resolution therefore contestable or even null and void, so that the action must be directed against the company itself, always depends on the individual case.

Dr Moritz Jenne
Andreas Scheffold

This blog post also appears in the Haufe Wirtschaftsrechtsnewsletter.

Background

During the term of their service contract, managing directors of a GmbH are subject to a statutory non-compete obligation requiring them to always keep in mind the best interest of the company and thus banning them from taking advantage of business opportunities for themselves or for third parties. The non-compete obligation ends upon their leaving the position. This (statutory) non-compete obligation will not survive the directors’ term of office. Managing directors are also subject to a contractual non-compete obligation for the duration of their service under their contract.

A post-contractual non-compete obligation may, however, also be agreed with a managing director for an appropriate period after the end of their service term. While sections 74 et seq of the German Commercial Code (Handelsgesetzbuch, HGB) provide for a mandatory non-competition compensation for employees, it is the prevailing opinion in legal literature and practice that these sections apply neither directly nor mutatis mutandis to managing directors. At least part of legal literature argues that the requirement of a non-competition compensation could, however, be derived from section 138 of the German Civil Code (Bürgerliches Gesetzbuch, BGB) in connection with Art. 2 of the Basic Law for the Federal Republic of Germany (Grundgesetz, GG) (moral law check). According to (consistent) rulings of the BGH, it is not mandatory to promise any non-competition compensation to the managing director at all for the duration of the non-compete obligation. The effectiveness of a non-compete obligation is not contingent on any compensation. If the decision is taken to pay a compensation regardless of the above, the amount of such compensation will therefore be at the discretion of the parties.

Facts

In the case ruled upon by the BGH, a former managing director of a GmbH requested to be paid a non-competition compensation. The managing director was removed from office at the end of May 2012. According to his service agreement, he was subject to a two-year post-contractual non-compete obligation banning him from working for a competitor. The service agreement stipulated monthly payments for the duration of the non-compete obligation as a compensation. This compensation was, however, going to be forfeited retroactively (ex tunc) should the managing director breach the non-compete obligation.

The managing director started working for a competitor in mid-June of 2013. The GmbH therefore took the stance that it had not been obliged to pay any non-competition compensation from the start due to the violation of the non-compete obligation. The former managing director, on the other hand, believed that the contractual agreement regarding the complete and retroactive withdrawal of his right to compensation was invalid and that the ban particularly violated the principle of proportionality.

Decision of the BGH

The BGH ruled in favour of the GmbH confirming the effectiveness of the contractual agreement. It argued that non-compete obligations were only valid if they did not go beyond the scope necessary in terms of place, subject-matter and time.

The BGH stated that the retroactive withdrawal of the non-competition compensation agreed in the employment contract was not an unfair burden on the managing director. The reasoning behind this was that it was, in fact, not mandatory to promise and pay a non-competition compensation to the GmbH’s managing director who did submit to a post-contractual non-compete obligation. The BGH is of the opinion that if a compensation is agreed despite this fact, the parties are free to negotiate any amount. It reasoned that, consequently, the GmbH and the managing director may effectively agree that the right to compensation in its entirety was forfeited retroactively should a managing director breach the non-compete obligation.

The Court also disagreed with the managing director's view that the non-competition compensation constituted a what is known as income replacement benefit which could not be forfeited retroactively as the managing director was even contractually allowed to unilaterally waive the non-compete obligation.

Comment and Implications

This decision is consistent with past rulings of the Senate according to which a GmbH is not obliged to promise its managing director a non-competition compensation in exchange for the agreement of a non-compete obligation. The possibility of a (complete) loss of the compensation following a breach of the obligation lies within the scope granted to the GmbH by judicial decisions.

Such retroactive withdrawal is, however, most likely invalid when it comes to employees. The non-compete obligation of an employee is, in fact, not freely negotiable (unlike the obligation of managing directors). Pursuant to section 74 (2) of the German Commercial Code (Handelsgesetzbuch, HGB), the employee's non-competition compensation is the designated consideration for the employee assuming and complying with the obligation. The non-compete obligation of an employee is only valid if a compensation has been agreed for its duration, the amount being at least half of the last remuneration contractually received by the employee and it is paid at the end of each month pursuant to section 74b (1) HGB. When it comes to the fixed payments granted, payments depend on the last monthly salary before leaving the company. Pursuant to section 74b (2) HGB, one-off payments and variable remuneration are based on the average of the last three years broken down to monthly payments.

In practice, this ruling opens another option for drawing up and negotiating managing director service agreements.

Dr Barbara Mayer
Dr Christian Osbahr

This post also appears in the Haufe Wirtschaftsrechtsnewsletter.

Background

The right of shareholders to attend the general meeting of a German stock corporation is a fundamental membership right and may only be restricted to the extent necessary to ensure the proper conduct of the meeting. An inadmissible restriction of the participation right may result in the contestability of resolutions adopted at this general meeting. The Higher Regional Court (Kammergericht) in Berlin had to deal with the question of whether a ban on bringing private devices able to make image or sound recordings infringes the participation right of the shareholders.

Facts

In the case decided by the Berlin Higher Regional Court, a German stock corporation as defendant and several of its shareholders as plaintiffs had a dispute over the lawfulness of various general meeting resolutions.

The invitation to this general meeting had contained the information that image and sound recordings were not permitted during the general meeting for the protection of the personality rights of the shareholders and that devices able to make image or sound recordings may not be brought by the shareholders. Access controls were carried out at the entrance to the meeting room to ensure that the ban on such devices was complied with.

The defendant offered security lockers for storing the banned devices at the place of the general meeting. The defendant in addition provided the participants with PCs with internet access in the meeting room. Apart from that, the company set up signs in the entrance and common area informing the attendees that a service provider would receive important calls for them at an emergency number and would immediately inform them in the event of a call.

Some of the shareholders taking legal action were denied access to the general meeting after they had refused to hand over their mobile phones and laptop computers at the access control. The other plaintiffs attended the general meeting but, for the record, declared their objection to the resolutions adopted.

The Berlin Regional Court upheld the action for annulment and declared the contested resolutions null and void. The defendant filed an appeal against this judgment.

Decision of the Berlin Higher Regional Court

The Berlin Higher Regional Court dismissed the defendant's appeal.

The Court reasoned that the plaintiffs' participation rights were violated by the ban on bringing certain devices.

The Higher Regional Court first established that the defendant's articles of association did not contain any provision on certain devices in the general meeting which could justify the ban on bringing these devices.

The Court stated that the prohibition of the corresponding devices in the meeting room was also not covered by the disciplinary power of the chair of the meeting, but rather constituted an inadmissible restriction of the shareholders' rights to participate in the general meeting. This right did not apply without restraint but found its limits in the authority of the chair of the meeting to properly conduct the general meeting. The chair of the meeting had to respect the principle of proportionality when exercising his disciplinary powers. The ban on bringing certain devices, however, was not proportionate.

In its proportionality assessment, the Higher Regional Court first established that the ban on bringing certain devices pursued a legitimate purpose, namely the enforcement of the (basically admissible) prohibition of making image or sound recordings. The ban on bringing certain devices was also suited to achieve this goal. Secret recordings could not be fully excluded by the ban. However, the measure was still suitable because the means chosen here at least served the purpose.

Yet, the Higher Regional Court already expressed serious doubts as to the necessity of the ban on bringing certain devices. A more lenient means for preventing audio or video recordings would be to allow bringing such devices only when using camera and microphone blockers (as software or hardware). Cost-effective solutions were already available.

The Court argued that the necessity of the ban on bringing certain devices could, however, be irrelevant, as this ban was generally not appropriate. For the shareholders' participation right resulting from the property right of Art. 14 of the Basic Law of the Federal Republic of Germany (Grundgesetz, GG) outweighed the general personality right of the attendees in its manifestation as the right to one's own image and the right to one's own word, protecting them against unauthorised image and sound recordings.

The Court stated that the weighting of the attendees' personality right would have to consider that the feared encroachment on the attendees' personality right through unauthorised image or sound recordings would not have affected their privacy, but only their social sphere, as the general meeting was an event public to the members of a specific group. Secondly, there was only an abstract danger of a violation of the general personality right through unauthorised recordings. However, it was not the task of the chair of the meeting to enforce the law per se, and to prevent any legal violations preemptively. Rather, the chair’s task was limited to ensuring the proper conduct of the general meeting. In addition, the attendees were not left unprotected in the event of a violation of the prohibition on making recordings. The general personality right was provided with a reactive protection by allowing legal protection for those affected before the courts and by punishing violations in the form of claims for damages and under criminal law.

With regard to the shareholders' participation right, however, the Court was of the opinion that the weighting would have to take into account that the ban on bringing certain devices significantly affected the legitimate shareholders' membership rights. For instance, shareholder representatives would not have been able to consult with the shareholders represented by them without leaving the meeting room. In addition, the shareholders' ability to work was restricted significantly, as an effective participation in a general meeting nowadays was not meaningfully possible without using notebooks, mobile phones or tablets.

The Court did not deem the provision of the emergency number and of PCs in the meeting room suitable to sufficiently mitigate the severity of the encroachment on the participation right. The Higher Regional Court stated with regard to the emergency number that it was not sufficient that shareholders could be reached by third parties, but it was also about their ability to send information. The Higher Regional Court emphasised regarding the PCs provided that the access to the shareholder's own documents was not necessarily allowed by a web-enabled PC and, therefore, this PC was no adequate replacement of their own device.

According to the Higher Regional Cort, the Regional Court had therefore been right to uphold the action for annulment and to declare the contested resolutions of the general meeting null and void. The judgment of the Higher Regional Court is not final, proceedings are currently pending before the German Federal Court of Justice.

Comments and practical advice

In its decision, the Berlin Higher Regional Court has emphasised the high significance of the shareholders' right to participate in the general meeting. This right is not limited to the mere attendance, but also includes the right to remain able to work and communicate during the meeting. The Court recognises that nowadays this is practically not meaningfully possible without using one's own (mobile communication) devices.

Any regulation with regard to the participation in the general meeting must therefore be covered by the articles of association or the disciplinary power of the chair of the meeting. The Court has rightly stated in this regard that the disciplinary power is not intended to enforce the legal order per se or to protect attendees against violations of the law, but only comprises measures for ensuring the proper conduct of the general meeting. If the chair of the meeting exceeds their disciplinary power, this may result in the contestability of all resolutions adopted at the general meeting. To avoid this, any restriction of the participation right should be carefully examined in advance and, in case of doubt, regulations to this end should be used only with caution.

The Berlin Higher Regional Court could leave it open whether the regulation of a ban on bringing certain devices would be admissible in the articles of association. The reasoning of the Court may, however, be transferable to a corresponding regulation in the articles of association, making such regulation potentially inadmissible, because also the articles of association cannot restrict the statutory participation rights. Only provisions in the articles of association that make the attendance at the general meeting dependent on a prior registration or stipulate how the right to participate in the meeting is to be proven are admissible.

Dr Moritz Jenne
Simon Schuler

This post also appears in the Haufe Wirtschaftsrechtsnewsletter.

The deal involves that the Herder start-up KITALINO acquires Kidling, an administrative software for nurseries. Kidling offers a digital solution for nursery management and parent communication. Through this acquisition, Herder becomes a comprehensive software provider for nurseries with its subsidiary KITALINO and Kidling.

Kitalino GmbH and Verlag Herder are part of the Herder publishing group. One of the main topics of the publishing house is education. Herder offers a large range of books on the subject, eight scientific journals, special issues and digital products. Kitalino GmbH, a subsidiary of the Herder group, is leading in the field of digital support for educational processes in nurseries. The company specialises in the creation and implementation of Software as a Service (SaaS) solutions that are specifically tailored to the structure and quality requirements of the workflow in nurseries. Their main product is the KITALINO software as a platform to enable digital development documentation and communication in compliance with data protection requirements. 

Kidling, an enterprise of Quintic Digital GmbH, offers a comprehensive nursery software to make everyday life easier for professionals, parents and children. Both the browser and the app solution help to actively plan the week, document the children's development and optimise communication between nursery and parents. Digitalising these processes means that nursery professionals can work more efficiently and focus on what is actually important: the education and care of children.

The ADVANT Beiten team headed by Dr Barbara Mayer regularly provides legal advice to the Herder publishing group, most recently on the acquisition of essential parts of the publishing house Wissenschaftliche Buchgesellschaft (wbg).

Advisor to the Herder publishing group:
ADVANT Beiten: Dr Barbara Mayer and Lisa Werle (both Corporate/M&A, Freiburg), Dr Erik Schmid (Labour Law, Munich).

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

Dr Barbara Mayer
Rechtsanwältin
ADVANT Beiten
+49 (761) 15 09 84 – 14 | +49 (173) 3169669 
barbara.mayer@advant-beiten.com

 

The transaction was backed by Keensight Capital, one of the leading private equity managers for Europe-wide growth buyout investments. The parties have agreed not to disclose the transaction volume.

Fischer Information Technology has focused on expertise in the development of reliable software for the efficient management, organisation and distribution of technical documentation and product information since its foundation in 1985. The company has played a key role in shaping the European market for technical documentation software.

Quanos was formed by software experts for after-sales, service and technical documentation, optimised by AI capabilities. The company offers innovative, successful and reliable technology to more than 1,200 customers worldwide.

The acquisition of Fischer IT strengthens Quanos' market presence and increases the customer base to 1,400 customers worldwide. This enables Quanos to offer a wide product portfolio that delivers significant added value to the joint customer base. In addition, Fischer IT's proven technical expertise will further enhance Quanos' innovative potential.

Advisor to Fischer Information Technology GmbH: 
ADVANT Beiten: Gerhard Manz, Dr Christian Osbahr (both Corporate/M&A, Freiburg), Dr Birgit Münchbach und Dr Holger Weimann (both IP/IT, Munich)

Advisor to Quanos Group GmbH:
Renzenbrink & Partner: Team Dr Ulf Renzenbrink

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

Gerhard Manz
Rechtsanwalt
ADVANT Beiten
+49 (761) 15 09 84 - 11
gerhard.manz@advant-beiten.com

BKW will hold a 60 percent majority interest in the joint venture, EKZ (Elektrizitätswerke des Kantons Zürich) will hold the remaining 40 percent. This leaves two of originally five companies invested in HelveticWind.

BKW already runs the wind farms in Germany and Italy as a service provider and therefore knows them inside out. With the increase of its interest, BKW can expand the existing portfolio of renewable energy generation plants in its core markets. Trough its majority investment, BKW is advancing the energy transition and aims to have a CO2-neutral energy business by 2040.

The BKW Group employs some 12,000 people. The company's portfolio ranges from planning and consulting in engineering for energy, infrastructure and environmental projects to integrated offerings in the field of building technology and construction, to service and maintenance of energy, telecommunications, transport and water networks.

Contact with BKW was established via the Swiss law firm Kellerhals Carrard, with which ADVANT has worked closely for many years both in Germany and in Italy. Kellerhals Carrard is the largest Swiss business law firm with more than 300 layers.

Advisor to BKW:

ADVANT Beiten:
Dr Barbara Mayer, Christian Burmeister (both Corporate/M&A, Freiburg) for German law.

ADVANT Nctm:
Jacopo Arnaboldi, Giuliano Proietto (Milan) for Italian law.

Kellerhals Carrard (Lead Counsel):
Dr Beat Brechbühl, Dr Patric Brand, Dr Marc Hanslin, Daniel Emch, Marius Gröteke, Sarah Schneider, Aljoscha Zalad and Carla Hartmann (Bern and Basel)

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

Dr Barbara Mayer
Rechtsanwältin
ADVANT Beiten
+49 (761) 15 09 84 - 14
barbara.mayer@advant-beiten.com

In addition to other investors and business angels, the existing investor Tech-Vision Fonds (TVF) and the Belgian family office Nomainvest were involved as new co-investors. The venture capital fund TVF, based in Aachen, specialises in companies in the medical technology sector, among others, and has been providing CUREosity with significant support since 2021. ADVANT Beiten already provided CUREosity with comprehensive advice during the financing round at that time.

Caesar van Heyningen, Thomas Saur and Stefan Arand head the Scale Up, founded in 2019, which develops innovative therapy software using virtual reality (VR) goggles. The VR therapy system was launched in February 2021. CE-certified as a medical device, the CUREO software combines years of therapy experience with neuroscientific findings, gamification, and smart technologies. CUREO supports cognitive and motor (especially upper limb) rehabilitation and is thus suitable for patients with neurological or motor impairments. In addition to multisensory training units, the software also offers therapy exercises for hand rehabilitation, attention training and neuroregulation. In varied, playful VR environments, patients' motivation, and willingness to engage in therapy are encouraged. The distraction created by VR also helps to reduce pain.

Since the market launch of CUREO, the software-as-a-service company has grown rapidly and is now being used in almost 200 therapeutic facilities. The newly acquired capital will be used, among other things, to further expand CUREO's market leadership in the field of VR therapy.
The completed financing round gives the innovative company financial independence and enables it to operate sustainably - especially in the current challenging market conditions.

Advisor to CUREosity GmbH: 
ADVANT Beiten: Dr Sebastian Weller, Markus Schönherr, Sarah Heinrichs, Simon Litterst (all Corporate/M&A/Venture Capital, Dusseldorf).
    
Advisor to TVF:
Forvis Mazars: Dr Philipp Wüllrich (Lead partner) and Yannik Metz (both Corporate/M&A/Venture Capital, Cologne), Florian Helbig (IP/IT/Data Protection, Leipzig).
    
Public Relations
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

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

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

Schleswig Higher Regional Court (OLG), judgment of 07 February 2024 – 9 U 41/23

The right of shareholders to attend the annual general meeting (AGM) of a stock corporation is a fundamental and generally absolute membership right. It may only be restricted where this is necessary to ensure the proper conduct of the AGM.

Background

Shareholders do not have to exercise their attendance right personally, but may be represented by a proxy at the AGM. In its decision, the Schleswig Higher Regional Court had to deal with the question of the conditions under which the representative of a shareholder may be denied attendance at the AGM. Specifically, it had to decide whether the representative’s attendance at the AGM may be made dependent on the presentation of a written proxy.

Facts

In the case ruled upon by the Schleswig Higher Regional Court, the defendant, an unlisted stock corporation, and the plaintiff, a shareholder of the defendant holding 10% of the share capital, disputed the validity of various AGM resolutions that had been passed in the absence of a representative of the plaintiff.

The defendant had issued an invitation to the AGM, enclosing the agenda. On the day of the general meeting, Mr B, a lawyer, who wanted to attend the AGM as the plaintiff's representative, appeared at the entrance door to the defendant's business premises, where the AGM was to take place, shortly before the start of the meeting.

The defendant's statutes did not stipulate any special requirements for attendance of the AGM; specifically, no written proof of authorisation was required. Rather, the statutes merely stated requirements with regard to the persons who may act as agents of shareholders. Under those requirements, especially lawyers qualified. Whether the lawyer Mr B had a written proxy with him was a matter of dispute between the parties.

The defendant's board member P denied B access to the business premises. Accordingly, neither the plaintiff herself nor a proxy of hers took part in the AGM.

The lawyer Mr B had already represented the plaintiff at the previous AGM. In this context, the defendant claimed that Mr B had ‘behaved improperly’ at that AGM, in particular that he had started shouting several times and could not be calmed down by the chair of the meeting.

The Regional Court upheld the action for annulment and declared the contested resolutions null and void. The defendant appealed this judgment.

Decision of the Schleswig Higher Regional Court

The Schleswig Higher Regional Court dismissed the defendant's appeal.

The court reasoned that the plaintiff's right to attend the meeting had been infringed by unjustly denying her representative access to the AGM.

The defendant's statutes did not make attendance at the AGM dependent on registration, nor did they stipulate how the authorisation to attend the meeting or to exercise voting rights was to be proven. The statutes merely stated that all company shareholders entered in the share register on the day of the AGM or their authorised representatives were entitled to take part and vote. Mr B therefore had not been obliged to prove his authorisation to attend the meeting by submitting a written proxy. There had been no doubts about his identity as the plaintiff's authorised representative, especially since the board member P had known Mr B as the plaintiff's representative from the previous AGM. It was therefore irrelevant whether or not B had a written proxy with him. The right to attend a general meeting is the standard case under s 118 (1) of the German Stock Corporation Act (AktG) and existed irrespective of voting rights. Pursuant to s 134 (3) sentences 1 and 3 AktG, B would only have required a written proxy to exercise voting rights.

The Higher Regional Court also stated that there was no other reason that could have justified the denial of access. Insofar as the defendant referred to the alleged ‘improper behaviour’ of Mr B at the previous AGM, the purely verbal behaviour described (‘shouting’), if true, was not sufficient reason for restricting the fundamental right of a shareholder to attend and vote at the AGM. Firstly, the previous behaviour did not necessarily mean that it would be repeated at the upcoming AGM. Secondly, an AGM was not a ‘feel-good event’; it may also ‘get loud’, as long as it stays outside the scope of criminal law.

The infringement of the plaintiff's right to attend the meeting as a shareholder constituted an autonomous and definitely relevant ground for challenge within the meaning of s 243 (1) AktG. The Regional Court had therefore been right to uphold the action for avoidance and declare the contested AGM resolutions null and void.

Comments and Practical Advice

The decision of the Schleswig Higher Regional Court makes it clear that the right of shareholders to attend or be represented at the AGM can only be limited under strict conditions. Attendance may be made dependent on prior registration or special proof of authorisation to attend only if the statutes contain corresponding regulations. This also holds true for the attendance by shareholder representatives.

Disruptions by shareholders or shareholder representatives can only justify exclusion from attendance where this is necessary to ensure the proper conduct of the AGM. The fact that a shareholder or their representative has been vocal at an AGM in the past is generally not sufficient for denying attendance – as the Higher Regional Court correctly stated. The chair of the meeting must first take milder measures in the event of an actual disruption of the AGM. This includes in particular the withdrawal of the right to speak after prior warning. Only if the withdrawal of the right to speak is unsuccessful, the chair of the meeting may resort to the most extreme means and exclude the disrupting person from further attendance. Also in this case, the person must be warned first.

The unjustified exclusion of a shareholder leads to the voidability of all resolutions passed at the AGM. Extreme caution should be used when it comes to excluding shareholders during the meeting in order not to jeopardise the effectiveness of the resolutions adopted. AGM chairs must take a phased course of action against disrupters and, in particular, first withdraw their right to speak. Exclusion may only be considered if none of the previous measures has been sufficient to ensure a normal progress of the AGM. Given the above, shareholders or their representatives may eventually be denied access to the meeting right from the start only in extreme cases (unless there are formal criteria set out in the articles of association, such as proof of authorisation to represent a shareholder).

Dr. Moritz Jenne
Simon Schuler

This blog post also appears in the Haufe Wirtschaftsrechtsnewsletter.

Today, the European Council gave its final green light for the so-called EU Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) which is the European sister of the German Supply Chain Act. EU member states will have to transpose the CSDDD into national laws within two years after its entry into force (probably already in June 2024).

Which companies will be affected?

The EU CSDDD will apply to companies both from the EU and third countries and holding companies that have more than 1000 employees and a turnover of more than 450 million euro, as well as to companies that have entered a franchising agreement and have a turnover of more than 80 million euro, where royalties account for at least 22.5 million euro of this turnover.

The CSDDD foresees generous transition periods. Thus, irrespective of the transposition into national laws within the next two years, the new obligations may have the following staggered application:

• For companies with more than 5,000 employees and 1.5 billion in turnover: three years after the entry into force of the CSDDD (i.e. in summer 2027)
• For companies with more than 3,000 employees and 900 million in turnover: four years after the entry into force of the CSDDD (i.e. in summer 2028)
• For companies with more than 1,000 employees and 450 million in turnover: five years after the entry into force of the CSDDD (i.e. in summer 2029).

But even if your company does not meet the above criteria, it will be indirectly affected by the CSDDD if it is part of the relevant supply chain of the above mentioned companies (the CSDDD uses the term "chain of activities" which mainly refers to the upstream part of the supply chain). This is because the CSDDD will require companies to reach out to their business partners in their chain of activities with regard to human rights and certain environmental prohibitions.

And in terms of time, direct and indirect effects of supply chain legislation are already apparent today due to national laws that have already come into force independently of the CSDDD – such as the German Supply Chain Due Diligence Act which applies to companies domiciled in Germany with more than 1,000 employees in Germany (turnover is not a criterion insofar).

Further information

For more information on the CSDDD, reference is made to the today's press release of the European Council Corporate sustainability due diligence: Council gives its final approval - Consilium (europa.eu) as well as our previous blog post on the CSDDD EU Corporate Sustainability Due Diligence Directive - Agreement and Text | Advant Beiten (advant-beiten.com).

The final text of the resolved CSDDD can be found here: pdf (europa.eu)

German Supply Chain Act as a blue print

Irrespective of the differences between the EU and the German Supply Chain Act, the implementation of the latter can serve as a blue print for the implementation of the former. German companies that have already implemented the German Supply Chain Act will therefore definitely have a head start in terms of knowledge and processes. For more information on the German Act, please refer to our respective flyer: The German Act on Corporate Due Diligence Obligations in Suppy Chains | Advant Beiten (advant-beiten.com)

Dr. André Depping
Dr. Daniel Walden
 

Brandenburg Higher Regional Court, judgment of 24 January 2024 – 7 U 2/23

A managing director is personally liable to the company if the director negligently or wilfully violates their responsibilities, resulting in damage to the company. The criterion for determining a breach of duty always is what a prudent businessman would do. Liability is excluded once the past actions of the managing director have been formally approved by a shareholder resolution. If actions have been formally approved, the company can no longer make any claims against the managing director to the extent such approval has been granted (known as the preclusion effect). The scope of the managing director's liability is therefore determined by the scope of the approval.

In terms of time, formal approval is granted for actions in the period set forth in the approval resolution and for which the managing director has submitted accounts. This generally covers transactions of the past fiscal year if no further details are provided. Such formal approval, however, does not release the managing director from such director's existing present and future obligations towards the company. Notably, these obligations also exist if there is the danger of new disadvantages resulting from a past event covered by the approval.

In terms of content, the formal approval covers all facts that the shareholders were aware of from the reports by the managing director or from the documents submitted or that the shareholders could have recognised on careful examination. The key criterion for recognisability is whether the managing director's reports or the documents provide specific evidence for doubts or questions that the shareholders could have clarified by recalculating, making enquiries or exercising their right to information. Recognisability can be ruled out, however, if the managing director has not given the shareholders sufficient opportunity to exercise their rights of inspection, information and disclosure, be it on purpose or not. If the managing director prevents the shareholders from making enquiries, conceals facts or disguises them, the managing director does not need protection. For the formal approval of the managing director's past actions is obtained by using fraudulent measures. Such fraudulent approval does generally not lead to any exclusion of the managing director's liability.

The Brandenburg Higher Regional Court recently dealt with questions relating to liability and formal approval.

Background (simplified)

In the case on which the decision was based, the shareholder / managing director of a German GmbH had made various payments to himself over the years in addition to his salary and bonus in order to increase his salary as managing director. The shareholders' meeting approved the annual financial statements for all years and formally approved the managing director's actions, except those of the last two years of his term of office. Whether the payments were identifiable in the balance sheets of the annual financial statements remained a matter of dispute between the parties.

The shareholders' meeting decided to claim repayment from the (former) shareholder / managing director after his dismissal and immediate termination of his contract. He argued that the salary agreed in his employment contract had been unreasonably low and therefore void. As a result of the additional payments, he had received a total salary that corresponded to the value of his services. Therefore, the company had not suffered any damage. Furthermore, his liability was excluded due to the formal approval of his actions. The same applied to the last two years of his position as managing director due to the acceptance and/or approval of the annual financial statements, in each of which the payments were recognisable.

The Brandenburg Higher Regional Court partially ruled in favour of the shareholder / managing director:
The unauthorised initiation of the payments must be considered a breach of duty by the shareholder / managing director because the salary of a managing director is the sole decision of the shareholders' meeting. The shareholder / managing director is not entitled to adjust his remuneration unilaterally, even if his salary is objectively considered to be unreasonably low.

However, the company is no longer entitled to repayment for the years for which the shareholder / managing director's actions have been formally approved. This is because the approval covers all business transactions that were recognisable to the shareholders upon careful examination of the documents submitted to them. This was the case: the unauthorised payments were identifiable in the balance sheets and the shareholder / managing director's actions were approved regardless of this.

On the other hand, the approval of the annual financial statements does not lead to a 'formal approval of actions' and thus to an exclusion of the shareholder's / managing director's liability for the last two years of his term as managing director. These payments were visible in the balance sheets of the approved annual financial statements for the last two years. However, in the case at hand the approval of the annual financial statements does not have an exonerating effect in such a way that the unauthorised payments had been approved by all shareholders and cannot be reclaimed. This is because by approving the annual financial statements with regard to third-party liabilities, the shareholders are merely making a declaration as to which expenses have actually been incurred. The annual financial statements generally do not contain any information as to whether the amount of the third-party liabilities was appropriate and whether the company may have claims for repayment due to any overpayment.

It is true that, in the relationship between the shareholders and the company and among the shareholders themselves, the approval of the annual financial statements generally means to declare the balance sheet binding, i.e. the shareholders recognise its correctness. The disputed unauthorised raising of the managing director's salary, however, is a third-party liability that does not originate from the internal relationship between the company and the shareholders. In the case of third-party liabilities, it cannot automatically be assumed that the amount of the third-party liability shown in the balance sheet has been reviewed by the shareholders and considered to be appropriate. Such authorisation effect through the approval of the annual financial statements with regard to third-party liabilities is only possible in exceptional cases, for example if the parties agree on it or if all parties involved are aware that there is disagreement with regard to certain liabilities. In the absence of any discussion, however, only the making of payments is approved, but not a corresponding ‘discharge’ of the shareholder from a repayment of overpayments made.

Comments and Practical Advice

Neither the approval of the annual financial statements nor the formal approval of the actions of the managing directors of a GmbH are mere formalities to be made without thought. In both cases, questions, doubts and discrepancies should be clarified and resolved in advance − where necessary with the help of experts.

This is because the formal approval of the managing director's actions generally excludes the assertion of any claims by the company against the managing director to the extent such approval has been granted. In terms of content, the exclusion of liability relates to all business transactions that could have been recognised by the shareholders upon careful examination of the reports by the managing director or from the documents submitted. This means that not only the circumstances that were known to the shareholders when the resolution was passed are covered, but also all circumstances that the shareholders could have detected through recalculation or enquiry. If the shareholders refrain from further clarification despite clear evidence and in case of doubt, this regularly leads to the preclusion of any claims by the company against the managing director. In case of doubt, the shareholders should therefore actively enquire or try to clarify the facts in another way.

The same applies to the approval of the annual financial statements. This is because the company's internal receivables and liabilities are bindingly confirmed when the annual financial statements are approved. This means that claims may normally not be asserted at some later date. As explained above, this also applies to third-party liabilities in exceptional cases. Caution is therefore required in order not to lose any (repayment) claims of the company against the managing director. If there are any open questions, the resolution on the adoption of the annual financial statements and the formal approval of the managing directors' past actions should be postponed.

Dr Barbara Mayer
Lisa Werle

This blog post also appears in the Haufe Wirtschaftsrechtsnewsletter.

The German Federal Court of Justice (BGH) takes the stance that a supervisory board member boycotting the board by repeatedly being absent does not give rise to the right to have an additional member appointed to the supervisory board by a court, even if that means that the supervisory board therefore permanently lacks quorum. By decision of 9 January 2024 (case no. II ZB 20/22), the BGH upheld the judgment of a registration court. The BGH argues that it is indeed possible to pass a valid resolution on filing a petition for a court to remove a boycotting supervisory board member from office pursuant to s 103 (3) German Stock Corporation Act (AktG) with the votes of the two remaining supervisory board members even when the permanently boycotting board member is not present. It seems highly questionable whether this measure is enough to stop a supervisory board member passively stalling the process in practice.

Background

If one member of a three-person supervisory board is absent for a meeting, the supervisory board does not have a quorum. This may render the supervisory board unable to operate. While the shareholders have the right to remove such supervisory board member - even without good cause - at any time, this mostly requires qualified majorities as prescribed by law or by-laws in this context. When there is good cause relating to this supervisory board member (the member permanently being absent should constitute good cause), the supervisory board itself may file the petition for removal from office by court if the board has a quorum and the required majorities are reached. The appointment of an additional supervisory board member by a court, however, is only possible if the supervisory board has been understaffed for a certain period of time due to not having the required number of members.

As a result of this decision, the BGH put an end to a discussion in legal literature whether and to which extent a supervisory board member boycotting the work of the board by being absent may be equated to a resigned supervisory board member and an additional board member may be appointed by court. As much as a clarification on this matter may seem welcome, it may also pose immense difficulties in practice and render the affected corporation permanently incapable of taking action.

Background

A stock corporation with a three-person supervisory board had two shareholders (two companies), each holding a 50% interest. One supervisory board member was the mother of one of the shareholders' partners and therefore a related person. These partners and the supervisory board member formed a community of heirs (Erbengemeinschaft). When the stock corporation meant to assert claims against this community of heirs for which the management board required the approval of the supervisory board, the supervisory board member failed to attend the board meetings. As a consequence, the supervisory board lacked quorum and the corporation was unable to take action.

Quorum

According to s 108 (2) 2nd sentence AktG, the supervisory board has a quorum only if at least one half of the members of which it must be comprised, according to the law or the by-laws, participates in the adoption of the resolution, where no quorum has been stipulated by law or in the by-laws. At first glance, two members would therefore suffice to reach a resolution. However, sentence 3 of said provision prescribes that in any case at least three members must participate in adopting the resolution. In other words: a single member may stall any resolution of the supervisory board by not taking part in the adoption of the resolution, in particular by failing to attend board meetings.

Even when it comes to larger boards, supervisory board members who are permanently absent may boycott the adoption of resolutions when by-laws or rules of procedure provide for participation or majority requirements which exceed statutory requirements or are very particular.

Weaknesses of Remedies in Practice

1. REMOVAL BY GENERAL MEETING

A supervisory board member who does not fulfil his or her duties, in particular participating in meetings and adoptions of resolutions, may be removed from office by the general meeting at any time, s 103 (1) AktG. In this context, it does not even depend on the failure to act; the removal does not require a cause. What constitutes an - often insurmountable - obstacle, however, is the fact that while supervisory board members are elected by a simple majority, they may only be removed from office by a majority of three quarters of the votes cast unless the by-laws provide for a different majority or further requirements which hardly ever is the case; this is to prevent an arbitrary "coming and going". While it is true that seats on the supervisory board may be allocated as a shareholder or a group of shareholders sees fit subject to a simple majority, the removal of a member is only possible with the corresponding support of other shareholders. However, it is very rarely the case, especially in small stock corporations, that the supervisory board is appointed only in accordance with the intentions of the majority shareholder holding the simple majority. It is much more common that the shareholders attempt to reflect the proportions of equity interests or family lines or something similar.

When there are two shareholders with equal shares, two representatives of these shareholders are often complemented by a neutral supervisory board member; as an alternative, the two shareholding parties divide the appointment of the supervisory board, on the one hand, and the appointment of the management board, on the other hand, between themselves according to corresponding agreements. Boycotting the supervisory board by not participating in its meetings seriously disturbs this very balance of power and this cannot be resolved (anymore) in the event of disputes by removing such members on the basis of a resolution adopted by the general meeting due to a majority of three quarters of the votes being required by law.

2. SUPERVISORY BOARD FILING FOR A REMOVAL BY COURT

Apart from that, the law merely offers one other remedy. The court may remove a member of the supervisory board from office if grave cause is given in the person of that member pursuant to s 103 (3) AktG. The court removing a member, however, requires the supervisory board itself filing a corresponding petition. This begs the question, from a legal point of view, as to how the supervisory board is to decide on said petition when it does not have a quorum due to one member being absent. Regardless of this matter, the practical question arises as to how a majority within the supervisory board may be obtained in the above scenario when a corresponding part of the supervisory board members are partial to the boycotting member. Therefore, this sword, too, is probably too dull in most cases and does not qualify as an adequate remedy.

3. COURT APPOINTMENT IN CASE OF UNDERSTAFFING

Thus, the pivotal question is now whether and to which extent additional members may be appointed for the supervisory board by a court pursuant to s 104 (1) AktG. After all, a petition for this may be filed by, among others, the management board, a member of the supervisory board or by an individual shareholder. According to this view, it is assumed that the supervisory board does not have the number of members required - at least factually - for a quorum in case of a permanent boycott.

The BGH has now disagreed with this assumption. A member permanently being absent cannot be compared to a member leaving, for example due to death or resignation. Thus, the only options remaining are the removal of the member from office either by the general meeting or - if good cause is presumed and a petition of the supervisory board is reached - by a court. By means of teleological interpretation, the BGH extended the quorum of s 108 (2) 3rd sentence AktG beyond its express wording in its decision by granting the supervisory board the right to make a decision on filing a petition for removal from office by court for good cause even without the participation of the boycotting member, i.e. with just two members. Similarly pragmatic albeit dogmatically quite unconvincing solutions had already been created by the BGH in case of a voting prohibition of a supervisory board member (cf. BGH, decision of 2 April 2007, case no. II ZR 325/05).

Significance of the Decision in Practice

The opinion of the BGH is consistent and corresponds to the wording and the intention of the law. At the same time, it is hardly any help for the corporations affected which cannot simply vote out and replace a boycotting supervisory board member by a new one but are instead dependant on the assistance of a court.

In the end, there is a legal loophole in these cases which the BGH did not rectify with its judgment. It is unclear whether this was a conscious or unconscious decision but the latter cannot be excluded as the BGH expressly points out that the boycott of the supervisory board must be addressed by removing the relevant supervisory board member. According to the BGH, the remaining supervisory board members may file a petition with a court to remove the boycotting supervisory board member for good cause. In many cases, however, this is not an option because the proportions of the votes and interests amongst the shareholders or supervisory board members do not allow for it. To put it differently: the management board and the supervisory board generally only resort to the courts when the shareholders or the supervisory board as a body can indeed not agree on the removal of a boycotting supervisory board member or a petition to court for the removal for good cause. Filing a petition for an additional supervisory board member should usually be the last resort in case of a permanently boycotting supervisory board member. Contrary to what the BGH claims, the solution described by the BGH will in fact not be possible in a multitude of cases.

Very often, the power structures are very carefully balanced and each disturbance to this structure can result in substantial disputes and therefore cause damage. The one suffering from this is, first and foremost, the corporation, in particular the management board; there is a long list of business transactions that require the approval of the supervisory board according to the law, by-laws or rules of procedure. The BGH obviously did not consider the damages that can occur when a supervisory board is unable to take actions or pass important resolutions for a long period of time or when unpopular members of the supervisory board take advantage of the system pushing it to the very limits of legality.

Avoiding Disputes

Therefore and insofar as possible, precautions should be taken in the by-laws or - if this is not possible due to legal certainty - in a shareholders' agreement for the case that a supervisory board member boycotts the activity of the supervisory board by being absent, i.e. it should be possible for specific shareholders, in particular for the 'opposing' party, to remove this member in cases of doubt if good cause is given in the person. It should at least be agreed that the general meeting may remove a member and appoint a new one. It should also be considered to determine a provision deviating from the majority comprising at least three quarters of the votes cast pursuant to s 103 (1) 2nd sentence AktG.

Roland Startz

This blog post also appears in the Haufe Wirtschaftsrechtsnewsletter.

Reliable information on companies is essential in cross-border situations. So far, anyone looking for the name, registered office, legal form or legal representatives of a company has to rely on data from the national business registers. The data provided, however, can vary substantially. Malta, Cyprus and Ireland, for instance, do not provide reliable information on powers of representation. The European legislature wishes to harmonise these diverging standards. In March 2024, the Council of the European Union and the European Parliament agreed on a draft directive to further expand and upgrade the use of digital tools and processes in company law (CLD draft) based on a proposal by the European Commission. At the heart of the directive is the EU Company Certificate (EUCC) meant to serve as an ‘identity document’ for companies and partnerships in cross-border situations in the future. The EUCC is similar to the summary printout of all valid entries as of the printout date in the German commercial register.

Contents of the EUCC

The EUCC will be proof of the existence of limited companies (in Germany: AG, KGaG, GmbH) and commercial partnerships (in Germany: OHG, KG). In addition, the EUCC will in particular include the following information (Art. 16b (2) CLD draft):

• the name of the company;
• the legal form of the company;
• the registered office of the company;
• the contact address of the company, such as postal or email address;
• the date of registration of the company;
• the amount of the capital subscribed (only for limited companies);
• the particulars of any persons authorised to represent the company and the details of such power of representation;
• the object and the duration of the company;
• the status of the company (insolvent, in liquidation, economically active/inactive).

Information on the shareholders of limited companies will not be required. Information on the partners authorised to represent commercial partnerships, on the other hand, will be included. In the case of limited partnerships, the EUCC will provide information on the general partners and the limited partners. The limited partners' contributions will also be shown.

Issuance on application

The EUCC will be issued by the national registers in electronic and paper form once it is applied for. In addition, an electronic EUCC is planned to be also available through the Business Registers Interconnection System (BRIS). Since 2017, the company registers of all EU member states have been interconnected through the BRIS system. Information from BRIS is publicly available via the European Business Register.

It is planned that every company will be able to apply for its own EUCC. The draft directive is unclear as to whether third parties will also have access to the EUCC (on application) and whether a legitimate interest will be required. The draft does not explicitly address this issue. In light of the broad wording of the draft directive, it currently seems appropriate to assume that third parties will have access without having to prove a legitimate interest (see Art. 16b (4) CLD draft). The European legislature should make the situation clear.

Recognition and publicity

The draft directive provides for the mandatory issuance and recognition of the EUCC in all member states (Art. 16b (1) CLD draft). National bodies (e.g. an authority or a court) will normally not be permitted to verify the information contained in the EUCC. Only if there is reasonable doubt about the origin or authenticity of an EUCC, the national bodies can refuse to recognise the EUCC. Before such refusal, however, these national bodies must send a reasoned request for information to the issuing authority. If the authenticity cannot be confirmed, the national bodies can refuse to recognise the EUCC (Art. 16e CLD draft). The same applies in the event of suspected misuse or fraud. In these cases, the issuing register must be contacted (Art. 16e(a) CLD draft).

Whether third parties may rely on the accuracy of the information contained in an EUCC has not been explicitly stated, but is likely to be assumed due to the recitals of the draft directive (see e.g. recital 24, pp 1-3 CLD draft).

How up to date is the information from the EUCC?

The information contained in an EUCC is only reliable if it is updated on a regular basis. Companies must therefore notify the national register, in Germany this is the electronic commercial register, of all changes in relevant information within a maximum of 15 working days (Art. 15(1), 2a) CLD draft). Where companies fail to meet their updating obligation in time or at all, the member states should ensure effective and proportionate penalties (Art. 28 sentence 1(b) CLD draft). The draft directive does not, however, specify what such sanctions would look like.

Language

The Commission will publish a model EUCC in all official languages to ensure consistency. It is not clear whether national authorities must issue the EUCC in all official EU languages. Such details will only be found in the national implementation legislation or possibly in a European implementing regulation.

Costs

Generally, every company should be able to electronically obtain its EUCC free of charge. In exceptional cases, administrative costs may be charged if issuing the EUCC would cause serious financial loss to registers. Yet, at least once a year, the company should receive its certificate free of charge (Art. 16b (5) CLD draft).

Notes on practical aspects

The new EUCC can help to simplify cross-border legal transactions within the EU and could potentially reduce administrative costs. Also, the planned minimum control standards for the collection of company information increase trust in the accuracy of the published data.

From a practical point of view, there remains the risk of insufficient verification of the up-to-dateness of company data. This is particularly true for member states whose register information does not quite meet the requirements of the new EUCC. Once the directive has been transposed into national law, it should be monitored how strictly the member states punish breaches of the updating obligations. It would be desirable to have an explicit provision stating that every business partner may rely on the accuracy of the information in the EUCC.

Dr Barbara Mayer
Damien Heinrich

This blog post also appears in the Haufe Wirtschaftsrechtsnewsletter.

The COMEM Group has been supporting its customers throughout the entire life cycle of a transformer for more than 60 years. The company combines its experience in the manufacture and supply of various transformer accessories with innovative services for transformer manufacturers, service organisations and end users.

Weidmann Technologies Deutschland GmbH, a member of Weidmann Group, has been a leading developer of fibre optic temperature measurement systems for 25 years. Standard products and products for special applications are offered based on technological expertise in the development and manufacture of complete systems.

The addition of OPTOCON to COMEM's portfolio is an important step towards the company's growth and expansion strategy. The acquisition not only expands the product portfolio but also enables the company to gain a foothold in the field of sensors and optical systems.

Advisor to COMEM S.p.A.:
ADVANT Beiten: Tassilo Klesen (lead partner in charge), Lelu Li (both Corporate/M&A), Michael Riedel (Labour Law, all Berlin)

Advisor to Weidmann Holding AG:
CMS Hasche Sigle: Hendrik Hirsch, Maxine Notstain (both Corporate/M&A)

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

The new EU Regulation banning the sale of goods produced using forced labour had just been adopted on 13 March 2024 (see our blog post, EU Regulation banning forced labour products is coming (and the EU Corporate Due Diligence Directive too?)), when the live ticker announced two days later: after much back and forth, sufficient EU Member States voted in favour of the (even more watered down) draft of the EU Corporate Sustainability Due Diligence Directive (Corporate Sustainability Reporting Directive, in short: CSDDD or CS3D).

On 14 December 2023, the chief negotiators from the Parliament and the Council announced that an – informal – agreement had been reached on the content of the EU CSDDD (see our blog post, EU Corporate Sustainability Due Diligence Directive on the home stretch). In Germany, the coalition government was unable to approve the text as the FDP vetoed the results of the trialogue negotiations. Accordingly, Germany abstained in the vote in the Council of the EU. As other Member States were hesitant, the necessary majorities were initially not achieved. Attempts by the Belgian Presidency of the Council to broker an agreement failed. However, following the agreement on the EU Regulation banning forced labour, a new compromise text paved the way for the necessary majorities on the EU CSDDD.

Despite the continued abstention from Germany, the compromise was confirmed at the Meeting of the Permanent Representatives on 15 March 2024. On 19 March 2024, the Committee on Legal Affairs in the European Parliament voted in favour of the modified CSDDD draft - 20 votes in favour and four against. You can find the press release of the European Parliament here. The issue is now on the agenda for the European Parliament meeting on 24 April 2024.

Final adoption will probably take some time, as the so-called corrigendum procedure will apply if the translations are not finalised in time. In this case, the European Parliament will have to vote again on the Directive after the European elections, followed by a final vote in the Council. The agreed text will need to be assessed in detail, subject to the final resolutions. The following cornerstones have been reported.

Personal and material scope

The EU CSDDD will now apply to companies from the EU and third countries and holding companies that have more than 1000 employees and a turnover of more than 450 million euro, as well as to companies that have entered a franchising agreement and have a turnover of more than 80 million euro, where royalties account for at least 22.5 million euro of this turnover. The lower thresholds for high-risk sectors have been deleted.

In addition, the compromise text foresees generous transition periods. The new obligations, which must still be transposed into national law, will have the following staggered application:

• For companies with more than 5,000 employees and 1.5 billion in turnover: three years after the entry into force
• For companies with more than 3,000 employees and 900 million in turnover: four years after the entry into force
• For companies with more than 1,000 employees and 450 million in turnover: five years after the entry into force.

A narrower definition of chain of activities now applies; it was adjusted to be consistent with the term supply chain in the German Act on Due Diligence for the Prevention of Human Rights Abuses in the Supply Chain (LkSG).

Transition plan

The draft also requires companies falling under the scope to adopt and implement a transition plan for bringing their business model into line with the upper limit of 1.5°c for global warming under the Paris Convention. However, the Directive no longer contains financial incentives to encourage companies to implement their plan and comply with their obligations not to exceed such thresholds.

Civil law liability and fines

According to the press release of the European Parliament, companies will still be liable, where they fail to comply with their duties of care and must fully compensate victims. In addition, companies must establish complaint mechanisms and cooperate with individuals and groups adversely affected by their actions. According to the Belgian Presidency, Member States will have greater flexibility when implementing these provisions.

The draft tasks supervisory authorities in each EU Member State with overseeing compliance with the due diligence obligations. Fines of up to 5% of the worldwide net turnover can be imposed on a company which fails to fulfil its obligations. Foreign companies must also name an authorised representative, who has their registered address within an EU Member State in which the company is active, and who can communicate with the relevant supervisory authority in the company’s name about compliance with the due diligence obligations.

Transposition into national law

As explained above, the EU CSDDD will need to be transposed into national law after its adoption at EU level. In Germany, appropriate amendments are expected to be made to the LkSG, which has applied since 1 January 2023. Since 1 January 2024, companies located in Germany with more than 1,000 domestic employees fall under the scope of this Act. German legislators are unlikely to exempt such companies from compliance with the Act until the (maximum) transitional periods for the EU CSDDD have expired. However, it will all become clear in the future.

Dr Daniel Walden
Dr André Depping

JUDGMENT OF THE HIGHER REGIONAL COURT (OLG) OF NAUMBURG OF 11 JANUARY 2023 IN CASE NO. 5 WX 14/22

Since 1 August 2022, anyone can view the commercial register for free under www.handelsregister.de. The commercial register has always been open to the public, but users previously had to pay a fee to download documents. Now everything is available for free at just a click. This has minimized the hurdles to viewing the register. Free access applies to all entries in the Commercial, Cooperative Society, Partnership and Associations Registers. It covers all documents submitted to the Commercial Register for registration, regardless of whether the documents were provided to fulfil mandatory legal provisions or went beyond these requirements.

Often, such documents contain sensitive information, which was provided by mistake together with the application for registration in the commercial register, without consideration or sufficient (legal) knowledge of the consequences. Typical examples are the private addresses of shareholders or directors, death certificates, or unredacted minutes of shareholder meetings, which provide much more than the mandatory information for notification. Until now, there has been no legal basis for changing a document or deleting or redacting sensitive information once it has been submitted to the commercial register. Documents placed in the register folder could not be changed or substituted to preserve the verity of the register.

Since 23 December 2022, the Commercial Registries Regulation (Handelsregisterverordnung) has contained a new rule, providing a legal basis for the exchange of documents once they have been placed in the register folder. If an original document contains information, which is not mandatory, it is now possible to exchange this document with one that omits the additional, non-mandatory information.

Upon receiving an application from a notary, the register court will act. The court will note the date of the submission of the original document and the fact that the documents have been exchanged on the new document. This ensures it is obvious that the exchanged document replaced an original document.

It remains unclear whether whole documents can be deleted, where they contain only non-mandatory information. However, the new provision does not allow for changes in the form of redaction or deletion to the document.

The OLG Naumburg recently dealt with the issue of deleting or redacting sensitive information from the commercial register.

Background of the case

The founding shareholders and directors sought the redaction of their signatures on the certificate of incorporation, the application for registration in the commercial registry, the list of shareholders, and the minutes of the resolution appoint the directors – without success. The OLG Naumburg rejected the application.
In its reasoning, OLG Naumburg held that the applicants could not base their request for deletion on either data protection provisions or fundamental rights. Correctly: to preserve the truth of the register, documents placed in the commercial register folder generally cannot be changed. It is not the role of the court holding the register to later interfere with documents once they have been released.

The application for redaction of the signatures can also not be based on the newly introduced § 9 (7) of the Commercial Register Regulation. The applicants have not requested the exchange of any documents falling under the provision, but have instead requested changes to the original documents.

Comments and practical tip

It is now possible to exchange documents containing information that is sensitive and does not require disclosure. However, the court holding the register will not act on its own motion. Affected parties must be active. If you wish to see sensitive information deleted from documents that can be viewed in the commercial register, you should check whether the information requires disclosure. Where and to the extent that this is not the case, you can consider an exchange of documents.

It is not yet clear whether the new provision allows whole documents to be removed from the accessible documents in the commercial register where the document does not contain any information necessary for legal transactions. Whether there is an enforceable claim to an exchange of documents based on fundamental rights is also disputed. The courts have not yet decided this issue. The OLG Naumburg refused to answer this question, leaving it open as it was not relevant to its judgment. It therefore remains to be seen how the register courts will position themselves on this issue. In any case, you should contact the relevant register court to discuss the possibility of a document exchange.

Conclusion: forewarned is forearmed. In the future, when you are drafting documents to be submitted to the commercial register for registration, you should check the information in the documents and limit it to that which is strictly necessary. Where mistakes were made in the past, you should contact the commercial register and apply to have any problematic documents exchanged.

Dr Barbara Mayer
Lisa Werle

The Series B venture capital financing totalling USD 129 million is led by US investor Piva Capital with additional international participation from HG Ventures, TDK Ventures, Copec WIND Ventures, RockCreek, Emerald and Samsung Ventures as well as increased support from existing investors including ENGIE New Ventures, Safran Corporate Ventures and Honda.

INERATEC, which was founded in Karlsruhe in 2016, will use the capital to further accelerate the commercialisation of CO2-neutral e-fuels. Specifically, INERATEC plans to convert 1 GW of renewable energy into 165,000 tons of sustainable e-fuels by 2030, thus initiating the next era of mobility.

The ENGIE Group is listed on Paris and Brussels stock exchange. Its venture capital fund ENGIE New Ventures makes minority investments in innovative start-ups that bring strategic value to the Group, with a specific focus on future disruptive technologies. Since 2014, it has invested in over 50 solutions in the cleantech sector. ENGIE New Ventures has already invested in INERATEC as lead investor in 2022 as part of a Series A financing; also with legal support from the lead partner Christian Burmeister.

Advisor to ENGIE New Ventures:
ADVANT Beiten: Christian Burmeister (lead partner, Freiburg/Berlin) and Damien Heinrich (Freiburg, both Corporate/M&A).

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

The property at Thomas-Wimmer-Ring is located in the heart of Munich, a stone's throw away from the Viktualienmarkt, directly on Isartor-Platz. The Optima-Aegidius group of companies, a family business, refurbished the building from the 1980s after acquiring it together with a Munich family office, while retaining its striking design.

Advisor to Consulate General of the Republic of Lithuania:
ADVANT Beiten: Anja Fischer (Real Estate, Munich), Dr. Dietmar O. Reich (Corporate law, international public law and consular relations, Hamburg/Brussels), Volker Szpak (Tax, Frankfurt).

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

Anja Fischer
Rechtsanwältin
ADVANT Beiten
+49 (89) 35065 – 1205
Anja.Fischer@advant-beiten.com

The agreement reached now needs to be formally confirmed by the Parliament and the Council. Only then will there be final certainty about the content of the new directive. Once it comes into force, the CSDDD will then have to be transposed into national law by the EU member states. For Germany, this will in all likelihood take place via corresponding amendments to the German Supply Chain Due Diligence Act, which already came into force on 1 January 2023 (for more details, see our respective flyer The German Act on Corporate Due Diligence Obligations in Supply Chains_ADVANT Beiten.pdf (advant-beiten.com)).

Addressees of the new EU regulation shall be:

(i) EU companies and parent companies over 500 employees and a worldwide turnover higher than 150 million euro.

(ii) EU companies with over 250 employees and with a turnover of more than 40 million euro if at least 20 million are generated in one of the following sectors: manufacture and wholesale trade of textiles, clothing and footwear, agriculture including forestry and fisheries, manufacture of food and trade of raw agricultural materials, extraction and wholesale trade of mineral resources or manufacture of related products and construction.

(iii) Non-EU companies and parent companies with equivalent turnover in the EU.

The companies concerned will have to introduce a human rights risk management. In addition, companies, including the financial sector, must adopt a plan to ensure that their business model is consistent with limiting global warming to 1.5°C.

As with the LkSG, fulfilment of the CSDDD requirements will in future be monitored by a national supervisory authority in each EU member state. The supervisory authorities can initiate investigations and impose sanctions on companies that violate the regulations. This includes naming and shaming and the imposition of fines of up to 5% of global net turnover. In addition, compliance with due diligence obligations is to be included as part of the award criteria for public contracts and concessions.

Finally, the CSDDD - in contrast to the LkSG - will apparently also contain explicit provisions on companies being liable for breaches of their due diligence obligations and victims having the right to compensation.

Further details will emerge from the correspondingly revised regulatory drafts.

Dr Daniel Walden
 

Dr André Depping

Transaction structure

Where the target is involved in the manufacture or distribution of medical products, transaction structure will be key. As the existence and issue of product certifications directly affect the value of a company, all certifications must be properly transferred to the acquirer. This raises the question of whether a share or asset deal would better capture these characteristics. The answer to this question is not straightforward and will depend on the case.

Share deal

Generally, a share deal will be less complicated than an asset deal for transactions involving medical products. The inherent rights and obligations will transfer with the shares in the target company. This can be a significant advantage considering regulatory requirements. As the value of a medical product primarily depends on whether it has the relevant legal authorisations – such as a CE label – it is particularly important for acquirers that these authorisations transfer to the new owner. In contrast to an asset deal, the target retains its legal identity in a share deal. The manufacturer does not change, so the CE label and any other approvals and licenses remain unchanged.

The transfer is not without conditions but requires both the company and its internal organisational structure, e.g. the existing quality management system and the distribution of responsibilities with respect to product monitoring within the target company, to remain unchanged after the transfer. If processes or the organisational structure change, recertification will often be required. If the acquirer renames the company, it will necessitate recertification and an amendment to the label as it will change the name of the manufacturer.

Another advantage of a share deal is that all relationships, internal and external, remain unaffected. However, contacts can contain a change of control clause which gives a third party the right to unilaterally terminate the contract in the case of changes to the ownership structure. You should therefore examine contracts with third parties more closely, particularly where subsidies have been granted.

Asset deal

An asset deal will be more complicated than a share deal in many cases involving medical products. It requires individual assets to be carved out of the company and transferred to the acquirer.

As authorisations are tied to the manufacturer as a company, any changes to the organisational structure will make renaming necessary. Only Class I medical products are excluded from this rule; a company can certify such products itself. A time-consuming certification process can only be avoided by transferring individual sites without any changes. As such a transfer will not trigger a need to reassess the existing documents, it will be sufficient to inform the relevant authority. However, the acquirer will also be required to relabel the product accordingly. In exceptional cases, tax aspects will justify the additional costs and effort of an asset deal.

Due diligence

In the preliminary stages of a transaction, the potential acquirer should carefully examine and analyse the target for its economic, legal, tax and financial standing (so-called due diligence). Due diligence is particularly important in highly regulated markets such as medical products.

Due diligence should show the extent to which the target complies with the strict requirements of the medical device regulation and reveal any potential liability risks for the acquirer. This must identify which regulatory provisions apply to the product manufactured or distributed. Marginal differences between medical devices law and similar areas such as pharmaceutical law can make the classification difficult.

If the MDR applies, the classification of the target will play a decisive role. Depending on whether the company is active as a manufacturer, importer, or in some other role, particular legal obligations may be triggered, such as documentation requirements, or monitoring or inspection obligations. For this reason, acquirers must carefully examine whether the regulatory requirements for the certification have been fulfilled and whether they will continue to be fulfilled in the future. The sale and purchase agreement should adequately represent any risks identified during due diligence, such as with guarantees or warranties, waivers, or a reduction in the purchase price. Given the strict requirements of the MDR, it can also be advisable to make certain requirements a condition precedent.

Outlook and comments

Updates to medical devices law have exacerbated the existing difficulties of corporate acquisitions in this field. Manufacturers must consistently ensure that their products fulfil the regulatory requirements. Outside of the EU, it can be even more complicated, costly and time-consuming to transfer authorisations and licences.

If you are considering selling or acquiring a target active in this sector, you should involve specialists in the early stages to advise on the tax aspects of the transaction structure, keep an eye on the regulatory provisions, and reduce the risks of liability.

Benjamin Knorr
Andreas Scheffold

Background

Competition is an indispensable element of the European internal market. Various control instruments help maintain and protect competition in the EU, such as rules on the conduct of undertakings on the market, the merger of undertakings, and the award of public procurement contracts within the EU Member States. Until this year, there was no way to control and prevent the distorting effects of subsidies from third countries (i.e., states that are not members of the EU) on competition in the internal market.

The EU reacted and closed this gap with the adoption of two Regulations. These are Regulation (EU) 2022/2560 on foreign subsidies distorting the internal market (which we will refer to as the FSR) and the related Implementing Regulation (EU) 2023/1441 on detailed arrangements for the conduct of proceedings (Implementing Regulation). The two regulations establish a system designed to prevent the distorting effects of subsidies from third countries on competition in the internal market in all economic activities. These new rules are particularly important for mergers between undertakings and the participation in public procurement proceedings.

The implementing Regulation recently entered into force and establishes detailed procedural rules. This article explains those new procedural rules and what companies must now do.

Overview of the procedures

The new control procedures have multiple phases. Once a merger or participation in a public procurement procedure has been notified to the Commission, the Commission will perform a preliminary investigation. Where it has information on alleged foreign subsidies distorting competition, the Commission can conduct a preliminary investigation ex officio in relation to any economic activity.

When the Commission reaches the preliminary conclusion that there is a subsidy that is distorting the internal market, it will open an in-depth investigation. At the end of this phase, the Commission will adopt its final decision on whether the subsidy distorts competition. The Commission can impose redressive measures on the undertakings involved to prevent the distortion of competition. The undertakings may also offer the Commission commitments appropriate to fully remedy the distortive effects of the subsidy on competition.

What rules apply now to undertakings?

These new controls mean that some undertakings will face new obligations. The notification obligations are especially important for companies because failure to comply can result in fines of up to 10% of the aggregate turnover in the previous financial year. However, requests for information from the Commission, on-site inspections, and the protection of the confidential interests of parties are also relevant.

A) MOST SIGNIFICANT: NOTIFICATION REQUIREMENTS

The new controls introduce notification requirements similar to those for other controls on competition. Given the significant fines for failing to comply with the obligation (up to 10% of the aggregate turnover in the previous financial year) and the significant efforts required to provide information, companies should be aware of the new obligations.

I) NOTIFICATION REQUIREMENT FOR MERGERS
Concentrations must be notified under the new system when
- one of the merging undertakings, the acquired undertaking or the joint venture generates an aggregate turnover in the Union of at least EUR 500 million,
and
- the undertakings concerned were granted combined financial contributions of at least EUR 50 million from third countries in the three years preceding the concentration.

Where these conditions are fulfilled, the concentration must be notified by completing and submitting the form set out in the Implementing Regulation. Various information must be provided, including on the concentration and the parties.

Providing the information about the financial contributions will take the most effort. The FSR identifies three types of contributions or subsidies, each of which requires differing information to be provided to the Commission.

The highest level of information is required where the subsidies granted in the three years before the concentration amount to at least EUR 1 million and, by nature, fall under one of the critical categories listed in the FSR (grant to an ailing undertaking, an unlimited guarantee for debts and liabilities, export credits that do not conform to OECD Arrangements, or contributions that facilitate the concentration). Detailed information and relevant supporting documents must be submitted for every subsidy (e.g. on the amount, origin, an exact description, and the possible conditions), which means increased effort for companies.

The requirements are less strict where the subsidies granted over the previous three years amount to at least EUR 1 million but where the nature of these contributions is not one of the critical types listed in the FSR. Such contributions must be listed in the table in the form, sorted by applicant and country. There are some exceptions even for contributions which fall within this group (e.g. general deferments or tax exemptions, tax deductions to avoid double taxation, or the acquisition of goods or services in the proper course of business).;

Where contributions amount to less than EUR 1 million, they will be exempt from the obligation to provide information. However, the Commission can still demand information on all contributions, including those under EUR 1 million.

II) NOTIFICATION REQUIREMENT WITH RESPECT TO PROCUREMENT PROCEEDINGS
Companies may also have notification obligations where they wish to participate in procurement proceedings fall under EU procurement law in accordance with the 4 Part of the German Competition Act (Gesetz gegen Wettbewerbsbeschränkungen), except for the award of contracts in defence and security. This is because competition in a public procurement proceeding can be affected when a foreign subsidy allows one of the bidders to submit an unduly advantageous tender. In procurement procedures which fulfil the thresholds outlined below, undertakings that have received foreign financial contributions over the three years preceding the participation in the tender will need to notify the Commission of these contributions (so-called “notification”).

Where the estimated value of the public procurement contract exceeds certain thresholds, but the undertaking has not received any notifiable foreign financial contribution in the last three years, the undertaking must provide the Commission with limited information and make a declaration that any foreign contributions received in the last three years are not notifiable (so-called “declaration”). Foreign contributions do not require notification where the aggregate amount received over the past three years is less than EUR 200,000 (so-called “de minimis aid”).

The relevant thresholds are exceeded where:
a) the estimated value of the public procurement agreement is at least EUR 250 million (net), and
b) the undertakings involved in the tender (including the main contractor and main suppliers) were granted aggregate foreign contributions in the three years prior to notification of at least EUR 4 million per third country.

Where the procurement is divided into lots, the foreign subsidy will require notification if the estimated value of the procurement exceeds the threshold of EUR 250 million (net) and the lots for which the tenderer applies have an aggregate value of at least EUR 135 million (net). Here, the foreign contribution must also amount to at least EUR 4 million.

In public procurement procedures, companies submit notifications or declarations of subsidies together with the tender or request to participate to the contracting authority and not to the Commission directly. The contracting authority must state in the contract notice that the obligation to notify or declare foreign subsidies applies and must forward any documents it receives to the Commission.

Companies should use the “FS-PP” (“Public Procurement”) standard form set out in the Implementing Regulation for the notification. This specifies which information must be provided and includes:

a) A short description of the public procurement procedure,
b) Information about the notifiers (undertakings),
c) Information on the foreign financial contributions,
d) Where necessary, an explanation of why the offer is not an unduly advantageous tender,
e) Where necessary, information on the possible positive effect of the foreign subsidies,
f) A list of supporting documentation, and
g) A signed declaration that the information provided is true, correct, and complete.

If the parties are only submitting a declaration and not a notification, they must provide information on the procurement proceedings and the undertaking(s), as well as the signed declaration about the correctness of the information provided.

If an undertaking would need to make unreasonable efforts to obtain some of the information required by the FS-PP, it can ask the Commission to dispense with the obligation to provide that information.

For public procurement procedures, the Commission shall complete its preliminary investigation at the latest 20 working days after it receives a notification, after which it can, where necessary, initiate an in-depth investigation. Upon receipt of a declaration, the Commission can initiate an investigation ex officio. During the preliminary investigation and any in-depth investigation, the public procurement procedure can continue. However, the contracting authority cannot award the procurement contract.

If the Commission concludes during either the preliminary or the in-depth investigation that there is no foreign financial contribution that would distort competition, it shall adopt a no-objection decision for the award of the procurement contract. If, instead, the Commission concludes that there is a contribution that distorts competition, it may adopt a decision with commitments which fully and effectively remedy the distortion, or – where commitments are not considered – a decision prohibiting the award of the public procurement contract to the undertaking in question.

III) NEED FOR ACTION
As explained above, companies may be subject to the obligation to provide information about financial contributions received from third countries. The three-year time limit means that the period covered by this obligation is not negligible.

To avoid the need to make significant efforts to prepare the relevant information in a short time period in the future, as well as the related high costs, companies should identify the necessary information on contributions they have received, keep that information readily available and establish a system that continually records and saves the information on all future contributions, ready to use when needed.

The Commission also has the power to initiate a preliminary investigation ex officio. This can not only affect companies planning a merger or planning to participate in a public procurement procedure. All companies should therefore prepare.

The Commission also encourages companies to contact it in advance to gauge how much work is required in the case. There is also the possibility that the Commission will, upon request, exclude certain information so that the parties need not submit it.

B) OTHER NEW RULES

The Implementing Regulation provides time limits for various actions throughout the procedure. These range from five to 65 days, and, in some cases, the Commission has some flexibility when setting time limits.

In some instances, marking information as confidential will avoid dissemination. However, companies may have to justify the claim of confidentiality. If the Commission deems such information not to be confidential, it will inform the parties and may make the information public.

After the conclusion of an in-depth investigation, the undertakings may be required to report to the Commission on compliance with the commitments, contributions received, and participation in other public procurement procedures for a period.

Summary

The Implementing Regulation introduces new obligations and challenges for companies. Perhaps the most important of these is the obligation to notify concentrations and the participation in public procurement procedures. This is because of the possible fines for failure to comply and the significant amount of effort involved in meeting these obligations.

We therefore recommend that you identify any relevant information about past contributions and keep it handy, and establish a system for recording such information for the future.

Tassilo Klesen
Christopher Theis

The portfolio consists of five operational wind farms with a total of 38.4 MW (in Oedelum, Quelkhorn, Mariengarten, Münster and Frielendorf Süd) as well as a wind project with a planned commissioning in the third quarter of next year with 18 MW (Feldatal).

In the context of the transaction, Verbund AG was advised by an M&A team from ADVANT Beiten specialising in renewable energies. The transaction experts led by partner Dr Christof Aha had already advised Verbund AG on the acquisition of an 86 MW wind portfolio in Rhineland-Palatinate. 

ADVANT Beiten's M&A Renewable team advises national and international investors on the development, operation, acquisition and sale of large wind farms, solar parks and geothermal projects. To this end, the team works across borders with the law firms of the European ADVANT network.

Advisors to VERBUND AG: 
ADVANT Beiten: Dr Christoph Aha (Lead Partner in charge), Mark Thönißen, Felix Busold, Maik Benedikt Merkens (all Corporate/M&A, Frankfurt), Dr Jochen Reuter, Leopold Linden (both Real Estate, Frankfurt), Katrin Lüdtke (Public Law, Munich)

Inhouse: Dr Patrick Prusa (Verbund AG, Vienna)

Advisor to IMPAX: Taylor Wessing

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

Dr Christof Aha
Lawyer 
ADVANT Beiten
+49 (69) 756095 - 451
Christof.Aha@advant-beiten.com

The decision is likely to have relevance beyond the individual case for the question of the extent to which documents which are placed in a virtual data room at short notice as part of an asset or share deal in M&A or other transactions are suitable for satisfying any disclosure obligations on the part of the seller.

Facts of the case

The plaintiff buyer withdrew from a purchase contract for several commercial real estate properties and demanded damages from the defendant seller because the latter had concealed certain facts in the course of the contract negotiations in disregard of its duty to inform the buyer. At the time the contract was concluded, the properties were subject to a considerable financial risk regarding impending special cost allocations. During the contract negotiations, the seller had granted the buyer access to a virtual data room in which it had placed documents relating to the purchase object. However, it was not until the last working day before the day of notarization that it posted a collection of further documents that allowed conclusions to be drawn as to the aforementioned risk.

The Regional Court had dismissed the action in the first instance. The appeal was unsuccessful. In response to the plaintiff's appeal, the Federal Court of Justice has now essentially reversed the judgment and referred the case back to the Court of Appeal for a new decision.

The Federal Court of Justice states in this regard, among other things:

According to the established case law of the FCJ, in contract negotiations each contracting party has the duty to inform the other party of circumstances that could frustrate the purpose of the contract and are therefore of material importance to the other party's decision, provided that the other party may reasonably expect the information in good faith, considering the prevailing public perception.

This also applies to the financial risks mentioned here, whereas the seller's duty to provide information had not been fulfilled or had ceased to apply despite the buyer's performance of due diligence by the fact that it had placed the aforementioned documents in the virtual data room shortly before the day of the notarisation without further reference.

The question as to whether a seller, by setting up a physical or virtual data room, satisfies its duty to give information to the subsequent buyer about a circumstance which is subject to disclosure and which is available as information in the data room cannot be answered in general terms and regardless of the circumstances of the individual case. The mere fact that the seller sets up a data room and allows the prospective buyer to access the data does not always allow the conclusion that the buyer will also take note of a circumstance that had to be disclosed, given the diversity of processes in practice. Only if the expectation was justified in the individual case that the buyer will perceive certain information provided by the seller in the data room and consider it in his purchase decision, separate disclosure by the seller was dispensable.

Whether the seller may have this expectation depends on the circumstances of the individual case, for example, on how the data room and access to it is structured and organized, as well as on the nature of the information to be disclosed and the document in which it is contained. If, for instance, a circumstance is involved which - recognisable to the seller - is of very considerable importance to the buyer, maybe because it could frustrate the purpose of the contract or cause very considerable economic damage to the buyer, and if the circumstance is not instantly recognisable from the data provided, but is known to the seller and can be easily disclosed, then the buyer can regularly expect a separate indication. In this case, the seller may not wait knowingly to see whether the buyer determines the information that is difficult to recognize from the data provided but must communicate this despite the Due Diligence. Whether the circumstance was instantly recognisable from the data provided or not could also depend on the type of document and in which position within the document the information was available. In addition, it is also relevant whether the seller may expect the buyer to look through the documents specifically for this information or rather with a view to general information.

In the specific case, the seller could not have had the legitimate expectation that the buyer would take note of the information contained in the most recently posted documents before the contract was concluded.

It can be gathered from the grounds of the judgment that the BGH bases this primarily on the fact that the documents were only posted so shortly before the date of notarization. Apart from that, the BGH also seems to consider how easy or difficult it was to find the critical information in the posted documents. However, it is not clear from the judgement whether these two aspects correlate, for instance, in the sense that early posting cures lack of clarity or clarity cures short-term posting, cannot be inferred from the judgment.

Sellers should thus ensure that information which is of particular relevance to the buyer's decision is sufficiently accessible and included in the data room in good time before the contract is concluded. In case of doubt, a separate explicit (and documented) reference is recommended.

Dr Christoph Schmitt

What are non-compete clauses?

There are different types of contractual non-compete arrangements. Non-compete clauses prohibit directors, board members, and employees from working for a direct competitor while employed or from competing with the company/employer in another form without the company’s consent. In cooperative agreements, non-compete clauses prohibit the parties from using the other party’s know-how or customer information to compete with them. Non-solicitation agreements ensure that neither party poaches employees from the other party. In certain circumstances, such contractual non-compete clauses can form collateral agreements to supply or cooperation agreements, contracts for the sale and purchase of a company, and outsourcing agreements.

Statutory non-compete provisions also exist. Section 88 of the Stock Corporation Act (AktG) prevents members of the management board from competing with the company without the consent of the supervisory board. For directors of limited liability companies, this rule is not enshrined in statute but derives from their fiduciary duty, i.e., their obligation of loyalty towards the company due to their position on the management board of the company. This principle also applies with some differences to certain shareholders (e.g., personally liable partners of a general partnership (OHG) and limited partnership (KG), or majority shareholders of a limited liability company (GmbH)). However, such statutory non-compete provisions end with the termination of the board or shareholder position.

Once their activities for the company cease, managers, members of the board, and employees are generally free to change companies, compete against the company, and even poach customers or employees. Companies may therefore wish to prevent managers and strategically important employees from working for the competition or competing with the company after the end of their employment (so-called post-contractual non-compete clause). Such contractual clauses may be broader in scope for directors than employees.

Conditions for effective contractual non-compete clauses

Non-compete clauses must be clear and self-evident. The object and scope must be clearly defined.

The primary object and purpose of a non-compete clause should be the protection of the legitimate interests of the benefitting company. Such clauses are permissible provided the freedom to carry out professional activities and the freedom to compete are not unduly impaired. In addition, the non-compete clause must be limited in object, duration, and geographic scope.

The case law has developed guidelines for the objective and geographical limits of post-contractual, non-compete clauses. Geographically, a non-compete clause must be limited to the company’s field of activity. Where a company is only active in a region, the non-compete clause may only apply to this region. Where the company is active throughout Germany or Europe-wide, the geographic scope will be correspondingly broader. On duration: any non-compete clause may only apply for two years after the end of the employment relationship.

If agreements with employees exceed these limits, the objective and/or geographic application and/or duration will be reduced to preserve validity, i.e., the maximum permissible scope will be considered valid. However, post-contractual non-compete clauses for directors and managers and non-compete clauses between companies will be invalid where they exceed the objective or geographical limits. Where a non-compete clause only exceeds the permissible duration, it may be reduced to the maximum permissible duration to preserve validity.

The limits of post-contractual non-compete clauses

While activity-based, non-compete clauses prevent managers or employees from performing certain activities, company-based non-compete clauses prevent them from working for (certain) competing companies, suppliers or customers. The limits of activity and company-based non-compete clauses are fluid. However, a prohibition against working for a competitor in all respects is probably invalid because, in most cases, it would result in an inadmissible occupational ban.

When managing directors leave a company, there is a danger that they will entice customers away from the company. Therefore, instead of prohibiting the director from performing certain activities, they will be prohibited from using the company’s customer base. Such agreements are permissible when they are limited to customers with whom the company had business relations within the last three years.

Companies may not issue a blanket prohibition preventing an outgoing director from investing capital in a competitor. However, a company may agree on a non-compete clause with majority shareholders, who can exercise influence over the management and operative business of the company.

Is compensation necessary?

To compensate an (ex-)employee for the limitations imposed by a post-contractual non-compete clause, the law provides that the company shall pay the employee financial compensation (see § 74 (2) of the Commercial Code (HGB)). Compensation should be equivalent to at least 50% of the most recent contractual remuneration per month. If the employment agreement contains a two-year, post-contractual non-compete clause and the employee earned EUR 5,000/month in the month before their employment was terminated, the employer must pay the employee compensation of at least EUR 2,500 per month for two years.

Different rules apply to directors. Where a post-contractual clause only prevents customer poaching, the company will not need to pay the (ex-)director compensation. For further reaching post-contractual restraints, compensation will need to be paid as, without it, the non-compete clause will be invalid.

Possible courses of action in the case of a breach of the non-compete clause

If a director breaches the non-compete obligation arising from their fiduciary duty, the company will have several courses of action. First, the company can demand that the director cease and desist the actions in breach. In addition, the company can choose whether to seek damages from the director or the restitution of proceeds (skimmed profits). The latter has the advantage that the company does not need to prove that it would have achieved the same profits.

Securing contractual non-compete clauses with contractual penalties has proven useful in practice. This has the advantage for the company that the amount of the damages and income made by the director as a result of the breach are not in dispute. If a breach of the non-compete clause is shown, the contractual penalty will be due for payment. In addition, contractual penalties – in contrast to damages claims – are payable regardless of fault, as a rule, which means there is no need to provide proof of a culpable breach of the non-compete provision.

Non-compete clauses between companies in cooperation and supply agreements and sale and purchase agreements

Non-compete clauses between companies restrict competition and are subject to antitrust law. However, they are still permissible under certain conditions.

Non-compete clauses are permissible and valid as collateral agreements when and to the extent they are necessary, for example, to protect a contractual partner from the other partner’s disloyal use of know-how or customer information. The decisive question is whether the non-compete obligation is so intrinsic that the cooperation stands and falls with the non-compete clause, i.e., would the parties have agreed to cooperate without the contractually agreed protections against poaching customers and engaging in mutual competition?

If the non-compete clause forbids all competing activities, it will be invalid. It is possible, for example, to prevent the contractual partners from using the other partner’s know-how or customer data to engage in competition, providing the prohibition is limited objectively and geographically, and by duration.

Contracts for the sale and purchase of companies often prohibit the seller from competing with the target business. Non-compete clauses must be limited to those goods (including improved versions and successor models) and services, which form the target’s business purpose.

When drafting non-compete clauses, parties can refer to the definition of competitor in § 4 (1) No. 4 of the Act Against Unfair Competition (UWG), i.e., the direct competitor, to clarify which activities are considered direct competition and are prohibited. Geographically, non-compete clauses should be limited to the area in which the target offered its goods or services for sale and/or to the region in which the target invested before the sale.

The agreement should also include a contractual penalty to penalise breaches of the non-compete clause. The deterrent effect of the penalty will encourage compliance.

What applies to non-solicitation clauses for employees?

Agreements between companies which prevent solicitation or hiring of employees who work for the other party can only be effective when:

1. the conduct of the poaching company is unethical under the Act Against Unfair Competition (UWG). This includes soliciting employees to deliberately hinder or damage competitors.
2. the prohibition against solicitation is not the main purpose of the agreement but merely a collateral clause, which meets the needs of a special relationship of trust between the parties or one party’s need for protection. This will be the case for the sale of a company: the purchaser will have a legitimate interest in preventing the seller from poaching skilled workers immediately after the transaction, reducing the company’s value.

Generally, a non-solicitation provision may have a maximum post-contractual duration of two years. In practice, however, non-solicitation clauses offer only limited protection because it is difficult to prove whether an employee was poached or changed employers of their own volition.

Conclusion

The assessment of whether and to what extent non-compete clauses are permissible always involves a complex balancing of interests. The company’s (legitimate) interests in a non-compete clause must be weighed against the personal interests of the other party in the free exercise of their profession and the general interest in the freedom of competition. The case law provides key principles and guidelines for practice. It is particularly important to note that the object and the scope of any non-compete clause must be clearly defined, and the objective and geographic reach and duration of the prohibition must fall within certain limits. What this means in a specific case will depend on various factors. You should therefore take caution when formulating and drafting contractual non-compete clauses and seek legal advice on this issue.

Dr Birgit Münchbach

Digitalisation

The amendments make it possible for administrative acts under the Foreign Trade and Payments Regulation (Außenwritschaftsverordnung, AWV) to be issued in electronic form. Applications, notifications, information, files, reports, and other documents will also be able to be submitted via an administrative portal.

The amendments bring the AWV into line with the Act to Promote Electronic Administration and Improve Online Access to Administrative Services (Gesetze zur Förderung der elektronischen Verwaltung und zur Verbesserung des Onlinezugangs zu Verwaltungsdienstleistungen).

All documents required for the investment review under §§ 14a, 15 and 23 of the AWV (including documents on the acquisition of a domestic company and information for the Central Customs Office, the German Federal Bank, or the Federal Office of Economics and Export Control (BAFA)) should be submitted via the administrative portal. While the electronic procedure is preferred, in limited cases it will still be possible to submit documents in conventional paper form.

Remember the pitfalls: uploading information or an application into the administrative portal will not trigger the prescribed periods (initiation) under § 14a of the AWG; instead, the point of time specified in § 3 (4) of the AWV (new version) will apply.

Accordingly, information or an application submitted via the administrative portal will only be considered submitted once the Federal Ministry for Economic Affairs and Climate Action (BMWK) has imported the submitted documents in entirety and without any issues from the administrative portal to the Ministry’s IT system. Once this has occurred, the Ministry will confirm the submission of the documents and inform the purchaser if the documents are incomplete or corrupted, where possible.

The suspension of time periods under § 14a (6) of the Foreign Trade and Payments Act (AWG) is also tied to the import of the relevant documents.

Arms control

The Amendment also introduces new restrictive measures against states like Russia, Somalia and Haiti, bringing the AWV into line with various resolutions of the Council of the European Union (CFSP).

The amended Regulation also included the agreed 2022 amendments to the Wassenaar Arrangement for Conventional Arms. The list of military goods of the European Union previously included these changes.

New authorisation requirements for PMI rigid foam technologies

A further amendment introduces an authorisation requirement for the export of development and production technologies for polymethacrylimide (PMI) rigid foam. This introduction supplements Annex I of the Dual Use Regulation. The characteristics of the PMI rigid foam mean it can be used in modern military applications, particularly in the aerospace industry, which justifies the authorisation requirement. According to the draft bill, the Federal Government is going to work to ensure that these technologies are included in the Wassenaar Arrangement for Conventional Arms in order to create a level playing field for all companies affected.

Summary and outlook

The new 20th Regulation Amending the Foreign Trade and Payments Regulation simplifies the administrative procedures in foreign trade through digital procedures. In the future, a new administrative portal will allow all documents to be submitted online. The amendments also introduce the possibility for administrative acts to be enacted electronically in the future.

Dr Christian von Wistinghausen
Prof. Dr Rainer Bierwagen

Located at Lake Starnberg in southern Bavaria, Mauermann has around 60 employees. The company is GMP certified as contract manufacturer for the manufacturing and packaging of solid dosage forms. Founded in 1938, the family enterprise has been working with Wörwag for more than 45 years.

Wörwag Pharma, with its headquarters in Böblingen, is able to enhance its production capacities with the takeover. The factory at Lake Starnberg is the second own production facility of Wörwag Pharma. Wörwag Pharma Operations in Lodz, Poland, is the first own production facility. It was acquired in 2021 and was able to deliver goods for the first time in the past year. The share of products from the company's own production is growing continuously.

Wörwag sells prescription drugs as well as OTC preparations and food supplements. The company has established itself with products in therapeutic areas such as diabetes and associated diseases, neurological diseases, musculoskeletal disorders and diseases of the immune system. In 2022, the company achieved sales of EUR 291 million. The number of employees grew by 200 to 1,400 in the past year.

Founded in 1971, the manufacturer has been represented in Hungary, Russia, Romania, Bulgaria and other Eastern European countries since 1993. The products are also offered in Latin America and Asia.

ADVANT Beiten has been advising Wörwag Pharma regularly on transactions.

Advisors to Wörwag Pharma GmbH & Co. KG:
ADVANT Beiten: Dr Barbara Mayer (Freiburg), Christian Burmeister (Freiburg and Berlin, both lead partners in charge), Dr Moritz Handrup (Banking & Finance, Frankfurt), Damien Heinrich and Lisa Werle (Corporate/M&A, Freiburg).

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

Barbara Mayer
Rechtsanwältin
ADVANT Beiten
+49 (761) 150984 - 14
Barbara.Mayer@advant-beiten.com

Facts of the case

At a meeting of shareholders, to which the majority shareholder concerned was not properly invited, the remaining shareholders adopted a resolution to withdraw the shares of the majority shareholder. In a subsequent shareholder meeting, it was decided the remaining shareholdings should be increased. Following these shareholder meetings, the company submitted a new list of shareholders to the register court: it only listed the remaining shareholders.

According to § 16 (1) of the Act on Limited Liability Companies (Gesetz betreffend die Gesellschaften mit beschränkter Haftung, GmbHG), the entry of the new shareholder list in the commercial register effectively executes the resolution of shareholders because only the shareholder list in the commercial register acts as a (de facto) appointment of shareholders who can exercise certain rights (legitimisation effect).

The District Court of Berlin (Landgericht) granted the requested interim relief and required the respondent company to continue to treat the (excluded) majority shareholder as a shareholder. Further, the company was required to generate a shareholder list which showed the status quo without the withdrawal of shares and to submit this list to the register court.

The District Court of Berlin (judgment of 21 December 2022 in Case No. 96 O 30/22) and the Court of Appeal (Kammergericht, KG, judgment of 17 May 2023 in Case No. 23 U 14/23) confirmed the interim measures.

Background

Considering the duration of proceedings for an action for annulment or positive declarative, interim measures can have enormous significance, especially for defective resolutions. Without the option of granting an interim injunction, particularly after the adoption of a resolution (such as on a dismissal), the challenged resolution would have to be treated as effective, at least for a preliminary period. On average, many years pass before a judgment on the organisation will be effective. Nevertheless, the interim injunction will not mean that the resolution is declared void, it will just suspend the implementation of the resolution.

Fundamentally, the interim injunction should only preliminarily review the shareholder list. To the extent that the company attempts to deliberately undermine the shareholder’s possible legal protections by immediately submitting a new shareholder list to the responsible register court, there will be, in exceptional cases, a claim for the register of the corrected shareholder list, which shows the status quo without the (suspected unlawful) resolution, in addition to the ban on the submission of a changed shareholder list. This claim for abatement or removal is the extension of preventative injunctive relief against the registration of a newly configured shareholder list.

In this respect, the interim relief is more wide-reaching than the registration of an appeal. An appeal against registration in the commercial register will only protect against the bona fide acquisition of shares under § 16 (3) of the GmbHG, but not against the treatment as a non-shareholder. If the respondent is ordered to continue to treat the applicant as a shareholder and to submit a corrected shareholder list, the former shareholder list will effectively continue to apply until the final judgment of the Court.

According to the judgment of the Court of Appeal, the registration of the shareholder list with the ousted shareholder will constitute the necessary grounds for the grant of an interim injunction under §§ 935 and 940 of the Code of Civil Procedure (Zivilprozessordnung, ZPO). The fact that the shareholder can no longer exercise their shareholder rights due to the deletion constitutes a significant disadvantage that must be averted, within the meaning of § 940 of the ZPO. The remaining shareholders could otherwise use the duration of the main proceedings to generate advantages for themselves due to the legitimation effect of § 16 (1) of the GmbHG and to restructure the company as they see fit. All resolutions adopted while the judgment in the main proceeding is pending would remain effective even if the shareholder wins. Resolutions amending the articles of association or the corporate structure, adopted under the changed power structures, can either no longer be reversed or can only be reversed with disproportionate effort from the majority shareholder.

Where the requirements are met, the shareholder may be entitled to damages from their fellow shareholders. In the case of unlawful removal from the company and the immediate submission of a new shareholder list to the register court, such a claim could arise under § 826 of the Civil Code (BGB). Use of a formal legal position conveyed by the newly registered shareholder list should be viewed as damage inflicted in a manner offending common decency (see Judgment of the Federal Court of Justice (Bürgerliches Gesetzbuch, BGH) of 6 December 2022 in Case No. II ZR 187/21).

Comments

The judgment of the Court of Appeal represents a change to the jurisprudence of the higher courts on the question of interim protection against shareholder resolutions.

A shareholder, who fears that they might be removed from the company, can apply for an interim injunction in the run-up to the shareholder meeting. Where a shareholder meeting already took place, resulting in the (unlawful) removal of the shareholder, the shareholder can seek an interim injunction against the entry of the new shareholder list in the commercial register. Moreover, under the new case law of the Court of Appeal, the company may be ordered to submit a corrected shareholder list to the register court for registration in the commercial register.

Tassilo Klesen
Silke Ricken

Damages from cartel fines and cartel damages claims

If hardcore cartel infringements lead to fining procedures, companies can face significant fines of up to ten percent of the worldwide group turnover. Fines in the hundreds of millions or even billions are therefore almost commonplace. Once fining procedures conclude, further danger looms. Companies that have suffered damage as a result of the infringement can claim compensation for that damage. Cartel damages claims do not have any upper limit, the participants in the cartel are joint and severally liable, and interest applies from the time the damage first occurred. In practice, cartel damages claims often significantly exceed the fines imposed.

Recourse from board members and managing directors who participated in the cartel?

In such cases, companies regularly face the question of whether they can – or even must - seek recourse personally from board members or managing directors that participated in the cartel infringement or breached their supervisory duties for the damages caused by the fines against the company or even for cartel damages claims. In line with the “ARAG Garmenbeck” case, the supervisory board of a stock corporation must independently examine whether cartel damages claims against the company can be enforced against directors. If the supervisory board concludes that the company has enforceable damages claims, the board must pursue these claims unless there are strong reasons in the interests of the company not to do so. Indeed, the personal assets of board members will often not be sufficient to offset the damages caused. However, D&O insurance and the D&O insurer can reduce any liability gap.

For a claim against managing directors and board members and, indirectly, against their D&O insurers to be successful, the board must be personally liable for any antitrust fines imposed on and cartel damages claims awarded against their company. This is a matter of some debate in Germany, and the highest courts have not yet decided the issue. The courts of first instance have had differing views on this issue: the District Courts in Düsseldorf (railway track cartel), Saarbrucken (sanitary cartel) and Düsseldorf (stainless steel) objected to directors being personally liable for antitrust fines against companies. Meanwhile, in an indicative ruling (Hinweisbeschluss), the District Court in Dortmund (railway track cartel) took a different view.

Judgment of the Higher Regional Court in Düsseldorf of 27 July 2023

In its judgment of 27 July 2023, the Higher Regional Court (Oberlandesgericht, OLG) in Düsseldorf confirmed the lower court judgment and – like the District Court in Düsseldorf – held that recourse could not be sought for antitrust fines against companies. Essentially, a company must pay any fine against it to fulfil the fine's preventative purpose. If companies could pass fines on to managing directors and board members, companies could escape their legal responsibility for cartel infringements in the form of fines. The OLG Düsseldorf also rejected the possibility for companies to seek recourse for their fact-finding and defence costs due to the close practical link these costs had to the fines on the company. In contrast, the Court confirmed that managing directors and board members could be found personally liable for damages caused to the company by compensation payments to parties injured by the cartel.

The OLG Düsseldorf has allowed the appeal, paving the way for the German Federal Court of Justice (Bundesgerichtshof, BGH) to clarify this controversial issue of law.

Comments and practical tip

The judgment of the OLG Düsseldorf is persuasive only in certain aspects. If members of company organs were to be found personal liable, it would contradict the preventative purpose of fining companies under antitrust law and is therefore ruled out. In contrast, the position of the OLG Düsseldorf on the ability to seek recourse from directors and board members for damages suffered by a company for compensation paid for cartel damages is not convincing. The Court overlooks the special nature of cartel damages claims law - influenced by EU law. In enacting § 33a of the Act Against Restraints of Competition (GWB), German legislators created an “effective system of civil law sanctions” with “significant deterrent effect,” also to implement EU antitrust law. Subsequently, the BGH recognised the preventative purpose of cartel damages claims and even held that this purpose takes priority over compensation considerations (rail train cartel IV). Accordingly, cartel damages claims and antitrust fines must have the same treatment: both serve preventative purposes. This preventative purpose would not be served if the fine and/or settlement could be shifted to a managing director or board member.

The practical importance of this legal question is significant. Directly at stake is the obligation to assess whether recourse can be sought from board members and, where the chances of success are favourable, to pursue these claims. Indirectly, it affects not “only” whether such risks can be insured, but also the possibility to grant amnesty to board members in order to ensure their cooperation within the framework of the leniency programme. This is particularly important under antitrust law and in practice. It also affects the possible binding effect of the fining decision in regress litigation and the relationship between recourse claims and direct claims against board members for fines under administrative law (§§ 9 and 130 of the Act on Regulatory Offences, OWiG) or compensation (§ 826 Civil Code, BGB).

Moreover, the question of whether recourse can be sought from board members for fines against companies arises not only in antitrust law but also, for example, under data protection law, the Act on Due Diligence in the Supply Chain and capital markets law.

Regardless of how the BGH finally answers this question: managing directors and board members will avoid liability risks if they comply with their compliance obligations and can provide evidence of this – often years later – through careful documentation. If a director or officer has not breached their duties, the company will have no grounds to seek recourse from them, even if the BGH affirms that companies can generally seek recourse for fines and compensation payments.

Dr Christian Heinichen
Dr Moritz Jenne

Facts of the case

In the case before the OLG Karlsruhe, the supervisory board of a large SE requested that the court remove one of its members for good cause. The supervisory board member in question was also an employee of the company and had served as the union representative on the supervisory board since 2019. At the same time, he was chairman of the works council.

A whistleblower report contained a suspicion that a colleague of the supervisory board member, who was also a member of the works council, often cut work without applying for leave over several years. As part of the internal investigation into these suspicions, the supervisory board member manipulated emails and documents in which the accused colleague (supposedly) sent his apology for not being at works council meetings because he was on “leave”. The supervisory board member later admitted this conduct to the supervisory board and justified his manipulation with the argument that he wanted to help his colleague.

The company terminated the employment relationship of the supervisory board member extraordinarily. In addition, the supervisory board applied to the registry court to have the supervisory board member removed from office for good cause under Art. 9 (1) (c) ii) of the SE Regulation (SE-Verordnung) and § 103 (3) first sentence of the Stock Corporation Act (AktG). The register court granted the application and removed the supervisory board member from office for good cause. The supervisory board member appealed to the OLG Karlsruhe.

The judgment

The Higher Regional Court in Karlsruhe confirmed the judgment of the register court and affirmed that there was good cause on the part of the supervisory board member.

There will be good cause on the part of the supervisory board member when, based on the circumstances of the case and upon the carrying out of a balancing of interests, it would be unreasonable for the supervisory board member to remain on the board until the end of his term of office. This will be the case especially when the functioning of the supervisory board would be considerably impaired, or it could be expected to cause other damage to the company. Above all, the question is what significance the reasons used in this specific case for the dismissal have for the interests of the company in a functioning supervisory board. It should be noted that the supervisory board exercises its mandate in the interests of the company, and the interests of supervisory board members must, therefore, take a back seat to company interests.

In addition, there will not only be good cause when the supervisory board member breaches his duties on the board. It is sufficient for dismissal for good cause – regardless of whether the conduct was in the exercise of his board duties or otherwise – if and to the extent that the conduct of the supervisory board member has specific adverse effects

(i) for the course of business or
(ii) on the reputation of the company or
(iii) that would jeopardise the trust and cooperation within the supervisory board.

This would also apply to purely private misconduct. For good cause based on conduct, there must only be an apparent connection to the work of the supervisory board. The connection between the work of the supervisory board and the conduct constituting good cause will suffice if the conduct affects the company. This will be the case, for example, when the conduct threatens to damage the reputation of the company. It is also sufficient if one could conclude from the misconduct that the supervisory board member is not suited to serve on the board and/or there is at least an actual connection between the misconduct and the activities of the supervisory board.

Even a conflict of duties (the supervisory board member was also the chairman of the works council) neither eliminates the breach of duty as such nor means the conduct is less serious and no longer constitutes good cause. It is not possible to split the conduct of a person.

Measured against this standard, the supervisory board member destroyed the company's trust in his personal integrity and reliability and proved that he is unsuited to exercise the company’s interests in the functioning supervision of the board as a supervisory board member. Consequently, there was good cause in this case.

Comments

In its judgment, the OLG Karlsruhe provided clear standards for the dismissal from office as a supervisory board member for good cause by the register court. The judgment provides an important guide for practice. In particular, the Court determined with welcome clarity that misconduct outside of the actions of the board and even purely private misconduct can constitute good cause for the dismissal of a supervisory board member. At the same time, the OLG Karlsruhe made it clear that not just any misstep outside of the activities of the board would suffice for good cause. Misconduct must affect the company, which can hold true in particular where the misconduct would damage the reputation of the company. This includes the interests of the company in the personal integrity of the members of the supervisory board.

Supervisory board members should be aware that, in their exposed position, they primarily serve the interests of the company. In this respect, there is no clear split between the sphere of their activities for the supervisory board and other activities for the company (such as a member of the works council) and, in some cases, even conduct in the private sphere. Accordingly, misconduct outside of the activities of the supervisory board can constitute good cause for dismissal.
Dr Moritz Jenne
Jennifer Wulf

Roy Naor provides legal advice to national and international investors and corporations. His area of expertise ranges from incorporation of companies to joint venture agreements and M&A transactions. Roy Naor is admitted to practice law both in Germany and in New York. As a special focus of his work, he advises clients from the United States and Israel as they seek to expand their activities in the German market. His industry focus is on the sectors tech and mobility.

"We are pleased to have gained Roy Naor, an up-and-coming talent, for our law firm," comments Philipp Cotta, Managing Partner of ADVANT Beiten, adding: "The Corporate/M&A practice plays a central role in the strategy of our law firm, nationally and internationally. Also in view of our alliance, Roy Naor will be an immense asset. With his professional background, his network and long years of experience in advising clients in German, English and Hebrew, he is a perfect match for our firm, further advancing our internationalisation."

Roy Naor comments: "I am looking forward to the new challenge, and especially to working with Altana in France and Nctm in Italy. The US strategy initiated by all three firms is an excellent fit for my business model. I am looking forward to working nationally and internationally together with my colleagues."

This is the second year that the US publisher Best Lawyers lists Roy Naor among the 'Ones to Watch Germany'. The Corporate/M&A practice group of ADVANT Beiten has 60 fee-earners across all locations, 19 of which are equity partners.

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

Philipp Cotta
Managing Partner
ADVANT Beiten
+49 (89) 3 50 65 – 1342
Philipp.Cotta@advant-beiten.com

Background

The judgment of the German Federal Court of Justice (Bundesgerichtshof, BGH) of 26 November 2020 on whether and to what extent the UN Convention on the International Sale of Goods (CISG) applied to arbitration agreements caused significant legal uncertainty. The Court looked closely at the formal requirements for the effective agreement of an arbitration clause and the conditions for integrating the General Terms and Conditions (CTGs) into the contract under the CISG. In this respect, the BGH confirmed its previous jurisprudence that, under the CISG, the CTGs must be sent or otherwise made available to the other party for them to be considered a component of the contract. In contrast to German law, the mere possibility to obtain the CTGs, such as by clicking on a link on the seller’s homepage, is insufficient. This is particularly important when the CTGs contain an arbitration clause. The BGH leaves the question of whether and to what extent the governing law selected by the parties in a contract also determines the law applicable to the arbitration clause (so-called arbitration statute). The French Cour de cassation answered this question in its judgment of 28 September 2022 and assessed the effectiveness of the arbitration clause – contrary to the English court that was also involved in the same case – based on French substantive law.

1. The German perspective: Judgment of the BGH of 26 November 2020 in Case No. I ZR 245/19

Brief facts of the case

The BGH was asked to decide on an objection to the application of an arbitration agreement under § 1032 (1) of the Civil Process Code (Zivilprozessordnung, ZPO). Under this provision, the defendant has until the start of the oral proceedings before the state court to file a plea that the claim is inadmissible and the court does not have jurisdiction because an arbitration agreement determines that the dispute must be decided by a court of arbitration.

Two companies located in Germany and the Netherlands had a dispute about compensation claims arising with respect to a sale and purchase agreement for goods. The contract was formed from orders from the purchaser and a document entitled “Contract of Sale” (Verkaufskontrakt), in which the seller, a spice trader located in the Netherlands, confirmed the order. The confirmation letter noted that all sales and contracts were subject to the General Terms and Conditions of Sale and Delivery. However, the purchaser was not sent these GTCs. The terms of the Dutch Association of Spice Trade (“NVS-Bedingungen”) were also not enclosed. The NVS Bedingungen contained a choice of law clause that subjected the contract to Dutch law, without application of the UN CISG, as well as an arbitration clause in favour of an arbitration court of the Dutch association in Amsterdam.

The District Court (Landgericht) issued a default judgment in written pre-trial proceedings, which the defendant appealed. In the appeal, the defendant raised the arbitration agreement. The Court dismissed the claim as inadmissible because it held arbitration clause in the NVS Bedingungen effectively formed part of the contract. The claimant appealed. The Court of Appeal held that the plea that an arbitration agreement existed was groundless so that the claim before the District Court was admissible. It referred the case back to the District Court. On further appeal to the BGH, admitted by the Appeal Court, the defendant sought to preserve the judgment of the District Court dismissing the claim.

The BGH confirmed the judgment of the Court of Appeal. The defendant’s second appeal was unsuccessful.

The judgement of the BGH of 26 November 2020 in case no. I ZR 245/19

The BGH held that the action before the District Court was admissible. In accordance with § 1032 (1) of the ZPO, the defendant could not rely on the arbitration agreement because the arbitration agreement was not effectively agreed. Under § 1025 (2) of the ZPO, § 1032 of the ZPO is also applicable where the place of arbitration is in another country, in this case, the Netherlands.

Raising the plea that an arbitration provision applied before the start of the oral hearing

The plea that the court did not have jurisdiction because of an arbitration agreement was raised before the start of the oral hearing. Through the objection to the default judgment, the proceedings reverted to the status before the defendant’s default. The plea that an arbitration agreement applied, first raised in the statement of opposition (Einspruchsschrift), was thus not delayed under § 1032 (1) of the ZPO and not precluded. The objection does not have to be raised within the deadline for the statement of defence.

Form requirements for an arbitration agreement

Under Art. II (1) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Arbitration Convention), any arbitration agreement must be in writing. In accordance with Art. II (2) of the New York Arbitration Convention, this includes an arbitration clause in a contract signed by both parties or an exchange of letters between the parties. A unilateral declaration, such as the confirmation letter signed by just one party in this case, is not sufficient.

Under the most-favoured-nation principle (see Art. VII (1) of the New York Arbitration Convention), an arbitration agreement can also be effective when the national or substantive law selected by national conflict of law rules applies fewer demands and is, therefore, more favourable. This was not the case here.

The form requirements for an arbitration agreement under § 1031 of the ZPO are also not fulfilled. Under § 1031 (2) and (3) of the ZPO, a reference to a document containing an arbitration clause shall suffice (here: the NVS-Bedingungen). This does not apply here because the arbitration clause was not effectively included in the contract.

The conditions for effectively making an arbitration clause in the GTCs part of the contract

The BGH held that the question of whether the arbitration clause was effectively part of the contract must be assessed under the UN CISG. As both Germany and the Netherlands are signatories to the CISG, the parties to the contract for the supply of goods have their registered office in a contracting state. Therefore, the UN CISG applies pursuant to Art. 1 (1) (a) of the CISG. Accordingly, for GTCs – here the arbitration clause – to effectively form part of a contract they must be provided to the other party or otherwise made accessible. This was not the case here. The arbitration clause, therefore, was not an integral part of the contract.

2. The French perspective: the judgment of the Cour de cassation of 28 September 2022 in Case No. 20-20.260

Brief facts of the case

In 2001, a Lebanese company, Kabab-Ji concluded a Master Franchise Agreement with a Kuwaiti company, Al-Homaizi Foodstuff Co (AHFC). The agreement licenced the use of the “Kabab-Ji” brand in Kuwait and provided for the agreement of individual contracts for each point of sale over ten years. The agreement expired in 2011 and the parties did not extend it. During the term of the agreement, AHFC was restructured and a holding company, Kout Food Group (KFG) was established. The franchisor, Kabab-Ji approved the restructuring in 2004, expressly agreeing that the restructuring would not otherwise affect the conditions agreed in the contracts between the parties. The Master Franchise Agreement contained a governing law clause selecting English law, as well as an arbitration clause selecting the rules of arbitration of the International Chamber of Commerce (ICC), located in Paris. However, the agreement did not contain a clear choice of law provision concerning the law applicable to the arbitration agreement.
 
In 2015, the franchisor commenced arbitration proceedings against KFG, the successor of the original contracting party. It alleged that the Kuwaiti master franchisee had not performed its contractual obligations and used the acquired know-how without authorisation to develop its own restaurants. An arbitration award from 2017 sentenced KFG to pay compensation to the franchisor, Kabab-Ji.  While Kabab-Ji (unsuccessfully) commenced proceedings before the English courts to enforce the arbitration award, KFG filed an action for annulment of the arbitration award in France. KFG appealed the judgment of the Paris appeal court (Cour d’appel de Paris), which confirmed the arbitration award, to the Cour de cassation. In particular, KFG accused the Appellate Court court of not using English law to assess the effectiveness and applicability of the arbitration clause, despite the governing law clause in the contract between Kabab-Ji and AHFC.

Judgement of the cour de cassation of 28 September 2022 in case no. 20-20.260

The Cour de cassation confirmed its jurisprudence on the law applicable to arbitration clauses. Accordingly, an arbitration clause should be considered independently from the rest of the agreement. The effectiveness of such a clause primarily depends on the common will of the parties. The governing law clause contained in the agreement does not offer any cause to also apply the governing law clause to the arbitration clause. If the parties do not agree on a specific choice of law clause, under French international private law, any conflict of law connection is not considered; instead the material provisions developed under international arbitration law apply.

These material provisions grant the arbitration courts broad powers. This includes the possibility to extend the arbitration clause (extension d’une convention d’arbitrage). Accordingly, an arbitration agreement can apply to a legal dispute between parties, which have not signed the agreement. This requires the parties to have taken part in the contractual negotiations, to have influenced them, or for there to be some other way that their agreement to the arbitration agreement can be determined. The arbitration court, therefore, had the right – based on this material provision – to assume jurisdiction.

3. Comment

Arbitration awards are internationally recognised and enforceable under the New York Arbitration Convention. Arbitration clauses are therefore often used in international supply agreements to avoid the hurdles of recognition and the enforcement of awards before state courts in countries outside the European Union, where the rules are not uniform. For the arbitration clause to be effective and fulfil its function in the case of a dispute, a few things must be kept in mind when using GTCs. Where the UN CISG applies, strict requirements apply to the inclusion of GTCs in agreements: the GTCs must actually be sent to the foreign contracting partner. A reference to the ability to view the CTGs online via a link on the homepage of the vendor may be sufficient under German law but is not sufficient under the CISG. In addition, the CTGs must either be in the common language of the contract and negotiations between the parties, or they must be in the native language of the recipient. If a German purchaser corresponds with a French vendor in French, for example, CTGs in English will not fulfil these requirements. English is not recognised as the universal contract language everyone must master. Neither the CTGs nor any arbitration clause they contain has effectively been made part of the contract.

The law applicable to the arbitration clause requires a separate connection, i.e., it will be determined separately. The law applicable to the rest of the contract does not necessarily apply. In the past, the BGH also applied the law selected in the governing law clause to the arbitration agreement; the BGH expressly left this decision open in the current case. In the Kabab-Ji case, the Court de cassation held that the arbitration agreement is generally not covered by the law applicable to the rest of the agreement in line with the governing law clause. The English court took a different view and refused to enforce the French arbitration award. In cases of doubt, therefore, international agreements should contain an arbitration agreement that expressly states which law applies to the arbitration agreement. 

Dr Birgit Münchbach
Etienne Sprösser

With Spandau Pumpen, SKF disposes of extremely competitive screw-type and seal-less coolant pumps with a valuable customer base mainly in the European market. Through the acquisition, EBARA aims to enter the global market for machine tools and filter systems and will expand its portfolio by providing new products and services.

EBARA will take over the customer base and certain assets of Spandau Pumpen, will relocate the production to one of its plants in Italy and will work on the expansion of its business. EBARA Corporation has committed itself to achieve several UN Sustainable Development Goals (SDGs) in order to create added business value and to reinforce its reputation as an excellent global player.

The global development of new markets through acquisitions and integration of value-added products are a central element of EBARA's strategy. Further investments are planned in the field of M&A.

Advisor to EBARA Pumps Europe:
ADVANT Beiten: Dr Markus Ley and Moritz Kopp (both in charge, Corporate/M&A), Christian Hess (IP/IT), Dr Erik Schmid, Regina Dietel (both Labour Law), Christoph Heinrich, Cathleen Laitenberger (both Antitrust Law) and Maximilian Matusewicz (Corporate/M&A, all Munich).

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

Dr Markus Ley
Rechtsanwalt (Lawyer)
ADVANT Beiten
+49 (89) 3 50 65 - 1211
markus.ley@advant-beiten.com

1. What are the risks under the Product Liability Directive?

1.1 Draft Product Liability Directive

On 28 September 2022, the European Commission published a proposal for a new product liability directive (Product Liability Directive). The proposal foresees stricter rules for manufacturers, quasi-manufacturers, importers, authorised representatives, fulfilment providers, retailers, and operators of online marketplaces in the EEA. You can find a detailed introduction to the Directive in a post by André Depping and Katharina Pöhls.

1.2 Wider scope

The new Directive will extend the personal and material scope of the current Directive and apply the thumbscrews much more tightly for entrepreneurs.

Under the current Directive, only manufacturers, quasi-manufacturers, and importers active in the EEA are strictly liable for defective products. The new draft extends the potential defendants to include authorised representatives of the manufacturer, fulfilment providers, retailers, and, under certain conditions, even operators of online marketplaces. Companies that substantially modify a product will also be liable when the modified product is defective and causes damage. In this case, the statute of limitations will restart. 
The proposal expands the scope of products covered by the Directive to include software and digital production files, such as data for 3D printers. It will also include products integrated into another product (such as navigation systems).

1.3 Defectiveness and digital components

In addition, products will be considered defective when they fall short of the safety standards the public expects. That is why product safety law standards will be taken into account when determining whether a product is defective. Increasingly, the focus is on cybersecurity. As a result, software may need updating where possible. 

1.4 Start of the Statue of Limitations

The proposal also changes the start of the statute of limitations under product liability law. In the future, placing the product on the market will not alone be decisive; the possibility to control the product after it is placed on the market will also be considered. This meshes with the relevant monitoring and maintenance obligations. The M&A process must give special consideration to this change to the statute of limitations particularly when performing due diligence.

1.5 Relaxing the burden of proof and discovery

Further, the burden of proof is extended to help claimants with presumptions when there is an obvious defect in the product under normal use. In addition, there is an obligation to provide any evidence the claimant needs to assert their claims, such as construction documents or documentation about the monitoring of the product placed on the market.

1.6 Extension of the type of compensatable damage

Further, an important aspect of the draft is the expanded definition of damage, which now includes the loss and corruption of data and removes the thresholds for maximum liability and excess. Liability for digital products will continue to apply where the software was defective when it was placed on the market and can later be remedied by a software update.

2. Which protective instruments are there?

Product liability can play a significant role, especially in the automotive, food, and consumer goods industries due to the high level of damages and the effect on the company’s reputation. The risk is extremely industry-specific and depends on both product and location. The increasing impact of the Product Liability Directive on the digital sector should not be underestimated either.

The following outlines the options available in M&A transactions to protect against claims under product liability law.

2.1 Provisions in the sale and purchase agreement (or share purchase agreement)

The vendor’s representations and warranties (“guarantees”) are a central element of the sale and purchase agreement and are often the focus of negotiations. The interests here are essentially clear: while the vendor would prefer to provide as few guarantees as possible, the purchaser has an interest in obtaining as many guarantees for as many aspects as possible from the vendor so that the purchaser can turn to the vendor for any undisclosed risks.

As product liability can present a significant risk for companies – depending on the sector –vendors normally provide guarantees for claims under product liability law in the contract. However, guarantees usually protect against unknown risks, while specific indemnities distribute known risks. Any circumstances relevant to the guarantees the vendor discloses to the purchaser prior to the conclusion of the contract are typically excluded from the warranty.

A far-reaching product liability guarantee, which ensures the economic risks for all products produced and distributed up to closing remain with the vendor, would protect the vendor against such risks under product liability law.

Variations are also conceivable, where the vendor only guarantees that there are no further product liability cases other than those known and disclosed. In so doing, the risk of dormant product liability claims would transfer to the purchaser. This is then a variation of a limited product liability guarantee.

To the extent that the parties negotiate a product liability guarantee, it is advisable to agree to a longer limitation period for product liability because such cases generally only arise after a delay.

The target company’s reserves for product liability cases must also be considered. The amount of any reserves influences more than the purchase price; where the built-up reserves are appropriate, the vendor may not assume a guarantee in product liability cases.

Where specific indemnities are provided, the question is to what extent they cover product liability claims. Specific indemnities generally only release the vendor where the parties are aware of all the risks of the target company, but there are uncertainties concerning the claims arising and the amount of any claims. Normally, the vendor will indemnify the purchaser against all tax claims and environmental damage. In contrast, such indemnification rarely – in fact, almost never – applies to product liability.

Finally, a due diligence assessment of the target company can help identify existing or imminent product liability risks. The results of the assessment form the basis of product liability representations and warranties and/or indemnities in the sale and purchase agreement. While it is not always possible to predict the extent of product liability from the technical assessment of the products produced or placed on the market, legal due diligence of customer agreements can help better assess the product liability risks. Primarily, the assessor identifies the contracts with the most important customers and analyses the relevant contractual clauses. The following aspects are of particular importance:

• Is the description of the product or service sufficiently specific to avoid uncertainty in cases of breach of contract?
• Do customer contracts contain a limitation of liability?
• Have any clauses limiting liability been effectively agreed and would they withstand judicial scrutiny in the case of dispute?
• Has the target company assumed strict liability product guarantees and, if so, for what period?
• Does the contract cover serial damage?
• Special attention should be paid to the general terms and conditions of the target company, as their effectiveness is subject to strict legal requirements. If the target company has concluded numerous consumer contracts, the hurdles for any limitations of liability in the general terms and conditions to be effective are particularly high. 
• With respect to the extension of the scope of personal use, the Product Liability Directive will also need to be assessed to see whether any significant adverse differences between the risks of liability borne by the target company and possible third-party claims exist.

2.2 Minimisation of liabilty through an asset deal

If the due diligence assessment reveals significant product liability risks facing the target company, an asset deal could be an alternative way to transfer the company. In this case, not the shares but the assets of the target company are transferred (e.g., the ownership in immovable and moveable property of the fixed and current assets). The contractual relationships do not automatically transfer. This can be an advantage where there are potentially serious risks under product liability law for the purchaser.

2.3 Product liability insurance

If the vendor is not willing to provide any guarantees, the purchaser can take over the product liability insurance of the target company or conclude new product liability insurance to ensure sufficient protection.

To minimise claims for product liability, companies can take out appropriate insurance policies to cover product liability and the costs of product recalls. The product liability model provides insurance protection for damage, caused in particular by products manufactured or supplied by the policyholder. This covers claims under the product liability law and damages for manufacturer liability under tort law.

Product liability insurance is an extension of business liability insurance and has been available since 1970. It is constantly adapted to market circumstances (1987, 2000, 2002, and 2008). These adjustments were necessary to account for developments in jurisprudence related to product liability and the modernisation of tort law. It remains to be seen whether product liability insurance will be adjusted again to account for the changes introduced by the Product Liability Directive.

Product liability insurance builds on the Insurance Contract Act (§ 102 of the VVG) and covers both damages to persons and property and consequential loss (unechte Vermögensschäden). The product liability model is just a separate insurance model, which is why the general conditions of third-party liability insurance (AHB) might apply where there are insurance law issues. Accordingly, in addition to the special provisions for product liability insurance, the special rules on exclusions in the AHB should be considered as they could affect product liability insurance.

The production programmes and activities covered by insurance protection should be recorded in as much detail as possible in the insurance policy. This helps both the policyholder and the insurer because it will be clear which production risks the insurer assumes. The detailed description should leave enough room for developments in the operational activities of the policyholder.

As regards guarantees and insurance, it is important to ensure an existing warranty does not diminish the purchaser’s interest in sufficient insurance protection for the target company. However, the guarantee in the sale and purchase agreement is subsidiary to existing insurance protection.

As a rule, the vendor normally provides a guarantee for the existence of the insurance policy disclosed during the due diligence investigation. It is therefore customary to list policies in detail in an annexe to the sale and purchase agreement. In addition, the vendor should guarantee the policies offer the level of protection customary in the sector, the premiums have been paid, there are no (unobserved) conditions which could jeopardise the insurance protection, and no other conditions which could cause the insurance protection to lapse.

In the case of group structures, the target company will generally not be insured directly but under an umbrella insurance policy that applies to various companies within the group. Where this is the case, the purchaser should pay special attention to whether the group insurance (subject to short transitional periods) ends with closing and ensure appropriate follow-on insurance is concluded.

2.4 W&W insurance

2.4.1 What is warranty and indemnity insurance?

In certain circumstances, W&I Insurances (Warranty and Indemnity) can provide a remedy in the case of claims under product liability law in M&A transactions. This insurance provides cover for the parties involved in the transaction for unknown risks because of the past activities of the target company.

In an M&A transaction, the vendor will provide certain guarantees with respect to the target company. These guarantees give the purchaser information about the status of the company and the possible liability risks. To secure both parties and accelerate the M&A process, it can make sense to conclude W&I insurance. The purchaser profits from the additional protection and having a solvent opposing party, while the vendor may be able to obtain a higher sale price for the target without assuming liability.

Generally, the W&I insurance policy is adjusted to suit the transaction. The premium will depend on the size and complexity of the deal. So-called purchaser insurance is now popular.

For the purchaser, guarantees should cover major risks. As W&I insurance works on the basis of the balance sheet on the effective date, forward-looking warranties (such as specific target turnover) are exempted. In addition, liability in the case of purchaser knowledge of disclosed circumstances, penalties and fines, pension obligations, environmental damage, and tax matters are excluded as a standard. In practice, most W&I insurance also excludes damages from product liability on a “deal-specific” basis (considering the specifics of the sector and product).

Take particular note of the definition of “product liability” in the insurance policy. Often, insurers will define “product liability case” as broadly as possible to exclude their liability in such cases. The definitions of product and product liability in the new Directive reflect such a dynamic definition, which is also used as a basis for insurance policies. This can sometimes disadvantage the policyholder if they are not vigilant.

2.4.2. W&I insurance and product liability

As explained above, W&I insurance often does not cover product liability. This is due to the nature of W&I insurance and the fact that purchasers often perform no or insufficient technical due diligence. A strategic investor will carry out such an assessment to conclude an appropriate, tailored W&I policy with the insurer in their own interests, based on the information gained.

Nonetheless, W&I insurance can offer an additional safeguard against product liability law claims. One possibility lies in taking out “top-up cover” as part of the W&I insurance. In this case, the top-up cover will be connected to an existing product liability insurance and increase the sum insured under that basis insurance. This will account for a possible breach of warranty resulting in an insurance claim under product liability insurance with damage exceeding the sum insured under the product liability insurance. W&I insurance will cover that amount of the claim which exceeds the sum insured under product liability insurance.

2.4.3 Litigation buyout insurance

Another way to insure against product liability risks in an M&A transaction is litigation buyout insurance. This allows the parties to distribute risks from potential or ongoing legal disputes. The risks can relate to the outcome of a dispute or the sum of damages and compensation awarded, and to known legal disputes or a “package” of possible legal disputes or demands. Legal costs, including lawyers’ fees, can also be insured. It is also possible to take up appeal hedges, which allow the policy-holding purchaser to insure the advantages of a favourable judgment against the possible annulment on appeal when, at the time of the deal, the judgment has only been rendered at first instance.

3. Summary

The risks of a claim under product liability law will significantly increase with the implementation of the new Product Liability Directive. There are various ways to protect against such risks in an M&A process. In addition to thorough legal and technical due diligence, which should form the basis for a transaction with a high-risk target company, the purchaser can also ask for guarantees or take out product liability insurance. W&I insurance, with top-up cover or litigation buyout insurance, can be a sensible addition to the insurance suite.

Tassilo Klesen
Olga Prokopyeva

Under the term EdTech, innovative and technology-oriented companies and start-ups offer application-oriented solutions, services and products in the field of learning and education applications. Tomorrow University of Applied Sciences is committed to enabling learners to develop cutting-edge skills in the fields of sustainability, entrepreneurship and technology.

In the past years, Educapital has made investments in twenty innovative European companies. In 2022, the second fund was raised with the aim of supporting future European EdTech leaders. With USD 200 million in assets under management, Educapital is now the largest European fund specialising in EdTech and the future of work. In addition, Educapital is also the first independent venture capital company founded by two women.

The global EdTech market is expected to grow at an annual rate of 16.5 percent until 2030, reaching a value of USD 404 billion by 2025, documenting the growing interest in new technologies and online education.

Advisor Educapital

ADVANT Beiten: Dr Barbara Mayer (Corporate/M&A, Freiburg), Christian Burmeister (both lead partner, Corporate/M&A, Freiburg/Berlin).

Public Relations

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

Dr Barbara Mayer
Lawyer
ADVANT Beiten
+49 (761) 15 09 84 - 14
Barbara.Mayer@advant-beiten.com

On June 1, 2023 the European Parliament resolved by large majority vote to adopt its position for the upcoming negotiations with regard to the proposed Corporate Sustainability Due Diligence Directive (CSDDD). In this respect, it has expressed its support for tightening up many aspects of the EU Commission's proposal for a Directive on Corporate Sustainability Due Diligence submitted on February 23, 2022 (see our blog post at that time).

Core topic: Human rights and environmenal supply chain due diligence

The proposed directive includes in particular human rights and environmental due diligence duties for companies, which are similar to the due diligence duties regulated in the German Supply Chain Due Diligence Act (see our flyer on this Act). The core elements of these duties are the identification, prevention, mitigation or termination of current or potential negative human rights and environmental impacts in the company's own operations, in its subsidiaries and in the value chain of the company.

Extended scope of application for EU and non EU companies

According to the resolution of the European Parliament, the due diligence obligations shall apply to all companies based in the EU with more than 250 employees and a global turnover of more than 40 million euros, as well as to parent companies with more than 500 employees and a global turnover of more than 150 million euros. This is a considerable extension compared to the proposal of the EU Commission, according to which the first-mentioned thresholds would only apply to companies operating in certain high-risk sectors. For the remaining companies, those thresholds would apply which, according to the resolution of the European Parliament, should apply consolidated to ultimate parent companies. The proposal of the EU Commission does not provide for any attribution within a group of companies.

Second, similar to the EU Commission's proposal, the due diligence requirements should also apply to non-EU companies with a global turnover of more than 150 million euros but only if at least 40 million euros are generated in the EU.

The CSDDD would therefore contribute significantly to a "level playing field" from the perspective of German-based companies. This is because the German Supply Chain Act is applicable only to companies domiciled in Germany or with a branch office in Germany but not to other foreign companies. However, considerably more companies would also affected in Germany due to the CSDDD, as up to now the aforementioned companies are directly affected by the German Supply Chain Act only if they have more than 3,000 employees in Germany (or from January 1, 2024 more than 1,000 employees in Germany).

Further topic: Sustainability and Climate Change

In addition, companies shall in future develop and implement a plan to ensure that their business model and strategy is aligned with the objectives of the transition to a sustainable economy and with the limiting of the global warming to 1.5 °C in line with the Paris Agreement and the objective of climate neutrality until 2050. For directors of companies with more than 1,000 employees, meeting the plan's targets shall have an impact on variable compensation.

Assessment and next steps

The Council already decided on its negotiating position in November 2022, contrary to the Parliament calling for some easing compared to the EU Commission's proposal. Now that the European Parliament has defined its negotiating position, the way is clear for the trilogue negotiations to begin.

It is still not possible to predict with certainty what the content of the CSDDD will ultimately be. This particularly applies to the topics of sanctions and liability. Even before and even more so after the publication of the EU Commission's proposal, there were fierce political discussions about the regulatory project. Even on the day before the European Parliament passed its resolution, attempts were made to stop the negotiated compromise. It can therefore be expected that the political discussion about the regulatory project will continue.

In all likelihood, however, the companies affected will have an implementation period of several years in some cases.

However, it does not imply that no further measures are necessary for the time being. The CSDDD is not a stand-alone measure. Rather, it is one of several steps that the EU Commission had already planned in its Action Plan on Sustainable Finance in 2018. Other steps such as the EU Taxonomy and, above all, the new sustainability reporting have already been implemented or only need to be transposed into national law. For example, the Corporate Sustainability Reporting Directive, which came into force at the beginning of 2023, will lead to a considerable widening of the range of companies subject to the new sustainability reporting. In Germany alone, around 15,000 companies will be affected in the future, and in total more than 50,000 companies, including non-EU companies (for more details, see our blog post on the new sustainability reporting).

For more information on the European Parliament's decision on the CSDDD (with altogether 381 (!) amendment proposals), reference is made to the Parliament's press release and the documents linked therein.

Dr Daniel Walden

This blog post also appears in the Haufe Business Law Newsletter.

Facts of the case

The claimant was the insolvency administrator of a GmbH & Co. KG (the “debtor”). The articles of association of the debtor provided that only the limited partner, U-GmbH, managed the business. The defendant was a director of U-GmbH. U-GmbH was also the managing partner of other investment companies. The debtor raised funds for a stock company (AG) and made these funds available as loans for real estate investments. The loan agreement provided comprehensive collateral as security. The claimant sought recourse from the director for an amount of EUR 200,000 because of payments made to the insolvent stock company. The defendant did not play a part in the transfer.

Judgment of the BGH

Like the lower courts, the Second Senate of the BGH affirmed the debtor’s claim for damages against the director of the GmbH under § 43 (2) of the GmbHG.

Under § 43 (2) GmbHG, the scope of protection of the board and employment relationship between the limited partner GmbH and its directors extends to the KG in the case of negligent management. Managing the business of the limited partnership does not need to be the sole or central task of the GmbH.

BGH affirms contract with protective effect to benefit the KG

The Senate affirmed the requirements of a contract with protective effect to benefit a third party:

1. Under the articles of association, the KG will experience the services of the director when the limited partner GmbH manages the KG. Failures of the directors of the GmbH will always negatively affect the KG.
2. There is a legitimate interest in including a third party – here the KG. A director of the managing GmbH exercises their duties in the interests of the GmbH & Co. KG.
3. There is a good faith need to protect the KG. A breach of the director’s duties when managing the business of the KG will be particularly detrimental to the KG. The KG does not generally have a right to instruct the director. The rights to revoke the power of attorney and object to directors are not contrary to the need for protection.
4. The interests of the KG in being included under the scope of protection is apparent to the GmbH and the extension of the protection is reasonable for the GmbH. This applies even where U-GmbH also managed other funds so that the management of the GmbH & Co. KG was not its sole or material task. The latter issue remained open until now. The BGH followed the judgments of the higher regional courts and the prevailing view in the literature: the fact that directors manage multiple companies does not change their duties. A KG must be able to trust that the director will discharge their duties with care and diligence, regardless of the number of other companies it manages.

Liability, regardless of the internal division of responsibilities

The defendant is also liable when, in line with the internal division of responsibilities, the director was not primarily responsible for managing the debtor. While responsibilities may be divided up, directors will nevertheless remain jointly responsible. In any case, directors will have a supervisory duty. They must follow up on any irregularities or negative developments in areas that are not their direct responsibility. There is no objective reason to limit the protective effect for the KG. The Senate confirmed that the defendant had breached her duty of supervision as she did not prevent the transfers. A report found that the AG had not made enough security available and that only a certain percentage of the investor monies were invested in real estate. If the director had exercised her duties diligently, she would have noticed the maladministration of the core business of the debtor.

Summary

The landmark BGH judgment tightens director liability by extending the scope of the protection inherent in the board and employment relationships of the director. Under the jurisprudence of the BGH, this protection and, accordingly, the liability of directors under § 43 (2) of the GmbHG applies to the limited partner GmbH of a GmbH & Co. KG and extends to the limited partnership. The BGH clarified that the board and employment relationships of a director of a managing limited partner-GmbH lead to protection for the benefit of the limited partnership. The director is therefore also liable to the limited partnership for breaches of their duties under § 43 (2) of the GmbHG.

Dr Florian Weichselgärtner
Valerie Hoffmann

The bill regulates only the 1st pillar of the 2-pillar-model envisaged by the health ministry (in this context refer to our blog post of 13 April 2023). Thus, the draft includes, in particular, provisions regarding the protection of minors, home cultivation and the planned non-profit associations. The bill aims to contribute to an improved protection of children and minors as well as to improved health protection, to strengthen education on cannabis and prevention and to curb the black market.

In addition to the protection of minors, non-profit associations are the central issue of the bill. According to the bill, the so-called cultivation associations are allowed to have a maximum of 500 members and it is not allowed to be a member in more than one cultivation association. According to the bill, only the cultivation associations will be allowed to distribute cannabis for non-medical personal use to members only and at cost price. Distribution and cultivation are subject to strict regulations. First, you have to obtain a permit to cultivate and distribute.

Second, cultivation associations can’t sell to third parties and are restricted to selling cannabis on the internet. Third, even the type of packaging (neutral packaging or unwrapped) and the information on the package leaflets will probably be regultated.

Since the 2nd pillar envisages model regions for the legal sale of cannabis, changes in the legal provisions are likely to occur at least in the long run. Insofar, the final bill remains to be seen as well as a draft for the implementation of the 2nd pillar. The way for trading cannabis seeds is already paved in the present draft; importing cannabis seeds would be permitted for  cultivation associations and home cultivation.

Pursuant to the draft, cultivation associations are only allowed to finance themselves through membership fees. So far, there are no information on how the associations would have to be structured, membership fees, termination options and monitoring. This, in turn, can open up some creative space for the creation of cultivation associations and subsequent investments.

The draft bill also provides extensive provisions regarding cannabis for medical purposes. Cannabis for medical purposes may only be distributed in pharmacies. Importing and exporting cannabis from cultivation for medical purposes should be permissible. Insofar, the possibilities for import, export and transit are open for cannabis for medical purposes. The German Federal Institute for Drugs and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte) will be responsible for granting permissions. Likewise, the control of cultivation and cross-border traffic of cannabis for medical purposes is to be subject to the German Federal Institute for Drugs and Medical Devices. 

However, the bill also shows that the legislator attaches great importance to the protection of minors and the prevention of addiction. Accordingly, extensive documentation and reporting obligations are imposed on the cultivation associations. In particular, cultivation associations are to annually submit to the respective authorities comprehensive information on the quantities of cannabis and propagating material produced, dispensed and destroyed by the cultivation association in the previous year. Furthermore, the relevant authorities are to be given extensive powers to monitor the cultivation associations. 

As the above comments show, the current draft bill provides strict regulations for the planned cultivation associations and overall, for the legal cultivation and distribution of cannabis. In this respect, founding such association must be well planned and prepared in detail in order to be able to overcome the high legal obstacles of the cannabis law. In this regard, and in the context of cross-border trade in seeds as well as trade in medicinal cannabis, careful consideration of the extensive legal framework that the Cannabis Act will provide, and thus in-depth legal advice, is required. It remains to be seen in how far the draft bill will change due to the internal coordination with the other ministries and after consultation with the associations to be appropriately involved in the subject matter.

Dr Silke Dulle
Moritz Kopp
Robert Schmid

As one of the leading German games publishers, astragon Entertainment strengthens the development of its own simulation brands with the acquisition. astragon gains an experienced and reliable partner in Independent Arts, thus enabling it to continue the development of existing and new working simulation titles as well as to diversify the portfolio of own productions across various platforms.

Independent Arts, located in Hamm, Germany, has developed commercial video games since 1990, which makes it one of the oldest and most traditional German development studios. The studio with 39 employees has decades of experience and expertise through its own development projects and porting, as well as a strong creative contribution and an excellent management. Independent Arts welcomes an even closer cooperation and the opportunity to expand personnel and structure of the studio as a part of astragon in order to implement more projects and business strategies in the future.

Advisors to astragon:
ADVANT Beiten: Dr Andreas Lober (IT/IP/Media), Dr Guido Ruegenberg (Corporate/M&A, both in charge), Lennart Kriebel (IT/IP/Media), Dr Gerald Müller-Machwirth (Labour Law, all Frankfurt).

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

Dr Guido Ruegenberg
Rechtsanwalt
ADVANT Beiten
+49 69 756095-393
guido.ruegenberg@advant-beiten.com

Dr Andreas Lober
Rechtsanwalt
ADVANT Beiten
+49 69 756095-582
andreas.lober@advant-beiten.com

Facts of the case

Since it was founded in 2002, the claimant had been the sole director of A-GmbH and held 90% of the shares. His grandson held the remaining 10% of shares in the company and took over its management on 23 April 2012. Meanwhile, the claimant’s son was an authorised officer (Prokurist) of the company and effectively acted as the executive director. Between 19 March 2007 and 11 July 2011, the GmbH reduced its VAT, corporate tax, and business tax by not submitting certain tax declarations and providing incorrect information in others. These were based on a system of fake invoices and accounting entries without receipts.

On 19 March 2014, a liability assessment was issued against the claimant, his son, and his grandson for the tax liabilities of the GmbH. The claimant filed a protest, and on 30 January 2015 the tax authority reduced the amount of the liability. It also rejected the legal remedy sought as unfounded.

The process

The claimant applied to the Regional Fiscal Court in Münster to have the liability assessment in the form of the objection ruling of 30 May 2015 nullified. He challenged both the basis of the claim and the amount of the liability. The Fiscal Court rejected the application.

Judgment of the Federal Fiscal Court of 15 November 2022

The Federal Fiscal Court unanimously dismissed the appeal as unfounded without hearing any further oral arguments in accordance with § 126a of the Code of Procedures of the Fiscal Courts (Finanzgerichtsordnung, FCO). The liability assessment did not infringe the claimant’s rights.

The managing director of a limited liability company shall be liable in accordance with §§ 69 first sentence and 34 (1) of the Fiscal Code (Abgabenordnung, AO) in combination with § 35 (1) first sentence on the Limited Liability Company Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung, GmbHG) when the GmbH receives tax rebates or refunds without any legal grounds because the director wilfully or through gross negligence breached the duties imposed on them resulting in the liability arising from the tax debtor-creditor relationship of the company not being determined or not being determined in time. The Federal Fiscal Court held that these conditions were fulfilled.

Following the jurisprudence of the Federal Fiscal Court, the objective breach of duty indicated culpability within the meaning of § 69 first sentence of the Fiscal Code. The claimant tried to release himself from liability by claiming his son actually managed the business of the GmbH and his advanced age and knowledge and abilities meant he was not in a position to reproduce the business transactions in the company software. He claimed that he therefore no fault could be attributed to him. The Federal Fiscal Court countered this line of argument.

Failure to appropriately supervise

First, the BFH held that the claimant failed to appropriately supervise. A director can transfer responsibility for dealing with tax matters of the GmbH to another person. However, he may not blindly rely on this person, but must carefully select them and continue to monitor their work. Under the case law of the BFH, failure to appropriately supervise establishes a grossly negligent breach of duties within the meaning of § 69 of the Fiscal Code. More stringent requirements must apply to supervisory measures, the less the director is able to form a judgment based on the facts and depending on whether the person(s) delegated with dealing with the tax matters of the company provides the necessary guarantees that they will deal with these matters reliably.

The BFH also did not accept the claimant’s argument, that a managing director acting with due diligence would not have identified the fake invoices and accounting entries without receipts, which the son had entered in the accounts, without any further investigation and knowledge. In the Court’s view, the claimant could have easily ascertained that 34 entries were made without receipts had he looked in the accounts. Further, the claimant sanctioned the de facto management by his son and allowed him to do what he did without sufficiently supervising him.

Incompetence is not an excuse

In particular, the BFH countered the claimant’s argument that, due to his knowledge and abilities and in particular his advanced age, he was not able to follow the business transactions in the company software.

If a director has the lack of skills and knowledge that the claimant described, they should not manage a GmbH at all. If they are no longer able to perform their duties, the director must resign.

Practical significance

The judgments show that neither the delegation of duties nor incompetence can exonerate a director from their (tax) liability.

These principles apply to more than just the personal liability of directors for the tax liabilities of the company. The legal situation of the internal relationship between the company and the director is similar. Every director must exercise their duties with the care of a prudent businessman. If the director intentionally breaches their duties, they must make good any arising damage to the company, § 43 (2) of the GmbHG. The standards for diligence will depend on the specific relationship of each company, as well as their size and activities. Neither the extent of the director’s duties nor the question of liability depends on the personal qualities, age, or experience of the director.

This does not mean that a director must know and be able to do everything. Certain aspects of management may be delegated to lower levels of the company or third parties. The duty to keep orderly accounts, which was the subject of this judgment, is something that the director must “ensure” under § 41 of the GmbHG. They are not required to perform the work themselves, but the responsibility for the proper discharge of the duty remains with them. If they delegate the accounting role to employees or an external tax advisor, the director has the duty to select this person with care, and to carefully instruct them and monitor their work. In addition, they must always be able to access accounting documents and take corrective action where necessary.

A director can seek expert advice on specific legal or even tax questions and thus be released from liability. If a director follows the advice they receive and still breaches their duties, they will not be acting culpably when the mandated (tax) advisor is independent and professionally qualified, the director provided the advisor with the correct and full facts and the director performs their own plausibility control of the advice received.

At its core, the judgment confirms that where a director is personally incapable of performing their duties, they should not take up the position of director or should resign. However, this needs some clarification. Directors have responsibility for the company management, but do not have to perform every task personally. If they delegate a task, they must select the delegee with care and instruct and supervise them. If the director is unable to fulfil these selection and supervision duties, they should refrain from taking up a position as director given the strict standards of officer liability.

Dr Barbara Mayer
Etienne Sprösser

For Laumann Group, the acquisition marks the entry into the aluminium segment. Ponzio will be positioned as an independent business unit within Laumann Group. The goal of this integration is for Laumann Group and Ponzio Polska to jointly continue Ponzio Polska's growth path in the existing markets and beyond.

Ponzio Polska is a leading manufacturer of aluminium profile systems for the building industry with a strong footprint in Poland and other major European markets. The company employs over 300 people.

Laumann Group, a family-owned group with headquarters in Sendenhorst in the Northwest of Germany, is a leading provider of building-related product solutions and IT-services. The company employs over 7,200 employees in over 50 locations on four continents with an annual revenue of approximately EUR 1.9bn.

ADVANT Beiten had already advised Laumann Group on the acquisition of Vinylit Fassaden GmbH in 2021. Laumann Group also includes VEKA AG, a long-standing client of the law firm.

Advisors to Laumann:
ADVANT Beiten: Christoph Heinrich, Cathleen Laitenberger (both Antitrust Law, Munich), Dr Sebastian Weller, Nico Frielinghaus (both M&A/Corporate, Dusseldorf).
Other advisors: JDP (Poland), Sorainen (Lithuania)

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

Christoph Heinrich
Rechtsanwalt
ADVANT Beiten
+49 89 35065-1342
Christoph.Heinrich@advant-beiten.com

The Bavarian State government, for instance, commissioned a legal opinion regarding the compatibility of cannabis legalization with European and international law. The legal opinion by Prof. Bernhard Wegener of the University of Erlangen-Nuremberg was presented in March 2023 and found that the intended legislation of cannabis contradicted international and European law requirements, in particular, the relevant UN conventions on drug control.

There have recently also been opposite views in European jurisprudence. A legal study by the University of Nijmegen which was published in a specialist article, for example, has found that under certain circumstances the introduction of a government-controlled national license system for cannabis for consumption by a EU member state is possible under European and international law. Yet, the specialist article by the University of Nijmegen also views the UN conventions on drug control as a high - but not insurmountable - obstacle for the legalization of cannabis.

The question regarding the compatibility with European and international law has certainly played a significant part in the fact that the draft bill planned for March 2023 has not yet been presented. Instead of a draft bill, Mr. Lauterbach, the German Federal Health Minister, recently declared that the key issues presented in October 2022 had been revised. The revised key issues have now been presented by the Federal Ministry of Health.

According to the revised key issues, now a so-called 2-pillar-model ("club cultivation & regional model/CARe") is planned. Accordingly, there initially will be no unrestricted sale in licensed stores, as originally intended, at least not nationwide. This is supposed to be put into practice as a 2nd pillar for the time being only in model regions (districts/cities in several federal states according to the opt-in approach) for a project duration of 5 years under scientific supervision. Thereafter, companies will be enabled to produce, distribute and sell cannabis for consumption to adults in a licensed and state-controlled framework under the application of a geographical limit. However, this offers the first opportunity to enter a legal cannabis market in Germany. ADVANT Beiten will be happy to support you with our expertise in this regard.

The 1st pillar, in contrast, provides, in addition to a limited penalty-free cultivation of cannabis, that non-profit associations (up to 500 members) are allowed to grow cannabis for consumption collectively under a narrow, clearly defined legal framework and distribute it to their members for their own final consumption. The nature, structure, financing, etc. of this association will still have to be discussed and will require legal review and, in the future, legal support for the process of establishing such associations. ADVANT Beiten offers the necessary knowledge to accompany this process. The cannabis may only be distributed to members and not to third parties. Additionally, penalty-free possession for own consumption of up to 25 grammes is supposed to be possible. However, it is open whether these intended regulations will actually lead to a curbing of the black market. Here, the draft bill remains to be waited for.

The revised Key Issues Paper further provides with regard to the concerns under European and international law that the proposed regulations regarding the 1st pillar should be formed in such a way that no notification requirement and no requirement of consent by the Federal Council (Bundesrat) is triggered. However, it is still assumed that there will be a notification requirement for the proposed regulations regarding the 2nd pillar.

In addition to the questions of European and international law, the consequences of legalization under criminal law will also be discussed. The German Federal Constitutional Court (Bundesverfassungsgericht, BVerfG) could soon make a decisive contribution in this matter. The BVerfG announced that it will decide on various judges' submissions on criminal law provisions in the German Narcotics Act (Betäubungsmittelgesetz, BtMG) which concern the cannabis ban until early summer 2023. In this respect, the BVerfG could even pre-empt politics and legislation and, thus, bring new momentum into the matter, perhaps even opposing the revised key issues paper.

Not only politics and jurisprudence have been eagerly awaiting the draft bill, but also the business community. Medium-sized companies and start-ups see new business opportunities in the legalization of cannabis, but of course also companies from countries where the legalization of cannabis is already more advanced. Initial considerations assumed a turnover of 1.2 to 2.3 billion euros per year that could be generated due to legalization. From the point of view of the Federal Republic of Germany, this alone would have had the side effect of an estimated EUR 350 million in additional tax revenue just from the sales tax on legal sales. Here, it remains to be seen how the key issues will be legally implemented and finally how the "project" model regions will develop. Nevertheless, Germany will open a new cannabis market soon, creating new opportunities for companies to enter another cannabis market, for the production and sale of cannabis, to establish new companies or to acquire existing companies. In all of this, ADVANT Beiten has a competent team to provide legal support and assistance in the implementation of these new opportunities.

A first draft bill for the 1st pillar of the 2-pillar-model is to be presented before the end of April, and then the draft bill for the 2nd pillar.

As many details are still unclear, anyone wishing to enter this market should seek advice early on.

Dr Silke Dulle
Moritz Kopp
Robert Schmid

Strict liability means product liability is a significant risk for companies. On 28 September 2022, the European Commission released a draft for a new EU product liability directive, which could significantly increase this risk for companies. The new EU directive reflects the increasing number of digital products on the market. Accordingly, the scope is expanded in several ways. For example, the directive clarifies that software is a “product” under European product liability law. Until now, this has been subject to dispute. The scope of liability for personal use has also been expanded. In the future, companies will face product liability risks where they would not have previously. The elimination of both the limits of liability and the excess increases this risk.

You must identify imminent risks and take action to safeguard against them in the best way possible. Any safeguard should have multiple levels: when drafting contracts, you should include appropriate specifications and rights of control, and allocate liability. Careful design and documented production and quality controls are essential. Above all, companies should ensure they are adequately insured and regularly review their insurance coverage, making adjustments where necessary.

Who is the producer under the Product Safety Act?

To assess the risks, it is important to identify the producer under the Product Safety Act. The term “producer” is defined more widely in the Act than one would assume from the way the term is used in everyday language. The manufacturer of the product, but also the manufacturer of any component part built into the product are both considered producers under the Act. In the future, under product safety law, a company will even be liable as a producer if they make “substantial modifications” to a product.

European importers will also be liable as if they were a producer, even if they only put their logo or brand on the imported product (so-called quasi-manufacturer). In this respect, quasi-manufacturers need to consider whether they should put their trademark or brand on a third-party product.

Manufacturers, importers, and quasi-manufacturers should ensure that, where they acquire (part)products from a supplier, their contracts contain appropriate limitations of liability and quality assurance obligations. Where the parties agree to an assumption of costs in the case of liability, the supplier should also be required to provide proof of appropriate insurance.

If numerous parties are liable to pay compensation for the same damage, e.g., manufacturer and importer, they shall have joint and several liability. The injured party can choose to seek damages from the party they prefer and will generally choose the party best placed economically. The party from which the injured party seeks damages can, in turn, demand compensation from the other responsible party(ies). In the case of international supply chains, importers can have difficulty enforcing claims against foreign manufacturers.

A distributor can even be held liable if the manufacturer can’t be identified, or the distributor fails to provide the name of the manufacturer or the manufacturer’s supplier within one month of an incident. In order to be able to provide this information in an emergency, a distributor should maintain a list of the relevant information about the manufacturer or importer. Above all, they should not distribute any products without knowing the identity of the manufacturer.

In the future, in addition to the manufacturer, quasi-manufacturer and importer, the manufacturer’s authorised representative and fulfilment service providers within the meaning of product safety law will be liable for defective products in the same manner as the manufacturer. This means economic actors, which were previously not confronted with such direct or indirect liability, must now also prepare for significant product liability risks. It remains to be seen whether the authorised representative model established under product liability law has a future in its current form if the new rules are adopted.

Definition of product

A product is a moveable that is placed on the market. Medicines expressly fall outside the scope of the directive. If moveables, such as construction materials, are integrated into a building, they will continue to be a product under the directive.

Increasing digitalisation has also impacted product liability law. In the future, European product liability law will not only apply to moveables but will also expressly apply to digital manufacturing files and software. The term software includes artificial intelligence (AI) systems. This change significantly increases the scope of product liability law.

When is a product “defective”?

A product is defective within the meaning of the Product Liability Act when it doesn’t provide the safety an average customer would expect, justifiably considering all circumstances. This will not change in the future, although new aspects, such as cybersecurity, will be added. In contrast to the definition of “defective” under commercial warranty law, the safety aspect is the sole element for a product to be “defective” under product liability law.

The proper legal safety standard for a product depends on the seriousness of the risk, i.e., the likelihood that damage will occur, as well as the expected extent of damage, the status of the legal asset concerned, and the intensity of the damage.

If the product is designed to be used by different groups of users, the safety standard must be based on the weakest user group. The price of the product can also influence safety expectations. However, even cheap products must comply with basic safety.

The product must be safe to use in any manner that can be reasonably expected: this includes the proper use, as well as any predictable or usual incorrect use. For example, children will put toys in their mouths. When conducting product monitoring, manufacturers should therefore watch for any incorrect use of their product. Normally, the manufacturer will not be liable for improper use, where that use is considered reckless in the circumstances.

Whether a product is defective under the Product Liability Act must be assessed on a case-by-case basis and will often only become clear after an expert has prepared a report for the insurer or as part of legal proceedings. In many cases, this will involve independent proceedings for the taking of evidence.

Generally, a distinction is made between the following three categories of defects:

• Production defect:
  The product differs from the standard specifications for the product series. The manufacturer will almost always be liable for production defects. They will even be liable for “outliers” which are very unlikely to occur due to elaborate quality control measures. In any case, full control of all products supplied, with careful documentation, can be enough in some cases to prove there was no production defect when the product was placed on the market.
• Construction defect:
  In the case of a construction defect, the question is whether, when the product was placed on the market, an alternative construction would have prevented the damage from occurring. From a construction perspective, therefore, the generally accepted rules of technology should be determined, observed, and documented. Where necessary, any construction changes in later series should also be assessed to limit the identified product risk or implement new technology standards. Generally, a cost/use analysis can be conducted as part of this assessment.
• Instruction defect:
  An instruction defect occurs when the consumer is not or not sufficiently informed about the method of use and related dangers. This requires an analysis of the potential hazards of a product. The manufacturer should therefore provide clear and appropriate instructions for use. In some cases, it may be necessary to place warnings (pictograms) on the product. Product packaging should also be carefully planned as the manufacturer can be liable for any misuse of the packaging. The same applies to advertisements about the product.

Where serious risks are later discovered, manufacturers must subsequently warn users about the product risks in an appropriate manner.

In any case, manufacturers are generally not required to provide warnings when the product is clearly or generally known to be dangerous, such as alcohol, tobacco, and sweets (for the risk of diabetes), unless specific laws require such warnings. The tendency in the US legal system to provide warnings for everything has so far had little influence on the European liability system.

Time of assessment

At present, the decisive point in time for the evaluation of whether the safety expectations were fulfilled is when the product was placed on the market. A product placed on the market without defects will not subsequently be defective. However, new safety standards can establish additional information and recall obligations.

In the future, placing on the market will not be the only decisive time. The manufacturer will also be liable when they can control the product after it has been placed on the market (e.g., through software updates).

Easing the burden of proof for injured parties

Generally, injured parties must prove the defect, the damage, and the causal link. They will benefit from an easing of the burden of proof: for example, prima facie evidence of the typical course of events, including life experience, will be deemed to be true. In the future, the burden of proof for injured parties will be further eased. The necessary causal link between the product defect and the damage will be assumed in favour of the injured party where the damage arose because of an “obvious malfunction of the product under normal conditions of use.” In addition, companies will be forced to provide the injured party with copies of any evidence (e.g., construction documents, documented findings from product monitoring) the company has in their possession which the other party needs to establish their claim. If the manufacturer fails to (completely) comply with this requirement, they could lose a lawsuit because the defective nature of the product will then be assumed under statute. A “disclosure of documents” inspired by the Anglo-American model, would be an innovation for German civil procedure law.

Exculpatory evidence

• The manufacturer must prove all circumstances that could exclude their liability. The Product Liability Act provides various scenarios in which a manufacturer would not be liable, despite the defect, if they can prove the relevant facts: the manufacturer did not manufacture or distribute the product for sale to make money or within the framework of professional activity.
• The manufacturer, importer or quasi-manufacturer did not willingly put the product into circulation; instead, an unauthorised third party did so.
• The product is only defective because of an unforeseen change to the established state-of-the-art technology after the product was placed on the market.
• The defect was not yet recognisable, despite the state-of-the-art science and technology when the product was put in circulation.
• The product is only defective because it was produced in accordance with mandatory legal requirements.
• If a supplier supplied a defective component and the defect only occurred during the production of the end product, the supplier of the component part shall not be liable for the damage.

These already very narrow exclusions of liability will be even narrower in the future. For example, the fact a defect is not recognisable when the product is placed in circulation will no longer exclude manufacturer liability if a software or security update could have remedied the defect. The tech industry will not be the only industry that will have to consider whether it can afford to cease security updates for older products after just a few years.

Extent of liability and insurance

The damages companies must pay in product liability cases can quickly run to several tens of millions of euros. If a product causes injury to numerous individuals, the maximum total amount of damages is EUR 85 million. There is no maximum limit for property damage, but the injured party must pay up to EUR 500 in excess. Under the new EU directive, national legislators may no longer establish maximum limits for damages or self-participation for injured parties.

The obligation to indemnify cannot be contractually excluded or limited in advance. A waiver or limitation of the obligation to indemnify can only be agreed upon with the injured party after the damage has occurred.

Claims under the Product Liability Act become time-barred three years after the injured party should have become aware of the damage, the defect in the product, and the identity of the party liable to pay damages. The claim expires ten years after the product which caused the damage was put into circulation unless measures that stop the limitation period were introduced.

Overall, despite all precautions, there is still a high long-term risk of claims under product liability law, especially for dangerous products. Such claims can even threaten the continued existence of the company. This risk will be even greater in the future. It is therefore vital your contracts shield you as much as possible from these risks. In addition, you must closely monitor both production and the products sold and carefully document all control measures. Even with the best preventative measures in place, it is not always possible to avoid product liability. Sufficient insurance against this risk is, therefore, essential. Every company that could be liable should therefore regularly assess whether the insured sum and the subject of its product or business liability insurance correspond to the existing product liability risks. As soon as you become aware of a possible liability case, you should inform the insurer or the insurance agent and agree on the next steps. It also makes sense to obtain legal advice at this early stage – insurers will often bear these costs with their approval - as this prevents mistakes which are difficult to rectify or cannot be rectified later.

Dr André Depping
Katharina Pöhls

Background

Previously – more specifically: before COVID – meetings of members had to be held in person unless – as was the case for most associations - association by-laws expressly provided the option of holding virtual or hybrid meetings, or all members explicitly approved this option. In early 2020, with the COVID pandemic in full swing, legislators introduced transitional statutory rules to facilitate virtual shareholder, AGM and member meetings for stock corporations and associations. Associations and stock corporations widely used these possibilities. The virtual formats were well received and made it possible to reach members who lived further away. The COVID transitional rules expired on 31 August 2022. Legislators adopted permanent statutory rules for virtual shareholder and general meetings of the limited liability company (GmbH) and stock corporations (AG) before then; the relevant provisions of association law remained unchanged. It wasn’t until 9 February 2023 that a draft bill was adopted, introducing a new second subsection in § 32 of the German Civil Code (Bürgerliches Gesetzbuch, BGB) and making it possible to hold virtual or hybrid meetings of members. [UPDATE: The amendments entered into force on 22 March 2023, the day after the publication of the law in the Federal Gazette (Bundesgesetzblatt) (BGBl. I 2023, 72 on 21 March 2023).]

Content of the new rule

The new rule allows members to use electronic forms of communication to participate in meetings and exercise their rights as members without having to be present in person at the meeting place (hybrid meetings). Under the law, associations can now hold in-person meetings of members, where some members are present virtually. It is no longer essential for all members to be physically present to exercise their rights. If a hybrid general meeting is called, members can decide whether to be present in person or attend virtually. 

In addition, the new rule makes it possible to hold purely virtual general meetings. In this case, members attend via electronic communication. For both purely virtual and hybrid meetings, the term electronic communication means audio and video transmissions as part of a video conference, as well as electronic forms of communication such as telephone, chat, and voting by email. Legislators leave it to the association board to choose which electronic communication form is best for the association.

Requirements and modalities of calling a meeting

The association chairperson can call a hybrid meeting of members at any time without further involvement of members in the decision to hold the meeting.

In contrast, the members must either resolve to hold the meeting only virtually or empower the board, by resolution, to call virtual meetings of members. The members can adopt a resolution by a simple majority within a general meeting, although only subsequent meetings may be held virtually. Alternatively, outside of the general meeting, the members can adopt a resolution on calling a virtual meeting or empowering the board to call virtual meetings using the written consent procedure providing the members unanimously approve the resolution. Once the power to call virtual meetings has been conferred on the board, it can hold all future general meetings in this form until members revoke the power by resolution.
 
When calling a hybrid or virtual general meeting, the board must inform members how to exercise their rights. The notice must provide sufficiently precise information about the form of electronic communication and technical means required to attend and participate in the meeting. This should ensure that all members have enough time to prepare (technically) to participate in the meeting.

Summary

The new rule is welcome. It promotes the increased digitalisation of society and gives associations more flexibility when organising general meetings of members. Limited liability companies and stock corporations have embraced the option of holding hybrid and especially virtual general meetings and meetings of shareholders; many associations are likely to adopt these formats, too. The board’s discretion in selecting the form of electronic communication allows each association to decide which communication platform best befits the association.

Finally, it makes sense that the legislator distinguishes between hybrid and virtual general meetings and who can call them. While hybrid general meetings simply expand member participation options, purely virtual meetings can be restrictive for members who do not have the necessary technical equipment to participate. It is therefore only right that these options are made available to members in principle. Even with the new rule, associations are free to adopt arrangements in the by-laws making hybrid and virtual general meetings generally admissible or to exclude the use of these forms.

Dr Barbara Mayer
Stephan Strubinger

Failure to comply with the reporting obligations is an administrative offence

Any due diligence assessment should examine the notification obligations because the intentional or negligent infringement of these reporting obligations constitutes an administrative offence under § 19 (3) No. 1b of the Foreign Trade and Payment Act (Außenwirtschaftsgesetz, AWG), in combination with § 81 (2) No. 19 of the AWV and can result in fines of up to EUR 30,000.00 for each infringement. As a legal person acts through its representative body, the responsibility for carrying out the notification lies with the board of directors. Directors, (including former directors), therefore commit any infringements of the reporting obligations. Accordingly, directors can be personally liable. A continued, undetected breach would affect any new directors appointed after a transaction. In addition, legal persons can also be fined under § 30 of the Act on Regulatory Offences (Gesetz über Ordnungswidrigkeiten, OWiG).

Reporting obligations

The Foreign Trade and Payments Ordinance establishes various notification obligations for foreign trade transactions, particularly in relation to capital movements and payments. These obligations apply to domestic natural or legal persons. For legal persons, this will depend on the location of the company’s head office, as stated in its articles of association. Generally, the reporting obligations can coexist and exist independently. The following notification requirements for capital movements and payments should be highlighted:

• Under § 64 (1) of the AWV, natural and legal persons located in Germany must notify the status (e.g., shareholding and voting rights) and selected information about the asset structure (e.g., assets and liabilities) of companies located abroad when that natural or legal person holds 10% of the shares or voting rights directly in a foreign company or 50% of the shares or voting rights indirectly in a foreign company through an independent foreign company (so-called K3 notification). In addition, permanent establishments and allocated assets of foreign subsidiaries are also subject to the notification requirements.
• The notification requirements under § 64 (1) of the AWV apply inversely to the assets of foreign natural and legal persons in Germany pursuant to § 65 (1) of the AWV (so-called K4 notification). The obligation also applies to the domestic company and not the foreign company.
• Under § 66 (1) of the AWV, those subject to the notification requirements must notify the assets and liabilities of foreign persons to the German Federal Bank (Deutsche Bundesbank) each month where these assets or liabilities total more than EUR 5 million at the end of a month (so-called Z5 and Z5a notifications).
• Under § 67 (1) of the AWV, those subject to the notification requirements must notify the German Federal Bank of any payments received from foreigners or residents for the account of a foreigner (incoming payments) or payments made to a foreigner or a resident for the account of a foreigner (outgoing payments) (so-called Z4 notification).
• Possible actions in the case of infringement and how to observe the requirements in due diligence assessments and M&A transactions

Foreign trade law provides the possibility to make a voluntary declaration about an infringement of the notification requirements (leniency application) and receive immunity (§ 22 (4) of the AWG). According to this provision, a negligent breach of the reporting obligations will not be prosecuted as a regulatory offence (not for intentional breaches), where the violation is uncovered by in-house controls and notified to the relevant authority, and appropriate measures have been taken to prevent the same type of breach reoccurring. If all conditions for a leniency application are fulfilled, the administrative offence won’t be prosecuted.

The purchaser might also uncover the offence during the due diligence process. The (potential) buyer should ask about compliance with these notification requirements. If an infringement is uncovered, future infringements should be prevented. For past infringements, we recommend alerting the vendor and discussing the possibility of a leniency application, which could be developed jointly. Compliance with the notification obligations or - in the case of an existing infringement – the need to bear the consequences and make a leniency application should be taken into account when agreeing on the purchase price, in the catalogue of guarantees, and in the release rules.

Summary

The notification obligations under foreign trade law are hidden risks that should be given greater attention in M&A transactions in the future. Nobody wants to take on liability for an administrative offence with significant fines when they acquire a company. Consequently, every due diligence assessment should at least consider the obligations to notify the German Federal Bank, and the sale and purchase agreement should reflect compliance with these obligations.

Benjamin Knorr
Robert Schmid

Introduction

The German Act Implementing the Mobility Directive (EU) 2019/2121 was originally supposed to enter into force in January 2023, after the Federal Cabinet agreed on the draft bill on 6 July 2022. However, the Bundestag only adopted the draft bill on 20 January 2023. The Act entered into force on 1 March 2023, with a few minor exceptions.

The rules on cross-border conversions are now found in a new sixth volume of the Recast Transformation Act (Umwandlungsgesetz). The rules on cross-border mergers – previously found in §§ 122a et seq. of the Act – are now also regulated in the sixth volume of the Recast Act. In addition to cross-border mergers (§§ 305 et seq. of the Recast Transformation Act), the sixth volume contains rules on cross-border divisions (§§ 320 et seq. of the Recast Act) and cross-border conversions (§§ 333 et seq. of the Recast Act).

The inclusion of cross-border conversions has not generally changed the modular system of the Transformation Act; there is still a basic reference to mergers except where a specific differing or supplementary rule applies for a different form of transformation. The internal structure of the new sixth volume follows the familiar order, looking first at mergers, then divisions and lastly conversions.

Certain core elements can be summed up as follows: in the case of mergers, divisions and conversions, shareholders have a right to withdraw from the legal entity in return for cash compensation; § 313 of the Recast Act (for mergers) provides the obligation to make an offer to acquire shares in return for appropriate cash compensation.

In the case of mergers and divisions, the Recast Act provides a right to an improvement of the ratio of exchange.

The right to challenge the valuation is excluded for all three types of cross-border transformation. Instead, any challenge to the valuation should be enforced in legal proceedings (see the changes to § 1 No. 4 of the Act on Shareholder Actions under Company Law (Revised version of the SpruchG)).¹

In the following, we briefly explain a few of the central aspects of the Act to Implement the Mobility Directive (UmRUG).

Divisions

Divisions for the purpose of absorption

Generally, the EU directive only deals with cross-border divisions for the purposes of founding a new company. The new German legislation goes beyond this. The Act Implementing the Mobility Directive also deals with divisions for the purposes of absorption. In the latter case, the assets are not transferred to a company formed through the division, but to an already existing legal entity, but this is restricted: under the first sentence of § 332 No 1 of the Recast Act, in the case of the division of a domestic company, there must be fewer than 400 employees on average; this applies to both the transferring and receiving companies. This establishes a threshold of 80% of the threshold in the One-Third Participation Act (Drittelbeteiligungsgesetz, DrittelbG). Under § 320 first sentence, No. 2 of the Recast Act, in the case of absorption by a domestic company, fewer than four-fifths of the number of employees decisive for participation under the law of the State to which the transferring company is subject must be employed on average.

The Act goes further than the Directive and provides rules for divisions for the purposes of absorption. The success of these instruments will depend on the extent to which the other Member States also allow cross-border divisions for absorption. As the law already provides for domestic divisions, division for the purposes of absorption offers a high degree of flexibility because there is no need to establish a new legal entity and the assets can instead be transferred directly to a legal entity that already has an operative business. There is no - undesired – new legal entity.

The former possibility to transfer assets

Until now, shares in a company could be sold to a purchaser by way of a share deal. Certain business units could also be transferred by way of an asset deal. Finally, there was also the option of transferring a company through cross-border universal succession, by way of the so-called accrual model ² involving a partnership, typically a limited partnership in the form of a GmbH & Co KG (“KG”). Universal succession involves either the transfer of all shares in the KG to a (foreign) company or the acquisition of all the shares in the KG by that company and the withdrawal of all other shareholders from the (target) company. Transactions may still have one of these structures.

The Recast Act introduces the possibility, not previously foreseen or not explicitly foreseen under the Transformation Act, to transfer all assets by way of a partial universal succession. The advantage of this model compared to the accrual model, is that a partnership is not required. The advantage over the asset deal is obvious. Even if the assets to be transferred must be designated with sufficient precision for both asset deals and divisions,³ in the case of divisions, the assets will transfer without needing to list and transfer them all separately. This applies to liabilities and contractual relationships, which – subject to subsequent extraordinary rights to terminate in change-of-control rules – can be transferred with more legal certainty by way of partial universal succession under § 131 of the Transformation Act.

Conversion

The Recast Act provides a clear legal basis for cross-border conversions. It also eliminates uncertainties based on the lack of legal foundation.⁴

Improvement of the exchange ratio

Generally, in the case of a merger, shares are granted in the acquired stock company. Where the exchange ratio for the shares is too low, according to § 15 (1) of the Transformation Act, the acquiring legal entity can be required to provide an additional cash payment as compensation.

Sections 72a and 72b of the Recast Act supplement this rule. These provisions provide liquidity protection for both cross-border and German domestic conversions and, in the case of stock companies, allow shares to be granted in lieu of an additional cash payment to improve the exchange ratio (§ 72a of the Recast Act).

According to § 72b of the Recast Act, additional shares granted under § 72a can be created through a capital increase against contribution in kind. The purpose of the contribution in kind is to satisfy the claim of shareholders to additional shares, established by court judgment or settlement under the Act on Legal Challenges under Corporate Law (Spruchverfahrensgesetz).

The advantage of this procedure is that liquidity must be preserved when creating additional shares –through an increase in capital - in the acquiring company; payment in cash is otherwise foreseen under § 15 of the Transformation Act.

This option applies in principle to divisions, too.

Protection of creditors

The Recast Act increases protection for creditors – besides secondary liability, for example - compared to the protection provided both during earlier national conversions in Germany and cross-border mergers under §§ 122a of the Transformation Act. Upon request, the transferring company must provide creditors with security before the cross-border merger can be registered. Under § 122j of the previous Transformation Act, security had to be provided for cross-border mergers under § 232 of the German Civil Code (BGB). If the creditor generally has the right to security under § 122j, it must be provided in accordance with § 232 of the Civil Code,⁵ i.e., through a pledge or bond. When making a notification to the commercial register, the representative body of the transferring legal entity must ensure no securities have been enforced before the courts (see § 315 (3) No. 2 of the Recast Act) within three months of the announcement of the plan in accordance with § 314 (3) of the Recast Act. Creditors can block the registration where they have brought a claim for appropriate security.

Role of registry courts

The Act implementing the Mobility Directive registry gives courts a key role in cross-border conversions. They must do more than just assess whether the company was set up for abusive or fraudulent purposes (see section 7 below).

Under § 316 (1) of the Transformation Act – using a merger as an example – the court will examine within three months of the application for registration, whether the transferring company fulfils the requirements for the cross-border merger. Registration includes the determination that all relevant conditions have been fulfilled, and all necessary procedures and formalities have been performed. Registration will carry an annotation indicating the cross-border merger will be effective subject to the conditions set out in the law of the Member State where the acquiring or new company is based. The court will issue a merger certificate ex officio for the registration. Registration may not occur before the expiry of the three-month time limit for the assertion of claims for security. In Germany, under previous practice, the court normally decided much quicker. The judicial authority to conduct a review could even lead to an extension of the procedure depending on the specifics of the case.

Assessment of whether there are any abusive or fraudulent purposes

Based on the EU Directive, the Recast Act introduces a so-called assessment of abuse for cross-border conversions for the first time. The court scrutinises whether there is any indication the cross-border conversion has (1) abusive or fraudulent purposes leading to or aimed at the evasion or circumvention of EU or national law, or (2) criminal purposes. If this scrutiny reveals such purposes, the register court will reject the registration (see §§ 316 (2), 329 first sentence and 343 (3) of the Recast Act).

Examples of indications of such abuse were introduced at short notice during the legislative procedure. These include when (1) the parties only commence a necessary negotiating procedure in relation to employee participation when prompted by the court; (2) the number of employees clearly amounts to at least four-fifths of the threshold decisive for employee participation in the company, no added value is created in the target country, and the administrative offices remain in Germany; or (3) a foreign company will become the debtor for occupational pensions or entitlements through the cross-border merger and the company does not have any other operative business (§ 316 (3) No. 1-3 of the Recast Act).

Whether the impact of this additional scrutiny will be significant in practice remains to be seen. It should be noted that other legal provisions also apply, such as those to protect workers’ rights (new provisions or amended provisions; the Act on Co-determination Rights of Workers in the Case of Cross-border Conversions and Divisions (MgFSG), and the Act on the Co-determination Rights of Workers in the Case of Cross-border Mergers (MgVG). It remains to be seen whether there is room for more extensive scrutiny of possible abuse or fraud and where it should be performed in the procedure.

Practical questions on the procedure for cross-border conversions

A purely German legal view will be insufficient in some cases. Instead, the corresponding provisions of the (EU) foreign law must also be considered. Fortunately, cross-border mergers were an opportunity to become familiar with this in practice. Nevertheless, a need for clarity and coordination between the parties – such as the notary and the foreign commercial register – can still be expected in the early days. This should be kept in mind when planning the timing of any measures.

Review and outlook

One cannot help but think that the procedure will be more expensive and complex. Still, with the exception of the cross-border merger, which was already codified, cross-border conversions are now regulated by law for the first time and will have greater legal certainty. This must be recognised. In practice, some measures may now be possible for the first time, not necessarily in a legal sense, but in effect.

With the Act Implementing the Mobility Directive expanding the scope of options to other legal instruments, cross-border conversions offer new opportunities without devaluating the previous tools, which will undoubtedly still have their use. This is particularly true for the transfer of business units or departments to another Member State. Practice will show if the assessment of whether there is an abusive or fraudulent purpose will become a challenge or hurdle, and whether it will effectively prevent parties seeking to “dishonestly” move assets across borders, or whether the procedural requirements will be too complex. However, as there is a practical need for cross-border conversions, the new instruments are likely to be used in practice despite the expected hurdles.

Dr Winfried Richardt

An overview as well as the key points of the Mobility Directive can be found in the blog post by Christian Burmeister.

¹ See Bungert, NZG 2022, 1657.
² For more detailed information see Hoger/Lieder, ZHR 180 (2016), 613 et seq.
³ Semler/Stengel/Leonard-Schröer/Greitemann, UmwG, § 126 UmwG, at point 61.
⁴ Bungert, NZG 2022, at 1657.
⁵ Polley in Henssler/Strohn GesR, 5th edition, 2021, § 122j UmwG at point 9.

Overview of the planned changes

Basic difference between internal and external partnerships under civil law

The distinction introduced by the MoPeG into § 705 (2) of the Civil Code (Bürgerliches Gesetzbuch) between the legal capacity to make agreements with third parties on the one hand (external partnership) and the lack of legal personality of the partnership for internal agreements on the other (internal partnership) is a key element of the new law on partnerships under civil law (Gesellschaft bürgerlichen Rechts (GbR)). This distinction follows the relevant case law of the Federal Court of Justice (Bundesgerichtshof) and should be welcomed.

Under § 705 (2) alternative 1 BGB-MoPeG, there will be an external partnership when the shareholders have expressed a common intention for the partnership to engage in business transactions. Under this provision, the partnership can have rights and obligations, and it can also hold assets under § 713 BGB-MoPeG. External partnerships include professional partnerships, small traders, or other companies active in business, such as real estate companies. Under § 719 (1) BGB-MoPeG, such a partnership will exist vis-à-vis third parties as soon as it takes part in legal business with the approval of all shareholders, but at the latest with its entry in the newly created register (see below).

Under § 705 (2) alternative 2 of the BGB-MoPeG, an internal partnership only serves to establish the legal relationships of the shareholders to one another. Sections 740 to 740c of the BGB-MoPeG apply some standards for external partnerships to internal ones. However, internal partnerships do not have any legal capacity or, in accordance with § 740 (1) of the BGB-MoPeG, hold corporate assets. Internal partnerships, therefore, can still be used to establish rules for voting trust agreements and pooling arrangements, sub-participations in shareholdings, and similar relationships, which only affect the rights and obligations between the shareholders. However, internal partnerships do not appear in legal transactions with third parties, i.e., with those who are not shareholders, as external partnerships or at least pseudo-external partnerships otherwise apply and, accordingly, shareholders are personally liable.

Distinction between the external and internal partnership

Sections 705 et seq. of the BGB-MoPeG are based on the assumption that the basic legal type of partnership will be an external partnership with legal capacity. In line with the statutory presumption under § 705 (3) of the BGB-MoPeG, the partnership will be presumed to have the ability to participate in legal transactions (and thus an external partnership) when its business purpose is the operation of a company under a joint name. The courts would otherwise have to interpret the common will of the shareholders in each case. In the future, the issue of the distinction between internal and external partnerships is likely to increase. A clearly defined corporate purpose can provide a remedy.

Introduction of the partnership register

External partnerships can register in the newly established partnership register under § 707 (1) of the BGB-MoPeG. Following § 707 (2) of the BGB-MoPeG, the register records the name, headquarters, and address of the partnership, as well as the names, and residence or headquarters of the shareholders, and their powers of representation. Following registration, partnerships must add the suffix “eingetragene Gesellschaft bürgerlichen Rechts” (Registered Partnership under Civil Law) or “eGbR” to their name in accordance with § 707a (2) of the BGB-MoPeG. Upon entry in the register, the good faith protection of § 15 of the Commercial Code (Handelsgesetzbuch, HGB) applies following § 707a (3) of the BGB-MoPeG. Third parties can rely on the validity of the register. Publication in the register provides a sound basis for legal relations and creditors with information about the shareholders that are personally liable for the partnership.

The draft bill provides in § 707c the possibility to change from the partnership register to the commercial register when a partnership (GbR) changes its form to another form of partnership or company. This affects small, registered enterprises (GdR) transforming into a general commercial partnership (offene Handelsgesellschaft, OHG), as well as those with activities exceeding the thresholds for not requiring a commercially organised business operation under § 1 (2) of the HGB. Conversely, small commercial partnerships registered in the commercial register until now can change their status to the GbR in accordance with §§ 106 and 107 of the HGB-MoPeG.

In principle, registration of the external partnership in the partnership register is not necessary for legal capacity. However, § 47 (2) of the GBO-MoPeG (Land Register Regulation), for example, provides that a partnership may only be entered in the land register if it is registered in the partnership register. In the case of the acquisition or change of rights to property or equivalent rights, therefore, a GbR must be registered in the partnership register before the acquisition or change can be entered in the land register. Immediately after the entry into force of the MoPeG, all further legal changes to rights entered in a register will require the prior registration of the partnership concerned in the partnership register. As a result, most external partnerships in Germany will have to register in the partnership register, despite the voluntary nature of registration, in order to exercise these rights. They otherwise risk significant delays in conducting legally binding transactions in relation to the registered rights. This affects all transactions involving property and equivalent rights (transfer of ownership, priority notices, mortgages, and loans), shares the partnership holds in other listed companies (GmbH, OHG, KG and other eGbR), and intellectual property rights (trademarks, patents).

In practice, therefore, all GbR, which are recorded in registers or wish to have rights recorded or changed in a register in the future should register in the partnership register shortly after the Act enters into force. Failure to do so will result in delays to registration in the land registry and other registries because the partnership must be in the partnership register first.

Significant changes to the internal arrangements of the GbR, OHG and KG

The draft bill introduces a range of changes to the relationship between shareholders of the GbR, OHG, and KG. Until now, voting rights and the share of profit and loss were based on capital distribution unless otherwise specified. In practice, these rules were often waived in the partnership agreement. Now, under § 709 (3) of the BGB-MoPeG, a partner’s voting rights and share in profit and loss will primarily follow the participation agreement or, alternatively, the agreed values of contributions. This applies to the GbR and, through the references in §§ 105 (3) and 161 (2) of the HGB, to the OHG and KG, too. If the partners have not established specific rules for voting rights and the distribution of profit and loss, they shall have equal voting rights and equal shares pursuant to the second sentence of § 709 (3) of the BGB-MoPeG. The agreed participation ratio shows the value of the economic participation of the partners in the partnership assets; in practice, this is often referred to as the share of capital. For the first time, the law provides for fixed capital shares for all partnerships in the case of doubt, as is common in practice.

Existing partnerships should carefully assess whether their partnership agreement establishes an ownership structure or an agreed value of participation. There is otherwise a risk of legal uncertainty when calculating voting rights and the share of profit and loss.

Representation in the consolidated limited partnership

The draft bill contains special provisions for the popular consolidated limited partnership (Einheits GmbH & Co. KG), i.e., a limited partnership, where the only personally liable shareholder is a limited liability company (GmbH), in which the partnership holds all shares (consolidated limited partnership). In accordance with § 170 (2) of the HGB-MoPeG, all rights in the general meeting of shareholders of the GmbH are administered by the limited partners, unless rules established in the articles of association deviate. Until now, according to the case law of the Federal Court of Justice (Bundesgerichtshof, BGH), the management of the GmbH exercises these rights. Consolidated limited partnerships should therefore consider whether to amend their partnership agreement.

Law applicable to defective resolutions of the OHG and KG

Until now, any defects in resolutions of partnerships would result in the resolution being declared null and void. If a partner sought to have a resolution declared null and void, under the previous law, they had to bring a declaratory action against their partner(s). This issue has been substantially changed. However, in contrast to the original plan, it has not been changed for all forms of partnership, just for the OHG and KG: §§ 110 to 115 of the HGB-MoPeG contain new provisions on defective OHG and KG resolutions, based on the law applicable to limited liability companies (GmbH) and stock corporations (AG). In the case of serious defects, a resolution will exceptionally be null and void in accordance with § 110 (2) of the HGB-MoPeG. Defective resolutions otherwise apply but are voidable. Under § 113 (1) and (2) of the HGB-MoPeG, an action for annulment must be brought against the partnership within three months of publication of the resolution in accordance with § 112 (1) and (2) of the HGB-MoPeG. The court’s declaration that the resolution is null and void applies automatically to all partners pursuant to § 113 (6) of the HGB-MoPeG. Section 108 HGB-MoPeG allows partners to adopt differing rules. Existing commercial partnerships should therefore examine whether their current rules make sense in light of the new law.

Dr Barbara Mayer
Daniel Rombach

Extension and clarification of sustainability reporting

In the meantime, the EU has revised the non-financial reporting and developed it into a comprehensive sustainability reporting. The Corporate Sustainability Reporting Directive (CSRD) recently came into force at EU level and must now be transposed into national law by the EU member states. This will lead to a considerable widening of the range of companies subject to reporting requirements throughout the EU. In Germany alone, some 15,000 companies will be obliged to provide the new sustainability reports in the future, instead of about 500 companies so far. All in all, more than 50,000 companies will be affected, while the NFRD only covers some 11,700 companies across the EU.

Entities subject to mandatory reporting and commencement of reporting obligations

The duty to report on sustainability is to apply to a large number of companies as of the following dates (see Art. 5 CSRD):
Group 1: For financial years beginning on or after 1 January 2024, companies that are already required to report non-financial information under the NFRD (see above) will be subject to the reporting obligation.

Group 2: For financial years beginning on or after 1 January 2025, all large corporations and parent companies of large groups as defined in ss267, 293 HGB (German Commercial Code) will be subject to mandatory reporting, i.e. companies that exceed two of the following three criteria on two consecutive reporting dates: balance sheet total of EUR20 million , net turnover of EUR40 million, average of 250 employees during the year. Compared to the NFRD, the previous requirement of capital market orientation is dropped and the number of employees is reduced from 500 to 250.

Group 3: For financial years beginning on or after 1 January 2026, capital market-oriented small and medium-sized corporations (with the exception of micro-entities) will be subject to mandatory reporting regardless of the number of employees. Such SMEs may, however, opt out (having to state the reasons for it) in the first two years, so the reporting obligation will apply here no later than for financial years beginning on or after 1 January 2028. Furthermore, small and non-complex banks and company-owned insurance entities will fall into this 3rd group.

Group 4: Finally, for financial years starting on or after 1 January 2028, non-EU companies with a net annual turnover within the EU of more than EUR150 million in the last two financial years and a subsidiary within the EU belonging to Group 2 or 3, or a branch within the EU with a net annual turnover of more than EUR40 million, will also be subject to reporting requirements.

Contents of the sustainability reports

The above-mentioned companies must include in their management report information that is necessary for understanding the impact of the company's activities on sustainability aspects as well as the impact of sustainability aspects on the company's business performance, business results and situation ("double materiality"). According to Art. 19a of the Accounting Directive, this information must include the following:

(a) a brief description of the company's business model and strategy, including, in particular, the resilience of the company's business model and strategy to risks and the company's opportunities in relation to (i) sustainability issues; (ii) how the company intends to ensure that its business model and strategy are consistent with the transition to a sustainable economy and the limitation of global warming to 1.5°C in accordance with the Paris Agreement and the objective of achieving climate neutrality by 2050 as set out in the European Climate Change Act (including, where applicable, the company's exposure to activities related to coal, oil and gas); and (iii) how the company addresses the concerns of its stakeholders and the impact of its operations on sustainability issues in its business model and strategy;
(b) a description of the time-bound sustainability targets that the company has set, including, where applicable, absolute targets for the reduction of greenhouse gas emissions for at least 2030 and 2050, a description of the progress the company has made towards achieving those targets;
(c) a description of the role of the administrative, management and supervisory bodies in relation to sustainability aspects and their expertise in performing that role;
(d) a description of the company's policy on sustainability;
(e) information on the existence of incentive schemes linked to sustainability aspects offered to members of the administrative, management and supervisory bodies;
(f) a description of: (i) the due diligence process carried out by the company with regard to sustainability aspects and, where applicable, in accordance with the EU requirements for companies to carry out a due diligence process (cf. CSDDD-E); (ii) the main actual or potential negative impacts associated with the company's own operations and with its value chain; (iii) any measures taken by the company to prevent, mitigate, remedy or terminate actual or potential negative impacts and the success of those measures;
(g) a description of the main risks to which the company is exposed in relation to sustainability aspects, including a description of the main interdependencies in this area, and the company's management of these risks;
(h) indicators relevant to the disclosures referred to in points (a) to (g).

Sustainability reporting standards

While no reporting standard has been specified for non-financial reports according to the NFRD so far and therefore a wide variety of standards were applied, companies will have to comply with technical standards for sustainability reports defined by the EU (European Sustainability Reporting Standards, or ESRS for short) in the future. In November 2022, the European Financial Reporting Advisory Group (EFRAG), which was given the task of preparing such standards, submitted the first set of twelve cross-sectoral ESRS to the EU Commission; implementation is expected by 30 June 2023.

This first set of draft cross-sectoral ESRS covers the following reporting areas:

1. Cross-sectoral standards: ESRS 1 – General requirements and ESRS 2 – General disclosures.
2. Subject-specific ESG standards: environmental (ESRS 1 Climate change, ESRS 2 Pollution, ESRS 3 Water and marine resources, ESRS 4 Biodiversity and ecosystems, ESRS E5 Resource use and circular economy), social (ESRS S1 Own workforce, ESRS S2 Workers in the value chain, ESRS S3 Affected communities, ESRS S4 Consumers and end-users) and governance (ESRS G1 Business conduct).

The CSRD also provides for the preparation of sector-specific, third-country-specific and SME-specific standards by 30 June 2024.

Taxonomy Regulation

Under Art. 8 of the Taxonomy Regulation, companies that are obliged to report non-financially in accordance with the NFRD must already provide information, independently of the CSRD, on how and to what extent the activities of the company are linked to economic activities that are to be classified as environmentally sustainable economic activities in accordance with Articles 3 and 9 of the Taxonomy Regulation. In the future, the companies required to report under the CSRD will generally have to disclose such information in accordance with the Taxonomy Regulation.

Duties of business managers in connection with sustainability reporting

The management of the reporting companies must ensure, within the scope of their compliance obligation, that all legal requirements applying to the company are met. With a view to non-financial reporting or future sustainability reporting, business managers must therefore take appropriate measures so the company can fulfil its reporting obligations. This refers in particular to the sometimes challenging task of compiling the information and data required for it.

Furthermore, the description of the future sustainability reporting items is partly interpreted to mean that the CSRD presupposes that the companies − and therefore also their business managers − define actions and targets with regard to certain sustainability issues and make progress in achieving these targets. This applies in particular to the 'description of the time-bound sustainability targets' (including greenhouse gas emission reductions, if applicable) and 'the progress the company has made towards achieving these targets' as well as the 'way in which the company intends to ensure that its business model and strategy are compatible with the transition to a sustainable economy and the limitation of global warming'.

However, the discussion on the existence and content of any such obligation for action to be derived from the CSRD with regard to the definition and achievement of sustainability goals has only just begun. Regardless of the further development, there is enough reason for business managers to intensively deal with the sustainability issues relevant to their company and to take them into account when making decisions.

Dr. Daniel Walden
Dr. André Depping

This article was already published in Haufe Wirtschaftsrechtsnewsletter.

What is an ESG Due Diligence?

ESG due diligence is not yet a market standard, even though a number of ESG issues are covered by the traditional due diligence, such as environmental damage, compliance, data protection and risks from contractual relationships. However, the pressure to investigate sustainability aspects of the target company in the run-up to a corporate transaction is increasing: Social pressure is growing just as much as the expectations of customers and employees. More and more often, ESG issues are the subject of legal proceedings. ESG considerations are also of growing importance for the financing banks and financial investors.

Insofar as regulatory requirements already exist, for example when it comes to packaging and emission regulations or equal rights mechanisms, in the area of the German Act on Corporate Due Diligence Obligations in Supply Chains (LkSG), the EU taxonomy as well as the EU Corporate Sustainability Reporting Directive (CSRD), these topics are part of every legal due diligence. For reputational reasons, many companies "undertake" not only to comply with the legal provisions, but also to voluntarily submit to certain rules of the so-called soft law. These include, for example, internal climate protection due diligence obligations based on the Paris Agreement of 12 December 2015 and taking into account the steady increase in climate protection lawsuits filed by associations and private individuals against companies in civil courts. In conformity with core labour standards of the International Labour Organization (ILO), many companies prohibit labour grievances.

Such declarations based on soft law are not strictly binding on the companies concerned. Instead, the "obligation" is created by the expectations of potential investors or business partners whose disappointment might result in reputational damage and possibly a reduction in the value of the company. Many CEOs see compliance with ESG criteria as an opportunity to set themselves apart from competitors and to build a corresponding corporate culture.

Subject of an ESG Due Diligence

What exactly needs to be investigated in an ESG due diligence largely depends on the risk profile of the target company and on whether the transaction is ESG-driven, i.e., whether it (also) serves to improve the ESG profile of the investor. Principally, it should be asked to what extent the company is sovereign in terms of environmental, social and governance aspects and whether government sanctions, loss of reputation, further required investment costs or loss of market share should be expected. In general, it is recommended to look at the following factors:

Environmental

• Environmental management systems
• Emissions/waste management/hazardous substances
• Ecosystems
• Climate change resilience
• Procurement/use of resources (water, raw materials, energy)

Social

• Product safety/product stewardship
• Occupational safety and working conditions
• Diversity
• Equal opportunities
• Code of conduct in the supply chain
• Anti-discrimination policy

Governance

• Risk management systems
• Structure and remuneration of the board
• Implementation of ESG in the business strategy, for example when selecting suppliers
• Cyber security/data protection
• Anti-corruption policy
• Reporting standards

Advantages of an ESG Due Diligence

Sellers preparing for the sale of their company may polish it up with a "vendor ESG due diligence" and avoid potential liability due to lack of disclosure or subsequent breaches of warranty.

From the buyer's perspective, ESG due diligence helps to identify risks of compliance violations and reputational damage, to reduce financing costs and - last but not least - to avoid personal liability of the acting management. Findings from an ESG due diligence will be integrated into the purchase price determination and the list of warranties. In some cases, exemption clauses will be necessary - for example, if there is a threat of fines or exclusion from public assignments; in other cases, so-called post-closing covenants, i.e., obligations to be fulfilled after the transaction has been completed, may be appropriate. If a transaction is designed to improve the ESG profile of the buying company, identified risks may also be grounds for walking away from the deal altogether.

Conclusion

ESG principles are becoming increasingly relevant at the private sector and institutional level in the context of corporate transactions. Findings from an ESG due diligence can have a significant impact on the company valuation and the design of an SPA. In order to adequately consider ESG-related opportunities as well as liability and reputational risks, any due diligence should - also - examine the target company's risk exposure, taking into account relevant ESG issues.

Dr Barbara Mayer

The language of court in Germany is German. Pleadings, therefore, must be drawn up in German. In fact, evidence may be submitted in its original language. The court, however, may require a translation. Court proceedings are in principle conducted in German as well. In order to counter-act an "escape" of companies to other jurisdictions and arbitrations, several higher regional courts and regional courts have included English-language chambers in the schedule of responsibilities since 2010, for instance, in Hamburg, Frankfurt am Main or most recently in 2021 in Berlin as well. These pilot projects, however, have failed to gain acceptance. Plans for introducing so-called commercial courts are now presented throughout Germany for the first time with the key points published on 16 January 2023. Thereby, the justice and business location Germany should be sustainably strengthened and the challenges of a globalised world with international trade and commerce should be met.

Proceedings conducted in English

The innovations do not only provide for the introduction of so-called commercial courts. Pursuant to the key point paper, the German federal states should also be able to provide that certain trade disputes can be conducted completely in English before selected regional courts. It should also be possible that appeals and complaints are negotiated completely in English at the higher regional courts. For this purpose, special senates should be set up.

So far, the German Courts Constitution Act provides that the court language is German. If it is negotiated with the participation of persons who have no command of the German language, an interpreter has to be involved. The involvement of an interpreter may only be omitted if all persons participating in the process have a sufficient command of the foreign language and agree.

There is so far the possibility to hold an oral hearing in English under the aforementioned conditions. Pleadings, protocols, and decisions, however, necessarily must be drafted in German. There is no exception. In the future, it should not only be possible that proceedings are held in English. It should also be possible that pleadings are submitted in English. This also facilitates the examination of English-language evidence such as contracts. Neither the contract itself nor the essential passages must be translated in the pleading. This immensely simplifies, for instance, the interpretation of contractual provisions.

Commercial courts

First instance special senates (so-called commercial courts) should be set up at the higher regional courts for large scale economic disputes. These commercial courts can be addressed directly from a threshold of an amount in dispute of one million euros, for instance, and if all parties agree. Then, the parties may skip the regional court as an instance and litigate directly at the commercial court. The commercial courts are composed of judges who have a very good command of English. For the proceedings before commercial courts, the possibility should in addition be given to prepare a verbatim record, as it is already known from the arbitration. The parties should already be able to read this verbatim record in the proceedings.
It should be possible to lodge an appeal before the German Federal Court of Justice (BGH) against the decision of the commercial courts. If the proceedings before a commercial court are conducted in English, comprehensive proceedings in English should also be possible - in agreement with the responsible senate of the BGH.

The enforceability of English decisions of the regional courts as well as of the commercial courts and of the BGH should be ensured by means of translations into German. In order to facilitate the further development of the law, the translations should also be published.

Video hearings

During the corona pandemic, online court proceedings were increasingly conducted. A first step towards the modernisation of court proceedings already became evident here. The use of video conferencing technology has already proven its worth. Therefore, its use and distribution should now not be scaled back again. The objective is to extend online proceedings in the ordinary jurisdiction as well as in the specialised jurisdiction, to make them more flexible and, above all, to make them more practicable.

Protection of business secrets

In the future, business secrets should receive more extensive protection than before in civil proceedings. This is to be achieved by extension of the rules of procedure of the German Trade Secret Protection Act (Geschäftsgeheimnisschutzgesetz) to all civil proceedings. Court proceedings are in principle open to the public in Germany. So far, the general public could only be excluded in the course of a court hearing if an important business secret was discussed. In the future, it should be possible to advance the protection of business secrets to the time the action is filed. It should not be possible to use or disclose information classified as confidential outside court proceedings.

Remarks

The proposals of the German Federal Ministry of Justice to strengthen the courts in economic disputes are to be welcomed. Their legislative implementation is open, however, desirable. So far, the ordinary jurisdiction in Germany offers few contemporary process instruments for large international economic disputes Key problems such as the recognition of German judgments in part not existing in third countries so far - in particular China - should also be addressed in this context through diplomatic channels.

Moritz Kopp LL.M.
Chiara-Lucia Peterhammer

Based on proprietary platform technologies, Ethris has been developing mRNA therapeutics for diseases with inadequate treatment and for regenerative medicine for more than 10 years. The biotechnology company develops highly effective mRNA-based drugs for administration directly into the upper and lower respiratory tract and by intra-muscular injection.

Cipla is India's third-largest pharmaceutical company and South Africa's third-largest generic drug manufacturer. It has a particular focus on drugs and therapies for respiratory diseases. Cipla became internationally known for its production of low-cost HIV medicines. Founded in 1935, Cipla employs about 23,000 people.

ADVANT Beiten has a strong positioning in the healthcare sector and in advising international clients on investments in the German market.

Advisor Cipla Ltd.:
ADVANT Beiten: Christian Hipp (Antitrust), Benjamin Knorr (Corporate/M&A and Tax, both leading advisors, Berlin), Dr Dietmar O. Reich (Antitrust, Hamburg and Brussels), Wolf J. Reuter (Employment, Berlin), Robert Schmid(Corporate/M&A, Berlin), Dr Christian Ulrich Wolf (Corporate/M&A, Hamburg), Christian Hess (IP/IT, Munich).

Advisor Ethris GmbH:
m law group. Munich

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

Benjamin Knorr
Rechtsanwalt
ADVANT Beiten
+49 (30) 26471 – 262
benjamin.knorr@advant-beiten.com

BGH, Judgement of 06 October 2022 - VII ZR 895/21

Brief summary of facts

The parties to the dispute argued about the payment of work wages. The Plaintiff's lawyers sent an e-mail ("first e-mail") to the Defendant on 14 December 2018 at 09.19 a.m. In this e-mail, the Plaintiff had its lawyers state that the claim from the final invoice still amounted to EUR 14,347.23 and that, in addition, only legal fees in the amount of EUR 1,029.35 would be claimed as damages for delay. In another e-mail sent on 14 December 2018 at 09.56 a.m. ("second e-mail"), its lawyers clarified less than an hour later that the first e-mail should be disregarded as a final review of the amount of the claim had not yet been carried out by the Plaintiff. The right to assert further claims remains reserved according to the e-mail. On 17 December 2018, the Plaintiff submitted a higher final invoice in the amount of EUR 22,173.17. A few days later, on 21 December 2018, the Defendant transferred to the Plaintiff EUR 14,347.23 on the main claim and EUR 1.029,35 to reimburse the legal fees. The Plaintiff filed an action for payment of the difference of EUR 7,825.94 between the first and the second final invoice.

The Regional Court dismissed the action. The appeal before the Higher Regional Court also remained unsuccessful for the Plaintiff. In the appeal before the BGH, the Plaintiff sought payment of the differential amount.

BGH, Judgement of 06 October 2022 - VII ZR 895/21

The BGH confirmed the decision of the Regional Court and the Higher Regional Court; the appeal was without success. The BGH considered the first e-mail to be an offer by the Plaintiff to conclude a settlement. According to the Court, the Defendant accepted the settlement offer by making the payment a few days later. Thereby, the legal relationship between the parties was completely replaced by the new agreement on a reduced work wage, the settlement (so-called novation). The offer made in the first e-mail was binding because it had been received by the Defendant and had become effective upon receipt (cf. Section 130 (1) German Civil Code (BGB)). The second e-mail was not to be regarded as a valid revocation within the meaning of Section 130 (1) sentence 2 BGB (see below).

The background to the Court's reasoning is the difference between the acceptance period of an offer (Section 147 (2) BGB) and the revocation period of an offer (Section 130 (1) sentence 2 BGB). In each case, it is a matter of making offers to absent parties. A contract is concluded by offer and acceptance. The acceptance period is the time during which an offer is binding and can be effectively accepted. The revocation period is the period of time during which an offer can still be withdrawn by revocation. The revocation period ends with the receipt of the declaration of intent. This means that revocation is only possible before or at the same time as receipt of the declaration of intent (cf. Section 130 (1) sentence 2 BGB). The acceptance period, on the other hand, runs until the time when the recipient's response can normally be expected, cf. Section 147 (2) BGB. In the present case, the BGH confirmed that the offer made by the Plaintiff could be accepted within an acceptance period of approximately two to three weeks.

Receipt of a Declaration of Intent by E-mail

Since the revocation of an offer is only possible until the receipt of the offer, the revocation period decisively depends on the receipt. According to settled case-law, a declaration of intent among absent parties (e.g. an offer transmitted by e-mail or mail) is deemed to have been received if it has reached the recipient's sphere of influence in such a way that the recipient has the opportunity to take note of the content of the declaration under normal circumstances. According to the Federal Court of Justice, an e-mail that is received on the recipient's mail server within normal business hours, i.e. is made available to the recipient ready for retrieval, is already delivered when it is received on the recipient's mail server. Whether the e-mail is actually retrieved, opened, and read by the recipient is irrelevant. The only decisive factor is the possibil-ity of taking notice.
Therefore, the first e-mail, with which the settlement offer was made, was already delivered on 14 December 2018 at 9.19 a.m. The second e-mail, which was received 37 minutes later, therefore did not constitute an effective revocation of the settlement offer. This is because a revocation of the settlement offer was no longer possible after receipt. The settlement was reached by transferring the offered amount on 21 December 2018 - i.e. still within the acceptance period of two to three weeks. This leads to the effective conclusion of the contract or, in this case, to the conclusion of the settlement. There is no legal basis for a later additional claim for the difference, as the Plaintiff asserts in the lawsuit. The contract concluded between the parties, on which the Plaintiff's original claim for payment of the higher work wage was based, was replaced by the settlement, which reduced the work wage claim. Furthermore, the BGH clarified that the acceptance of an offer that was unsuccessfully revoked - due to being too late - did not violate the principle of good faith and was thus effective.

Background

With its ruling, the German Federal Supreme Court decided on the extremely practice-relevant, yet so far unresolved question of the receipt of a declaration of intent by e-mail. The decision relates to the receipt of e-mails during normal business hours. The question of when an e-mail is received when sent outside normal business hours or on public holidays has not yet been clarified. The facts of the case decided by the BGH did not give rise to a need to clarify this question.

There are different opinions on when an e-mail can be expected to be retrieved in the course of business when it is received outside business hours. It is predominantly argued that the receipt then takes place on the following business day, at the latest by the end of business hours. It is generally agreed that actual knowledge of the content of the e-mail is not required for receipt.
For the sake of comparison: According to prevailing opinion, a declaration of intent transmitted by letter is delivered when it is received in the recipient's letterbox. The digital counterpart to the letterbox is the mail server. According to the BGH, the server is already within the recipient's sphere of influence.

Note

It is encouraging that the BGH has now ruled on the previously unresolved question of the receipt of an e-mail, the most common type of communication in business transactions. However, some legal questions remain unanswered: The BGH's decision only relates to business transac-tions. It remains unclear whether and to what extent the principles on the receipt of e-mails also apply to private individuals.

In practice, the problem of the burden of proof still remains. It is often not technically feasible to prove that an e-mail was stored on a (third-party) server. However, this is a prerequisite for the receipt. Not every server supports the automatic sending of a transmission confirmation. A read receipt is not suitable because it is up to the recipient to send it or not. Moreover, the fact that the e-mail was actually noticed is irrelevant for the receipt. However, mere proof that the e-mail was sent, and that no non-delivery notification was received is not sufficient to prove receipt. This is because there is no legal presumption that an e-mail sent arrives at the recipient's server, any more than there is a presumption that a letter arrives at the recipient.

The BGH's decision also demonstrates that once an offer has been validly made, it is in fact not revocable when transmitted by e-mail, as the e-mail arrives on the recipient's incoming server within seconds, is ready for retrieval and has thus been delivered. If one wishes to reserve the right to make changes to the offer, it is therefore recommended to make this clear by means of an appropriate disclaimer. For example, the offer could be marked "without recourse" or "subject to change". This is the only way that a unilateral adjustment is still possible at a later point in time. This applies to offers in general. After all, even if the offer is sent by regular mail, it must be expected that it will be accepted quickly by the recipient. The revocation or amendment of the offer then is too late.

Dr. Birgit Münchbach

With the entry into force of the German Act on the Modernisation of Company Law (MoPeG) on 01 January 2024, a new register will be created, the company register. This register will be an independent addition to the Commercial Register and the Transparency Register and will record civil law companies (GbR) and their partners. Although the registration of the GbR is conceived by the legislator as fundamentally "voluntary", for most of the civil law companies appearing in legal transactions the registration will be anything but voluntary. Companies can and should already prepare for this.

Relevance of the Company Register

So far, the GbR and its partners are not entered in a register. This means that it is often difficult for participants in legal transactions to find out who is a partner in the GbR and thus liable for its obligations. In the case of other types of companies, such as general partnerships (Offene Handelsgesellschaft, OHG), limited partnerships (Kommanditgesellschaft, KG) and partnerships (Partnerschaftsgesellschaft), there are corresponding public registers that provide certainty about the essential circumstances of the company, such as its name, registered office, and partners. The company register is intended to increase the publicity of the GbR (with the corresponding will of its partners) to make its participation in legal transactions more secure.

Registrability of the External Partnership under Civil Law

Not all GbRs can be entered in the register. This option is only to exist for the external GbR according to section 707 (1) German Civil Code Draft (Bürgerliches Gesetzbuch Entwurf, BGB-E) (BGB according to the draft of the MoPeG). The differentiation between external and internal GbR in the new MoPeG follows the relevant case law of the Federal Supreme Court.

According to section 705 (2) alt. 1 BGB-E, an external GbR exists if the company is to partici-pate in legal transactions according to the joint will of the partners. Pursuant to section 705 (2) BGB-E, it can be the bearer of rights and obligations and forms its own corporate assets pursuant to section 713 BGB-E. External GbRs are, for instance, professional-practice firms (Berufsausübungsgesellschaften), small-scale traders (Kleingewerbetreibende) or otherwise entrepreneurially active companies, such as real estate companies. Basically, a GbR is an external GbR whenever the partners (intend to) appear in legal transactions under the name of the GbR. According to section 719 (1) BGB-E, such a company comes into existence in relation to third parties as soon as it participates in legal transactions with the consent of all partners, but at the latest with its entry in the newly created company register.

According to section 705 (2) alt. 2 BGB-E, an internal GbR is only to serve the purpose of structuring the legal relationship between its partners. The internal GbR has no legal capacity and, pursuant to section 740 (1) BGB-E, no corporate assets. This makes the internal GbR eligible for regulating voting and pooling agreements, sub-participations in company shares and similar relationships. Yet it may never be registered. An internal GbR that is accidentally entered in the company register would be regarded as an external GbR, at least in terms of its legal appearance - with all the resulting consequences.

Content of Entry

The content of the entry in the future company register is largely based on the previous regula-tions for the commercial register. Pursuant to section 707 (2) BGB-E, the name, registered office and address of the company, the names, place of residence or registered office of each partner and their power of representation are to be entered, among other things. After registration, the GbR is obliged under section 707a (2) BGB-E to use the suffix "eingetragene Gesellschaft bürgerlichen Rechts" or "eGbR". Pursuant to section 707a (3) BGB-E, the protection of good faith of section 15 German Commercial Code (HGB) is to be applied accordingly to the registra-tions. Every outsider can thus rely on the correctness of the entries. This register publicity allows a more reliable assessment for legal transactions as to who is available to the company's creditors as a personally liable partner.
Furthermore, section 707c BGB-E provides for the possibility of a change of status from the company register to the commercial register if a GbR wishes to change its legal form to another type of partnership. This applies in particular to registered, small trade GbRs that wish to change to the legal form of OHG on an optional basis, as well as those whose activities exceed the threshold for commercial business operations according to section 1 (2) HGB. In turn, small commercial partnerships (OHG) that have been registered in the commercial register up to now can change their status to a company under civil law (GbR) in accordance with sections 106 and 107 HGB Draft (HGB-E).

The entry of the external GbR in the company register is not mandatory and not required for its legal capacity. It retains all its previous rights even after the introduction of the company register and also remains registered in other registers, e.g., in the land register. However, section 47 (2) Draft German Land Register Act (Entwurf Grundbuchordnung, GBO-E) provides in future that a GbR may only be entered in the land register if it is also entered in the company register. In the event of the acquisition or amendment of rights to real property or rights equivalent to real property, a GbR must therefore always be pre-registered in the company register before it can make the entry of the acquisition or amendment in the land register.

For practical purposes, all GbRs that are registered in the land register or wish to register rights in the land register in the future are thus advised to make such an entry in the company register promptly after the law comes into force.

Problems after the Introduction

Immediately upon entry into force of the MoPeG, several new regulations will require the affected GbR to be pre-registered in the company register. Therefore, a large part of the existing external GbRs in Germany will have to be registered, irrespective of the envisaged voluntary nature, to remain capable of acting with regard to these rights. Otherwise, they risk considerable delays in carrying out legal transactions regarding the rights registered for them. This applies to all legal transactions concerning real property and rights equivalent to real property (transfer of ownership, priority notice, mortgages, land charges), the participation of the GbR in other registered companies (GmbH, OHG, KG, and other eGbR) and intellectual property rights (trademarks, patents).

The law shall come into force on 01 January 2024. Companies do not have the opportunity to apply for registration in advance. Hence, there will probably be a great rush on the newly created company register in January 2024. The responsible states had therefore already asked for a further delay in the introduction of the company register after 2024, but this was rejected by the German Federal Parliament. For this reason, companies should be prepared for considerable delays in the requested registration. Since other registers will not be active for the company until the company is registered (e.g., not registering the sale of a property in the land register), considerable delays may occur, some of which may jeopardise the company's existence.

Recommended Courses of Action

The expected problems should already be addressed by the partners. First, it should be checked whether there is an indirect registration obligation, i.e., whether the external partnership holds registered rights or participates in registered companies or would like to acquire such rights in 2024.
If this is the case, acquisition procedures should already be carried out and concluded in the current year 2023. If acquisitions are planned for 2024 or later, they should be advanced if possible. Pre-registration or the lack thereof will not affect legal positions existing on 01 January 2024. Foreseeable changes in the number of partners in the GbR, participation in other companies, land ownership and other registered rights should thus already be anticipated in 2023. The GbR and its partners can then react more relaxed to the problems and the expected delays in the implementation of the company register.

Dr Barbara Mayer
Daniel Rombach

This article was already published in Haufe Wirtschaftsrechtsnewsletter.

The Terreal businesses to be acquired by Wienerberger are expected to generate revenues of EUR 740 million and a run-rate EBITDA of approx. EUR 100 million in 2022. The enterprise value of the respective Terreal businesses amounts to EUR 600 million, subject to customary adjustments. The acquisition agreement was signed at the end of December, marking the start of the exclusive negotiation phase. The closing is expected to occur in the course of 2023.

The merger control part of the transaction is led by ADVANT Beiten partners Uwe Wellmann and Christoph Heinrich who are jointly responsible for German merger control and coordinate a team of law firms in various jurisdictions. Cross-border merger control advice is provided in cooperation with, inter alia, ADVANT Altana in France, Binder Grösswang in Austria, Woźniak Legal in Poland and Radovanović Stojanović & Partners in Southeastern Europe.

The M&A work stream was led by E+H (Vienna, Graz). ADVANT Beiten partner Dr. Mario Weichel took over its German part and together with a multidisciplinary team performed the legal due diligence on the Creaton business. ADVANT Altana was responsible for the French due diligence.

Advisers to Wienerberger:
ADVANT Beiten: Uwe Wellmann (Berlin) and Christoph Heinrich (both lead partners, both Competition law), Dr Mario Weichel, Maximilian Matusewicz (both Corporate/M&A), Cathleen Laitenberger (Competition Law), Anja Fischer (Real Estate), Katrin Lüdtke and Philipp Früh (both Public Law), Christian Hess (IP), Michael Ziegler and Petra Fendt (Finance), Chiara Peterhammer (Commercial, all Munich), Nima Valadkhani (Commercial), Wolf J. Reuter (Employment Law) and Dr Ariane Loof (Data Protection, all Berlin).

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

Uwe Wellmann
Lawyer
ADVANT Beiten
+49 30 26471-243
uwe.wellmann@advant-beiten.com

Many companies are looking for qualified and motivated employees and junior staff − the 'war for talents' has been going on for a long time. Especially for start-ups and young companies that cannot pay top salaries, the participation of employees in the success of the company can be very attractive. What is known as the skin-in-the-game effect motivates employees to invest long-term and intense effort in the company.

However, the general conditions for employee profit sharing in Germany are considered unfavourable in an international comparison. There are no wide-ranging tax benefits. Yet even in Germany an employee participation programme may be implemented in Germany through professional contractual arrangements.

Below you find an overview of the typical employee share ownership schemes.

Direct equity ownership

A company may give employees a direct stake in the company's capital by granting employees a share in the company's capital. The employees become shareholders. In addition to the employment relationship between the company and the employee, this also creates a direct link within the company’s structure. As shareholders of the company, the employees do not only have a direct share in the profits of the company, but can also exercise far-reaching information, control and co-determination rights. For the company and the existing shareholders, a direct equity ownership of employees typically leads to increased administrative work. They have to deal with additional shareholders through such employees' direct equity ownership, which makes uncomplicated, quick decision-making more difficult than in a small circle of shareholders.

From a tax point of view, it should be noted that the employee must pay income tax on the difference between the price and the value of the share at the time of its acquisition. The transfer of company shares at a discount or free of charge is deemed to be hidden employment remuneration. This leads to what is known as the dry-income issue: the employee must pay income tax on their capital share without receiving an increased net salary in return. The legislative has given small and medium-sized enterprises the option to defer the payment of wage tax for 12 years under certain circumstances (s19a EstG (German Income Tax Act)). Yet this is no sufficient solution to the dry-income issue. The tax-free allowance to which the employee is entitled if the employee receives shares in the company free of charge or at a discount, which has now been increased to EUR 1,440 per calendar year, does not change that. The capital gains from the sale of the shares are subject to withholding tax (25%) or the partial-income procedure (Teileinkünfteverfahren) (only 60% of the capital income is taxed), depending on the size of the holding (1% threshold).

A (not yet publicly available) key point paper from the German Federal Ministry of Finance, according to which tax benefits will be available also to larger companies than in the past, raises hopes for a future minimisation of tax disadvantages in the granting of shares. In order to alleviate the dry-income problem, it is planned to extend the period of taxation by 8 years to 20 years and even beyond that if the company assumes liability for the wage tax owed. In addition, the tax-free allowance to which the employee is entitled is planned to be raised to EUR 5,000 per calendar year. However, these positive proposals are only an internal discussion paper of the Ministry of Finance. For the time being, the focus should therefore be on other forms of employee participation.

Option rights

As it were, options are a preliminary stage to direct equity participation. Option rights are regularly issued as part of employee stock option plans (ESOP). The employees get an entitlement to receive shares at a previously determined exercise price on specified conditions. The entitlement may, for instance, be linked to a certain number of service years or the achievement of certain economic key figures. Only when the option is exercised does an option holder receive real shares in the company, which convey the shareholder rights defined for direct equity participation.

From a tax point of view, option rights differ from direct equity participation insofar as wage tax regularly only accrues at the time the option is exercised (on the difference between the actual value and the exercise price). The dry-income problem also exists at this time. Here too, the tax payment may be deferred under certain circumstances (s19a EstG). The capital gains from the sale of the shares received from exercising the option are also subject to withholding tax (25%) or the partial-income procedure (only 60% of the capital income is taxed), depending on the size of the holding (1% threshold).

Virtual share option plans

Especially in the start-up sector, virtual company shares, called phantom shares or virtual stock option plans (VSOP) are often chosen as a form of employee participation. Phantom shares are merely modelled on a direct equity participation - it is a purely debt-based capital transfer relationship. This means that the employees do not participate in the company in terms of company law, but only in mere economic terms. If certain pre-determined requirements are met (typically in the event of the sale of a majority stake in the company), the employee is treated as if they held real shares in the company by receiving a payment equal to the value of their virtual shares.

Unlike in the case of direct equity participation, the granting of virtual shareholdings does not directly lead to the accrual of wage tax; the relevant point in time here is the receipt of the remuneration. This is a major advantage of this type of employee participation: it avoids the dry-income issue because the employee is only taxed once there is a corresponding liquidity flow. All payments based on phantom shares, on the other hand, are subject to wage tax, as they are income from employment.

Conclusion

The common feature of all three forms of employee share ownership is that the direct or indirect participation in the economic success of the company is meant to be an incentive for employees. Due to the current legal situation, a virtual participation in a company seems particularly attractive from a legal point of view. It is less complex than ESOPs and avoids the (still) unresolved dry-income issue. However, which form of employee participation is the most suitable always depends on the individual circumstances. It should be assessed and tailored in consideration of the structure and specific concerns of the company in question.

Christian Burmeister
Stephan Strubinger

This article was already published in Haufe Wirtschaftsrechtsnewsletter.

Corporate Sustainability Reporting Is Coming

On 10 November 2022, the European Parliament has adopted the EU Directive on Corporate Sustainability Reporting (Corporate Sustainability Reporting Directive - "CSRD"). The adoption by the Council took place on 28 November 2022. The CSRD amends the Directives 2013/34/EU, 2004/109/EG and 2006/43/EG as well as the Regulation (EU) No. 537/2014. After the adoption by the Council, the CSRD will be published in the Official Journal of the European Union and will enter into force 20 days thereafter. Subsequently, the member states will have to implement the CSRD within 18 months.

What Are Sustainability Aspects?

Art. 1 CSRD names here:

• the sustainability factors within the meaning of Art. 2 Number 24 of the Regulation (EU) 2019/2088, which include environmental, social and employee matters, the respect for human rights and combating corruption and bribery as well as
• governance factors.

Who is affected?

• As of 1 January 2024: large entities of public interest (with more than 500 employees) which are already now subject to the Non-Financial Reporting Directive ("NFDR"), the reporting obligation begins in 2025;
• As of 1 January 2025: large entities which are currently not subject to NFRD (an entity is considered to be large if it fulfils at least two of the following three criteria: more than 250 employees, revenue of more than EUR 40m and balance sheet total of more than EUR 20m), the reporting obligation begins in 2026; and
• As of 1 January 2026: listed SMEs and certain other entities, the reporting obligation for these begins in 2027, whereby SMEs can have themselves exempted from this obligation by 2028.

In addition, there will be reporting obligations for non-European entities if they achieve a net revenue of more than EUR 150m in the EU and if they have at least one branch or subsidiary in the EU.

What Does Reporting Include?

The report is supplemented by the chapter Corporate Sustainability Reporting which has to be created in a consistent electronic format in accordance with the ESEF Regulation (European Single Electronic Format).

The CSRD distinguishes between information covered by Corporate Sustainability Reporting and standards for reporting.
The former includes pursuant to the new Art. 19 a (2) of the amended Directive 2013/34/EU:

"A) a brief description of the business model and strategy of the company, including information i) on the resilience of the business model and strategy of the company with regard to sustainability aspects; ii) on the opportunities of the company in connection with sustainability aspects; iii) on the way in which the company intends to ensure that its business model and its strategy are compatible with the transition to a sustainable economy and limiting global warming to 1.5 °C in accordance with the Paris Convention; iv) on the way in which the company takes account of the interests of its stakeholders and the impact relevant to sustainability of its activities in its business model and strategy; DE 52 DE v) on the way in which the strategy of the company is implemented with regard to sustainability aspects;

B) a description of the sustainability goals which the company has set itself and the progress it has made in order to achieve these goals;

C) a description of the role of the administrative, management and supervisory bodies in connection with sustainability aspects;

D) a description of the sustainability policies of the company;

E) a description i) of the due diligence process implemented with a view to sustainability aspects; ii) of the most important actual or potential negative effects which are associated with the value chain of the company, including its own business activities, its products and services, its business relationships, and its supply chain; iii) of any measures aiming to prevent, reduce or remedy actual or potential negative effects and of the success of these measures;

F) a description of the most important risks to which the company is exposed in connection with sustainability aspects, including the most important dependencies in this area and the way in which it manages these risks;

G) indicators which are relevant for the disclosures referred to in para-graphs a to f."

Furthermore, information on intangible assets should be provided, including details on intellectual capital, human capital, social capital, and relational capital.

The information has to include forward-looking and retrospective as well as qualitative and quantitative information, "where appropriate" also information on the value chain of the company, including information on its own activities, products and services, its business relationships, and its supply chain. As regards all information it is laid down that the companies also have to communicate the procedure for determining the information and have to take into account short-, medium- and long-term time horizons in the framework of this procedure.

In this context, the new Art. 19 c of the amended Directive 2013/34/EU stipulates that the standards should determine what information has to be reported by SMEs.

The Commission adopts standards which specify the information which companies have to provide on environmental, social and governance factors. In this context, accurately defined key figures are queried in order to ensure the comparability of the information.

Control and Publication

• The Corporate Sustainability Reporting will be subject to an external examination of the contents. This examination occurs from the first reporting year. The examination may also be carried out by the auditor. Details for the coming years have not yet been determined.
• The sustainability report has to be disclosed.

Practical Tips

• Every company should clarify whether and to what extent it is affected by the CSRD.
• The developments concerning the standards have to be followed actively.
• Compliance with the sustainability requirements in the business year before the first reporting is decisive, not the year of the first reporting;
• Budgets for personnel planning or external service providers as well as the procurement of the software required for the reporting obligations have to be planned in due time.

We will be happy to support you with any questions you may have related to the CSRD.

Insa Cornelia Müller

In the course of the completed transaction, the managing partner Sigrid Schmidt sold her shares. Her long-time co-managing director Heribert Rottler continues to hold an interest in the company and remains managing director. The purchaser will, in addition to capital, bring extensive know-how for further growth into the partnership. The parties agreed not to disclose the transaction volume.

Schmidt + Bartl GmbH ("S&B") was founded in Villingen-Schwenningen, Germany in 1985 and has been dedicated in the distribution of semi-finished plastic products, plastic piping systems and elastomers for almost 30 years. Furthermore, S&B has been active in the production of small volume technical plastic and elastomer parts for more than 15 years. The company generates an annual revenue of more than EUR 20m.

Together with VR Equitypartner and UnternehmensGut, the (partial) succession is supposed to be ensured and the successful growth strategy continued. In addition to broadening the customer base from the chemical industry, food technology, renewable energies, pharmaceutical industry, mechanical engineering, medical and cleanroom technology and semiconductor technology, also the range of products and production capacity is to be further expanded.

Advisors to Schmidt + Bartl GmbH:
ADVANT Beiten: Dr Barbara Mayer (Freiburg), Christian Burmeister (Freiburg/Berlin), Simon Schuler (Freiburg, alle Corporate / M&A).

Dr Barbara Mayer joined ADVANT Beiten in summer - together with a large team of renowned corporate/M&A experts led by Gerhard Manz and Dr Jan Barth - and opened the firm’s new office in Freiburg, Germany.

At the most recent practice group meeting, the firm’s corporate partners set the course for the future. After a successful year in 2022, Mayer and Vogel will deepen the cooperation across locations and practice groups, while Dr von Wistinghausen will push international cooperation and joint client acquisition at an ADVANT level.

"I’ve been impressed by what I’ve experienced at ADVANT Beiten over the last few months. Cooperation between colleagues, both nationally and internationally, is great. Everyone is highly motivated; it's a pleasure to become more involved and vigorously advance the practice group," explains Dr Mayer.

Prof. Vogel adds: "I’m looking forward to continuing the work with Barbara Mayer that I had the pleasure of starting with Christian von Wistinghausen. Thanks to her many years of experience as managing partner of another German law firm, Barbara brings new ideas and perspectives to the table. We are confident that we will make the practice group even more powerful and successful in 2023."

ADVANT brings together 110 professionals in a joint M&A Practice and 156 professionals in a joint Corporate & Commercial practice. On an international level, ADVANT practice groups operate jointly and are led by coordinators from the national practice groups in Germany, France and Italy.

Dr Kathrin Bürger, Dr Silke Dulle, Christina Kamppeter, Susanne Klein, Dr Ralf Hafner, Dr Georg Tolksdorf and Dr Sebastian Weller represent five different legal areas and are spread across five locations.

• Dr Kathrin Bürger (Labour Law, Frankfurt and München), Licensed Specialist for Labour Law, advises particularly on collective labour law issues. She assists companies with collective bargaining changes and (in-house) collective bargaining negotiations as well as strike preparation measures. Beyond that, Dr Bürger advises companies on the negotiation with works councils, also as a part of conciliation boards, as well as on all kinds of individual labour law issues.
• Dr Silke Dulle (Corporate/M&A, Berlin), Licensed Specialist for Medical Law, provides legal advice to clients of the healthcare sector, especially in the area of hospitals and health insurance companies. Her legal consultancy covers hospital law, social security and pharmaceutical law, procurement law and corporate law.
• Christina Kamppeter (Labour Law, Munich), Licensed Specialist for Labour Law, advises national and international companies on all aspects of individual and collective labour law, in particular regarding negotiations with works councils and trade unions. One focus of her work is on providing labour law advice on restructurings.
• Susanne Klein (IP/IT/Media, Frankfurt), Licensed Specialist for Information Technology Law, is a renowned expert in data protection law. In addition, she advises her national and international clients in IT and copyright law.
• Dr Ralf Hafner (Litigation & Dispute Resolution, Munich), advises his national and international clients in complex international disputes on dispute resolution out of court and represents them in arbitration and state court proceedings.
• Dr Georg Tolksdorf (Assets/Succession/Foundations, Hamburg) provides legal advice in the area of inheritance and foundation law as well as (tax-optimized) succession planning for private individuals and (family-owned) companies. Another focus of his work is on the execution of (corporate) wills.
• Dr Sebastian Weller (Corporate/M&A, Dusseldorf) focuses on Corporate/M&A as well as Private Equity/Venture Capital, particularly providing legal advice for take-overs, participations and restructuring projects. He provides support on all issues relating to corporate and transformation law as well as corporate compliance.

In addition to the seven new Equity Partners, the following Salary Partners have been appointed Local Partners:

• Dr Anne Dziuba, Labour Law, Munich
• Dr Daniel Fischer, Real Estate, Frankfurt
• Dr Christina Hackbarth, IP/IT/Media, Munich
• Christian Hipp, Antitrust Law, Berlin
• Tanja Hogh Holub, IP/IT/Media, Munich
• Sylvia Jenoh, Tax, Frankfurt
• Dr Klaus Kemen, Real Estate, Berlin
• Dr Markus Ley, Corporate/M&A, Berlin
• Jörn Manhart, Labour Law, Dusseldorf
• Carsten Pütger, Corporate/M&A, Dusseldorf
• Dr Jochen Reuter, Real Estate, Frankfurt
• Dr Winfried Richardt, Corporate/M&A, Dusseldorf
• Dr Florian Weichselgärtner, Dispute Resolution, Munich
• Mathias Zimmer-Goertz, IP/IT/Media, Dusseldorf

Furthermore, the following colleagues successfully continue their career path and have been appointed from  Senior Associates to Salary Partners:

• Annalena Benz, Real Estate, Munich
• Jens Ledermann, Tax, Frankfurt
• Dr Martina Schlamp, Labour Law, Munich

Beyond growth from its own ranks, ADVANT Beiten also continues its course of targeted growth with lateral hires in selected areas and confirms the salary partnership of the following colleagues:

• Christian Burmeister, Corporate/M&A, Freiburg/Berlin
• Dr Moritz Jenne, Corporate/M&A, Freiburg
• Dr Sebastian Kroll, Labour Law, Munich
• Markus P. Linnartz, Tax, Dusseldorf
• Dr Ariane Loof, Labour Law, Berlin
• Dr Michael Matthiessen, Labour Law, Berlin
• Dr Birgit Münchbach, Corporate/M&A, Freiburg
• Kristin Müller-Nedebock, Tax, Hamburg

"All seniority levels are of central importance for the future of our law firm. We are therefore all the more pleased to be able to accompany so many colleagues of different seniority levels, legal areas and locations on their career paths, comments Philipp Cotta, Managing Partner of ADVANT Beiten, and adds: Our modified career track offers all colleagues even more flexibility in their individual career planning and allows us to emphasise our professional expertise across the different levels even more clearly to our clients."

Congratulations to all elected and confirmed partners.

The Kupferzell battery storage facility is the first of the so-called "grid booster" projects with which the German transmission grid operators intend to counteract overloads in the transmission grid to ensure a stable and permanent power supply.

Advisor to TransnetBW GmbH:
ADVANT Beiten: Dr Christian Ulrich Wolf (Project Agreements, Hamburg); Stephan Rechten; Max Stanko (both Procurement Law, both Berlin); Maren Dedert (Project Agreements, Hamburg) and Sebastian Berg (Energy Law, Berlin).

Inhouse Legal: Sonja Köhler; Dr Uwe-Michael Voigt; Dr Sascha Pelka

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

Dr Christian Ulrich Wolf
Lawyer 
ADVANT Beiten
+49 (40) 68 87 45 - 124
ChristianUlrich.Wolf@advant-beiten.com

The transaction is structured as a share deal whereby Aurelius will acquire the specific legal entities, i.e. Sappi Stockstadt GmbH, Sappi Maastricht Real Estate B.V. (including its subsidiary Sappi Maastricht B.V.), Sappi Finland I Oy and Sappi Finland Operations Oy, which own and control the assets and liabilities of the individual mills.

The enterprise value of the transaction amounts to approximately EUR 272 million and the consideration consists of cash proceeds and retained receivables as well as retained liabilities. The transaction is expected to close in Q1 2023, subject to various standard suspensive conditions.

Sappi is a global leader in dissolving pulp and paper-based solutions, headquartered in Johannesburg, South Africa. It has over 12,000 employees, manufacturing facilities in ten countries spanning over three continents and customers in over 150 countries worldwide.

Advisors to Sappi Limited:

Advant Beiten: Dr Christoph Schmitt (Lead Partner; Banking & Finance) and Dr Markus Ley (Lead Partner, Corporate Law); Dr Mario Weichel and Maximilian Matusewicz (both Corporate Law); Dr Gerald Müller-Machwirth and Maike Pflästerer (both Employment Law); Katrin Lüdtke and Philipp Früh (both Public Law); Anja Fischer (Real Estate); Susanne Klein (IT Law and Data Protection) as well as Christoph Heinrich, Dr Christian Heinichen and Cathleen Laitenberger (all Antitrust and Competition Law).

Stibbe is advising on the Dutch law aspects and Fondia is advising on the Finnish law aspects of the transaction.

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

Markus Ley
Rechtsanwalt
ADVANT Beiten
+49 (89) 35 0 65 - 1211
Markus.Ley@advant-beiten.com

Hedwell, headquartered in Germany, is an international consulting and software development company that supports insurance groups and companies primarily in the financial services industry with their digital and business transformation. Hedwell was founded in Munich in June 2020 and has since opened offices in Serbia, Singapore and India.

SAP Fioneer emerged from SAP, one of the market leaders in company application software, and is also headquartered in Germany, in Walldorf/Baden-Württemberg. With a global network, SAP Fioneer operates in 14 countries in Europe, North and Latin America, the Middle East and the Asia-Pacific region.

RSP advised on the Serbian aspects of the transaction.

Advisors to the Hedwell Group:

ADVANT Beiten: Dr Mario Weichel (lead partner/Corporate M&A/Munich), Dr Markus Ley (Corporate M&A/Munich).

RSP: Saša Stojanović, Nikola Cincović, Đorđe Vićić, Luka Radojević, Živko Kovačević, Irina Petrović.

Media Contact

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

Dr Mario Weichel
Rechtsanwalt
ADVANT Beiten
Tel.: +49 (89) 35065 - 1301
Mail: Mario.Weichel@advant-beiten.com

These amendments will, in particular, reform the current procedure for the transfer of a German limited liability company, a GmbH, to another EU member state. At first glance, this cross-border company conversion will become more complex and difficult. It might therefore be a lucrative option for shareholders of German GmbHs to initiate a cross-border conversion this year, i.e. before the amendments will come into force.

I. Overview of the Essential Amendments

On 6 July 2022, the Federal Cabinet adopted the draft of an Act to Implement the Conversion Directive (UmRUG-RegE). This government draft continues the implementation of the Directive on Cross-Border Conversions, Mergers and Divisions (Company Conversion Directive, UmwRL) as a part of the so-called Company Law Package of the EU. The objective of the Company Conversion Directive is to create uniform regulations for cross-border transformation activities for corporations (limited liability company (GmbH), public limited company (AG), partnership limited by shares (KGaA)) within the EU.

This standardisation of legal requirements is complemented by a comprehensive EU effort to digitally interconnect national commercial registers and enable companies to transfer to other EU countries with legal certainty.

II. Company Conversion of a German Limited Liability Company

The cross-border company conversion means the transfer of a corporation founded under the laws of one EU member state to a legal form under the laws of another EU member state. Figuratively speaking, the corporation takes off its German legal dress and exchanges it for that of another EU member state.

One form of cross-border conversion that we frequently assist with is the transformation of a German GmbH into a Dutch B.V. (Besloten vennootschap met beperkte aansprakelijkheid) or into a Luxembourg S.à r.l. (Société à responsabilité limitée).

The adaptation of the regulations in the EU is accompanied by a number of innovations for this cross-border conversion, involving more steps and a more complex procedure. Due to the additional submission and waiting periods we expect that the cross-border conversion of a German GmbH to another European country will take longer in the future.

The now codified procedure consists of two steps. Once the prerequisites for the conversion in Germany have been met, the company must be registered in its new legal form in the register of the destination state in compliance with the relevant foundation regulations.

1. Conversion Report

Once the shareholders have decided on a cross-border company conversion, the management must first prepare a Conversion Report. This Conversion Report must illustrate the economic and legal effects of the cross-border company conversion for the GmbH, the shareholders and the employees. In particular, the management must describe the effects of the cross-border conversion on the future business activities of the company and its subsidiaries, if any. In case the GmbH has multiple shareholders, the report further must explain how the company conversion affects the shareholders' legal positions.

The Conversion Report must be made available to the shareholders electronically six weeks prior to the resolution on the conversion.

2. Conversion Plan

In the future, the management will additionally have to draw up a Conversion Plan. The Conversion Plan constitutes the core of the cross-border conversion and contains its key points. These are, in addition to the company name and the registered office of the new legal form, an indicative timetable for the cross-border conversion.

The Conversion Plan must be notarially recorded one month prior to the resolution of consent by the shareholders and subsequently be submitted to the registration court with a request for publication. Only in a second step, upon expiry of the month, shareholders may approve the Conversion Plan in a shareholders' meeting.

3. Examination Report

If the GmbH has more than one shareholder, in the future also a Conversion Examination must be performed. Previously, such an examination was only required in the case of mergers. The examination must be carried out by one or more experts, checking the information in the Conversion Plan for completeness and correctness.

After the examination, the conversion examiners will prepare an Examination Report. Also, the Examination Report must be made available to the shareholders one month before the shareholders' meeting.

If the GmbH has multiple shareholders and these do not waive the Conversion Examination in a notarially recorded form, this requirement may delay the cross-border conversion consid-erably.

4. Conversion Resolution

Once the Conversion Plan, the Conversion Report and, if necessary, the Examination Report have been made available to the shareholders meeting the respective deadlines the shareholders vote in a notarially recorded shareholders' meeting on the cross-border conversion. A qualified majority of 75% of the votes cast must be in favour of the cross-border company conversion.

Then the management of the company must register the resolved conversion with the commercial register and apply for the issuance of a so-called Conversion Certificate.

5. Examination by the Registration Court

Another important change regarding the cross-border company conversion is the now required verification of lawfulness by the registration court. In the future, the registration court will examine all the procedural steps and formalities described above. Only after completion of the examination will the registration court issue the Conversion Certificate. It certifies that all relevant requirements have been met in Germany. The Conversion Certificate is required for the registration of the company in the destination state. The German registration court transmits the Conversion Certificate electronically to the competent register in the destination state.

In the future, in addition to checking the documents, the registration court will also carry out a check for abusive practices. If there are any indications, the court will examine whether the cross-border conversion is planned for abusive or fraudulent purposes.
The examination by the registration court can lead to considerable delays in the conversion. Although the Act provides for an examination period of three months, it remains to be seen whether the registration courts will reach the limits of their capacity in view of the newly introduced procedures for cross-border conversions, mergers and divisions.

6. Blockade by Creditors

The reform of the German Transformation Act also legally regulates that, in the future, creditors of the GmbH can interrupt the registration of the cross-border conversion by filing an action for a security provision. Thus, creditors who can credibly demonstrate that they are entitled to a claim against the GmbH which arose prior to the publication of the conversion, and which has become due after the publication, can prevent the cross-border conversion, if the conversion endangers the settlement of the outstanding claim. Creditors must assert their claim for security in court within three months of the publication of the conversion by the registration court.

7. Relocation to the Member State

The new registration of the company can then be filed with the competent register of the destination state. In addition to observing the formation provisions of the respective destination state, the company will have to submit the Conversion Certificate issued by the German registration court to the register of the destination state. In this respect, the register of the destination state is bound by the findings of the Conversion Certificate. This will simplify and accelerate the entry of the company in the register of the destination state in the future. The cross-border conversion becomes effective upon entry in the register of the destination state.

Once the company is registered in the destination state, the register of the destination state will notify the German commercial register of the entry so that the German register can delete the company from the German commercial register with reference to the conversion.

8. Transitional Arrangements

The government draft of the Act to Implement the Conversion Directive (UmRUG-RegE) provides for a transitional period for cross-border conversions that were resolved by the company before 31 January 2023 and filed with the registration court before 31 December 2023. During this transitional period, the cross-border conversion is still possible in accordance with the former legal provisions.

9. Conclusion

Thus, in the future there will be legal certainty for the shareholders and the registration courts for cross-border conversions. This is welcome, as the procedure for cross-border conversions currently depends to a large extent on how the respective registration courts apply the rules in practice.

The downside of the ensuing legal certainty in the European Economic Area is the expected prolongation of the procedure. This can be combined with higher costs for the company due to growing expenses.

III. Outlook

The Conversion Directive is to be transposed into national law by 31 January 2023.

IV. Last Chance for a quick Cross-border Company Conversion?

The welcome harmonisation of European conversion law reforms the current legal situation in Germany. However, due to the increased complexity and the newly introduced procedural steps, cross-border conversions will take longer once the amendments come into force, especially in the first period after the amendment.

To avoid application of the amendments to the Act regarding a cross-border conversions, it may be advisable to initiate the cross-border conversion this year so that the conversion can be completed in accordance with the current legal situation.

We will be pleased to advise you on whether it is reasonable for your GmbH to convert to another European country before the end of the year.

Felix Busold and Volker Szpak

Both objects are in central locations and are leased to German grocery retailer REWE on a long-term basis.

Glenrock International Limited is a Guernsey-based real estate investment business that focuses on property investments in Europe. Glenrock has been investing in commercial, industrial, and retail properties in Europe since 2014, partnering with institutions, high-net-worth individuals, and family offices.

Volker Szpak has been providing legal and tax advice to Glenrock International's German real estate portfolio since 2014, and already provided legal and tax advice on the purchase of the two grocery retail markets back in 2015.

Adviser to Glenrock International:
ADVANT Beiten: Volker Szpak (Corporate / M&A and Tax).

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

Volker Szpak
Lawyer and Tax Advisor
ADVANT Beiten
+49 69 756095-471
Volker.Szpak@advant-beiten.com

Possibility of online formation through the Digitalisation Directive

Until now, anyone wishing to establish a GmbH in Germany had to visit a notary in person. However, in times when video conferences have become indispensable to businesses, why should it not be possible to meet with a notary online? The so-called Digitalisation Directive (EU Directive 2019/1151) required all EU member states to allow for the online formation of corporations by 1 August 2022. The corresponding German implementation act was already passed in 2021 ("DiRUG") and has now entered into force.

Accordingly, companies and founders can establish a limited liability company (GmbH) or the entrepreneurial company with limited liability (Unternehmergesellschaft (UG (haf-tungsbeschränkt))), popular among start-ups, conveniently from their offices or home since 1 August 2022. The first online foundation occurred on 1 August 2022 (Bundesnotarkammer erste Onlinegründung).

Virtual involvement of the notary

Nonetheless, it is still not possible to protect the founders and legal transactions from identity fraud and money laundering without involving a notary. However, notarisation can now take place virtually, using a specially secured video communication system provided by the Federal Chamber of Notaries. All necessary declarations of intent can be notarised via this video communication system.

To identify involved individuals, the notary first reads out the data from an electronic means of identification using the notary app. For German citizens, this is the ID card with the so-called eID function (all ID cards issued since 2017 have this online ID card function, which must, however, be activated once beforehand by the holder of the ID card). This satisfies the requirement of the signature of all shareholders under section 2 (1) sentence 2 of the German Limited Liability Companies Act (GmbHG). Subsequently, the notary compares the photo with the video image of the persons involved, advises the founders – as before – on the drafting of the articles of association, and checks their legal capacity or powers of representation. Finally, all involved persons sign the contract with a qualified electronic signature. For this purpose, all involved individuals receive an SMS-TAN to confirm their signature. Following the notarization of the electronic signature, the notary electronically sends the document to the registry court for registration. As soon as the entry in the register has been made and checked by the notary, all will immediately be informed about the successful completion of the procedure.

Consequently, an online formation requires (1) a PC or tablet with internet access and webcam/microphone, (2) a smartphone with the notary app, and (3) an identity card with an eID function. An explanatory video by the Federal Chamber of Notaries can be found here: Onlineverfahren Notar.

Incidentally, the founders are not free to choose their "online notary" but must choose a notary in whose official sphere, for instance, the future registered office or the (residential) seat of a partner is located.

Prospects and classification

The implementation act DiRUG currently only permits the online formation of a GmbH as a cash formation. The DiREG (Act Supplementing the Regulations for the Implementation of the Digitalisation Directive and Amending Other Provisions of 15 July 2022) will extend this option to non-cash formations as of 1 August 2023. Exceptionally, non-cash for-mations involving the contribution of objects whose transfer is itself subject to notarisa-tion (e.g. real property or shares in a limited liability company) will continue to be excluded from this online procedure.

Accordingly, shareholder resolutions amending the articles of association, including capital measures (increase and reduction of the share capital), can be made by way of online communication with a notary, provided they are unanimous (due to section 53 (3) sentence 2 GmbHG) starting 1 August 2023.

Since 1 August 2022, the notarial certification of register applications using video communication has also been possible online in the same way for sole traders and corporations. DiREG extends this possibility to all legal entities. Moreover, applications to the register of partnerships, cooperatives, and associations can also be established online with a notary.

Dr Barbara Mayer

This article was already published in Haufe Wirtschaftsrechtsnewsletter.

ENVIRIA is an innovative all-in-one provider, offering modern PV plants installed on commercial rooftops and on large open spaces. In 2021, ENVIRIA was awarded the Hessian Founders' Award.

The ADVANT Beiten team headed by Partner Dr Christof Aha regularly advises innovative developers of renewable energy projects on project developments, joint ventures as well as project purchases and sales.

Advisor ENVIRIA:
ADVANT Beiten: Dr. Christof Aha, Mark Thönißen, Felix Busold, LL.M (all Corporate/M&A, Frankfurt am Main) - together with Andreas Bodensohn, Capcora, als M&A advisor.
Inhouse: Sindy Küllig

Advisor Q ENERGY:
Eversheds Sutherland: Dr. Martin Weitenberg, Joel-Fiete Feld
Inhouse: Christoph Jourdan

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

Dr. Christof Aha
Rechtsanwalt
ADVANT Beiten
+49 (69) 75 60 95 - 451
christof.aha@advant-beiten.com

The ADVANT Beiten team around lead partner Dr Sebastian Weller provided full support for the complex transaction across practice groups and offices: from the preparation and structuring of the transaction (including due diligence), to the negotiation, implementation and closing of the transaction including antitrust notification.

Medline is a leading global healthcare company that manufactures and distributes high-quality medical and surgical products. Medline Europe was founded in 2011 and operates branches, as well as production and distribution centres throughout Europe.

Asid Bonz is a leading supplier to clinics and hospitals in Germany, offering high-quality products for surgery, anaesthesia, ward care and urology. Asid Bonz was founded in 1811 and is known worldwide for having developed the first anaesthetic ether. In 2021, Asid Bonz achieved a turnover of more than 30 million euros and supplied more than 1,100 hospitals in Germany.

With similar business models and excellent customer service, the two companies are an excellent strategic fit. In the future, Medline will make the Asid Bonz brand available to its broad European customer base outside of Germany. Within Germany, Asid Bonz sales representatives will have access to selected Medline products to further expand their partnership with customers.

Advisor to Medline International B.V.:
ADVANT Beiten: Dr Sebastian Weller (Corporate/M&A, in charge), Nico Frielinghaus (Corporate/M&A), Dr Tassilo Klesen (Corporate/Commercial), Markus Schönherr (Corporate/M&aA), Dr Patrick Hübner (Investment Control), Peter Weck (Labour Law), Dr Andrea Pomana (Antitrust), Christoph Heinrich (Antitrust), Marco Mirceta (Antitrust), Mathias Zimmer-Goertz (IP), Christian Döpke (Data Protection), Dr Marion Frotscher (Tax), Simon Bauer (Tax), Katrin Lüdtke (Public Law), Sascha Opheys (Subsidies).

Advisor to Medi-Globe Europe:
White & Case: Dr Stefan Koch, lead partner

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

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

Dr Barbara Mayer, awarded "Leading Consultant in Baden-Wuerttemberg" by the industry magazine JUVE, and Dr Jan Barth join ADVANT Beiten as Equity Partners. Gerhard Manz, also a "Leading Advisor in BadenWuerttemberg" comes as Of Counsel.

In total, the team setting up the Freiburg office consists of ten professionals of various seniority levels, the former Head of BD & Marketing of FGvW and Support Staff. The team has notable strength in the area of Corporate / M&A and is an excellent addition to ADVANT Beiten's existing practice group. In particular, their longstanding experience in cross-border transactions and in corporate law advice fit perfectly into the strategy of ADVANT.

In the medium term, the office is to be expanded into a full-service unit including labour law and IP.

"Our strength in Corporate / M&A represents a perfect strategic fit", explains Dr Barbara Mayer and adds: "On a national level, the Lake Constance region in particular offers considerable growth potential, which we would like to exploit together with ADVANT Beiten's Munich and Frankfurt offices. And we see a very interesting perspective in the joint expansion of the international ADVANT alliance."

Philipp Cotta, Managing Partner of ADVANT Beiten, comments: "Baden-Wuerttemberg has been part of our growth strategy for some time now. We are all the more pleased to have gained a team with excellent professional quality and outstanding reputation in Dr Barbara Mayer, Dr Jan Barth and Gerhard Manz. Thus, we are starting out with a leading market position in the highly attractive economic region in the southwest."

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

Philipp Cotta
Managing Partner
ADVANT Beiten
+49 (89) 35065 - 1342
Philipp.Cotta@advant-beiten.com

• Kamil Karibov (Group III, Land Law/Commercial Real Estate/Construction)
• Bilgeis Mamedova (Group III, Land Law/Commercial Real Estate/Construction)
• Falk Tischendorf (Group III, Land Law/Commercial Real Estate/Construction; Group IV, Corporate Law/Mergers & Acquisitions (Mid Market))

For reference: The Pravo.ru-300 rating has been studying the Russian legal services market for 12 years. It is an acknowledged reference point for the level and professionalism of the legal services market. The basis for the research are, first and foremost, projects implemented in the years under consideration, client feedback, and the value for money ratio

More detailed information can be found by clicking here.

Our partners Dr Andreas Lober (Media/Entertainment), Dr Wolfgang Lipinski (Labour Law) and Dr Gerrit Ponath (Private Clients and Nonprofit Sector) are listed as leading names in their respective legal areas. Wojtek Ropel (Media/Entertainment) and Katharina Fink (Private Clients and Nonprofit Sector) are among the names of the next generation. In addition, numerous lawyers are on the list of recommendations for the various legal areas.

Legal areas/practice areas in the ranking:

Labour Law, Corporate Law and M&A (medium-sized deals), Industrial Property (Trademark Law and Competition Law), Real Estate and Building Law (Real Estate Law and Project Development), Information Technology (Data Protection and IT/Digitalisation), Media (Gaming, Entertainment, Press Law and Publication Law), Private Clients and Nonprofit Sector, Public Law (Planning and Environmental Law, Public Procurement Law, State Aid Law).

Congratulations to the practice groups and industry groups and to our recommended lawyers.

Background:
The Legal 500 has been published for 35 years and is an independent guidebook. Law firms and lawyers are recommended exclusively on the basis of their performance. In-house lawyers are given a comprehensive overview of around 400 commercial law firms and 2700 lawyers in Germany. The analysis covers 23 practice areas and 90 rankings. As part of the research of The Legal 500 Deutschland, hundreds of interviews are conducted with lawyers and more than 23,000 clients are surveyed.

ADVANT Beiten has originally advised Paca Puratos on the acquisition of shares and on a planned investment of/in frizle fresh foods beraten. In the course of the transaction, however, frizle fresh foods AG, which specialises in innovative food products, had to file for insolvency. The ADVANT Beiten team around lead partner Prof. Dr. Hans-Josef Vogel subsequently changed strategy and advised their client on the acquisition of the full business operations from the insolvency administrator.

Fresh spaetzle dough in a bag - the founders of frizle fresh foods launched this business idea in 2015. Even though it failed to land a deal in the well-known TV series "Die Höhle der Löwen", the start-up received a lot of media attention and was quickly representedin many retail chains with its product. This was followed by a number of other fresh, liquid doughs and products that were not yet established in the German market.

PACA, founded in 1934, is leading the Israeli fresh yeast market for more than 40 years. Owner of “Shimrit” a famous Israeli baking goods brand, well known for successful commercial products such as fresh yeast, yeast flours, margarine, naturina, fresh pastry dough bases and fresh batters. PACA is co-owned by Puratos and the Sommerfeld Family. With the acquisition of frizle fresh foods, the company expands its product portfolio of innovative food products and continues their business operations.

Advisors to Paca Puratos:
ADVANT Beiten: Prof. Dr Hans-Josef Vogel (Head, Corporate/M&A), Wilken Beckering (Insolvenzy Law), Dr Winfried Richardt (Corporate/M&A), Mathias Zimmer-Goertz, Christian Döpke (both IP), Thomas Herten (Real Estate), Doreen Methfessel and PeterWeck (both Labour Law, all Dusseldorf).

Insolvency Administrator frizle fresh foods:
Law Firm Rochade Anwälte (Mannheim)

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

Prof. Dr Hans-Josef Vogel 
Lawyer
ADVANT Beiten
+49 (211) 51 89 89 - 0
Hans-Josef.Vogel@advant-beiten.com

Founded in 2014, the Berlin-based start-up JUNIQE specialises in prints and posters by artists and is excellently positioned in the market. Since its foundation, JUNIQE has received more than 20 million euros in capital from shareholders, including well-known names such as Vorwerk Ventures, High-Tech Gründerfonds and the Cewe Foundation. The founders of JUNIQE leave the operational management but remain closely associated with the company in an advisory capacity. The JUNIQE location in Berlin and the brand will be retained. The number of MYPOSTER employees increases by 70 to 350 with the takeover.

MYPOSTER was founded in 2011 and has experienced rapid growth in recent years. The MYPOSTER group includes the brands myposter, Kartenliebe, ArtPhotoLimited and its own production company Printhouse. The takeover of JUNIQE is MYPOSTER's largest acquisition to date and represents a milestone for the company. MYPOSTER will further develop JUNIQE's business model strategically and innovatively and thus expand it into an even stronger provider in European e-commerce.

Advisors to MYPOSTER:
ADVANT Beiten: Dr Sebastian Weller (in charge, Corporate/M&A/Venture Capital, Dusseldorf), Dr Martin Rappert, Dr Julia Offermanns, Nico Frielinghaus, Dr Winfried Richardt, Markus Schönherr (all Corporate/M&A, alle Dusseldorf), Tassilo Klesen (Corporate/Commercial, Berlin), Wilken Beckering (Corporate/Commercial, Dusseldorf), Lelu Li (Commercial, Berlin), Thomas Herten (Real Estate, Dusseldorf), Peter Weck (Labour Law, Dusseldorf), Christoph Heinrich (Antitrust, Munich), Mathias Zimmer-Goertz (IP, Dusseldorf), Christian Döpke (Data protection, Dusseldorf), Helmut König (Tax, Dusseldorf), Jan Christian Mohrmann (Tax, Frankfurt), Dennis Grimmer, Vivienne Sulek (both Financial Due Diligence, both Dusseldorf).

Advisors to JUNIQE: Osborne Clarke (Nicolas Gabrysch, Alexandra Nautsch)

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

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

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

The new regulations mainly affect the B2C area but also have effects on the B2B area. As a result, contracts, terms and conditions and processes must be adapted to the new regulations.

The most important changes due to the implementation of the Directive 2019/771 are briefly summarized below:

1. New requirements for the conformity of goods, sec. 434 German Civil Code (BGB)
According to the new definition of material defect, goods are considered as free of material defects if they comply with the subjective requirements, the objective requirements, and the assembly requirements (including installability) upon transfer of risk. Nevertheless, contractual deviations due to quality agreements are still possible. In B2C contracts, however, only if the consumer was explicitly informed before submitting his contract declaration that a certain feature of the product deviates from the objective requirements and the deviation is expressly and separately agreed in the contract. It is therefore not sufficient to include such an agreement in terms and conditions.

2. Changes regarding the subsequent performance claim and in the supplier recourse
Further changes affect the claim for subsequent performance, Sec. 439 German Civil Code (Bürgerliches Gesetzbuch - BGB). Among other things, an obligation to take back the defective product at the seller's expense is included in the event of subsequent delivery.
At the same time, the regulations on supplier recourse were expanded to include the reimbursement of these take-back costs. Furthermore, the supplier's obligation to pay compensation for seller's expenses due to a breach of an update obligation when purchasing goods with digital elements have been added. Finally, the maximum limit of the suspension of expiry of five years since delivery of the product from the supplier to the seller has been abolished (Sec. 445 b (2) German Civil Code (BGB)).

3. Changes in the purchase of consumer goods
Numerous changes can be found in the special regulations for the purchase of consumer goods (Sec. 474 ff. German Civil Code (BGB)). In the future, for example, a consumer is entitled to assert his warranty rights when he was aware of the defect at the conclusion of the contract.

• Withdrawal costs
  In addition, there are some new regulations for the rescission from the purchase of consumer goods. If the customer withdraws due to a defect, the entrepreneur must bear the costs for returning the purchased product. If the consumer proofs that he sent the product back to the purchaser this is already considered as the actual return of the purchased product. In the future, an entrepreneur will therefore not only have to bear the costs of the return but will already have to reimburse the purchase price when the consumer proofs sending back the product.
• Formal requirements
  The new law also introduces special information obligations for the seller in Sec. 476 German Civil Code (BGB). For example, there are new prerequisites for an effective shortening of the limitation period for used items. In the future an explicit notice and a separate agreement with the consumer will be necessary. The same applies to negative quality agreements.
  In the future, increased formal requirements will also apply to guarantee declarations in accordance with Sec. 479 (3) German Civil Code (BGB). Sec. 479 now regulates in detail what content a guarantee declaration must have. Nevertheless, a violation of this regulation does not affect the effectiveness of the guar-antee obligation.
• Reversal of the burden of proof
  There is a change in Sec. 477 German Civil Code (BGB) regarding the previously applicable six-month reversal of the burden of proof in the event of defects. This is now being extended to one year in favor of the consumer. In the future, one year after delivery of the purchased product, a defect is considered as already having existed when the purchased product was handed over. It is to be expected that this change will lead to an increased number of warranty cases in the future.

4. New B2C regulations for products with digital elements and digital products
Extensive new regulations can also be found in the sale of products with digital elements (Sec. 475b et seq. German Civil Code (BGB)) and consumer contracts for digital products (digital content and digital services) (Sec. 327 et seq. German Civil Code (BGB)). In this area, there are new obligations to provide updates and to inform the customer about the availability of such updates.

5. Recommendation
In the next weeks, every company should review contracts, terms and conditions and processes and, if necessary, adapt them to the new regulations. The first thing to do is to check which products are distributed and to whom they are distributed. In the B2C area, additionally the regulations of Sec. 474 et seq. German Civil Code (BGB) apply, which for example contain special information obligations (Sec. 476 German Civil Code (BGB)). As far as digital elements are provided the special regulations of Sec. 475b et seq. German Civil Code (BGB) apply in the B2C area additionally. If digital content or services are provided, the applicability of the new Sec. 327 et seq. German Civil Code (BGB) must be considered. When revising general terms and conditions, special attention should be paid to the adaptation of regulations on warranty law. In the context of the adaptation of processes, the new information obligations of Sec.476 German Civil Code (BGB) must be observed.

Dr Julia Offermanns

MOBILIZE Power Solutions accelerates the electrification of mobility. The cooperation with GP JOULE CONNECT aims to increase the offer of turnkey charging solutions in Germany, Austria and Switzerland - especially for commercial fleet operators. Under the company name Elto DACH GmbH, the newly founded joint venture based in Hamburg will implement joint projects of the partners in Germany, Austria and Switzerland.

GP JOULE CONNECT, a member of the GP JOULE Group, is a leading systems house for new mobility based on renewable energies, registered in the German state of Schleswig-Holstein.

Advisors to Renault MOBILIZE / Elto Holding:
ADVANT Beiten: Tassilo Klesen (lead partner), Dr Christian von Wistinghausen and Dr Patrick Hübner (all Corporate/M&A, Berlin).

Advisors to GP JOULE CONNECT:
Dr Torsten Rosenboom and Nicolas Persch (Watson Farley Williams)

Media Contact

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

Tassilo Klesen
Rechtsanwalt
ADVANT Beiten
+49 (30) - 2 64 71 - 351
tassilo.klesen@advant-beiten.com

Ferronordic intends to expand its service network in Germany and has been continuously advised by ADVANT Beiten on German M&A transactions since entering the German market (2019/2020), most recently on the acquisition of Thomas Nutzfahrzeuge GmbH in Limburg a.d. Lahn and TCR Truck Center Rhön GmbH in Künzell (Fulda). With the acquisition of Truckservice Bergstraße, Ferronordic gains another strategic position in an important part of Hesse.

Truckservice Bergstraße GmbH & Co KG operates a workshop for service and repairs of Volvo and Renault trucks. In addition, the company also operates a smaller business for truck rental and the sale of used trucks. Truckservice Bergstraße is also a service partner for Volvo Penta. The workshop is conveniently located in Lorsch, Hesse, 60 km south of Frankfurt.

Advisor Ferronordic:

ADVANT Beiten: Tassilo Klesen (in charge), Dr Patrick Alois Hübner, Lelu Li (all Corporate/M&A), Robin Maletz (Real Estate, all Berlin).

Contact

Tassilo Klesen
Rechtsanwalt
ADVANT Beiten
Tel.: +49 (30) 26471-351
E-Mail: Tassilo.Klesen@advant-beiten.com

1. Who does the MoPeG affect?

The changes to the law will impact tens of thousands of partnerships of varying scopes, but many are not able to immediately understand what effects the changes will have for them. While the legal framework for partnerships under civil law has remained mostly unchanged since 1900, there have been some fundamental changes over the years to its classification, how it is understood but also its use in conducting legal transactions. Originally, the partnership was nothing more than an exclusive contractual obligation between the partners and a partnership did not have its own assets separate from those of the partners. More than 100 years later, the German Federal Court of Justice (Bundesgerichtshof) recognised the legal capacity of partnerships under civil law to participate in legal transactions, even though partnerships under civil law are not legal persons.

The partnership under civil law has been used in various ways. Some partnerships are formed when the partners agree to achieve a common purpose, but are not involved in any legal transactions vis-à-vis third parties. Other partners limit the use to the holding of assets, especially real estate or shares. Other partnerships under civil law conduct professional or business activities, without being a commercial partnership (such as OHG, KG, GmbH & Co. KG, and similar forms). This variety is possible because the law has always been largely negotiable. facilitating individual tailoring of the partnership and the relationship between the partners. Without wanting to lose this flexibility, the core statutory provisions applicable to partnerships under civil law - §§ 705 et seq. of the German Civil Code (Bürgerliches Gesetzbuch, BGB) - have been rewritten. This rewrite raises the question of when which provisions of the partnership agreement should be adjusted in order to comply with the statutory provisions of the new §§ 705 et seq. BGB.

This article will not go into detail about the new law or the first disputes; we’ll let other technical articles look at these issues. Instead, this article is designed to provide some information on what the MoPeG is about and what steps must now be taken.

2. What MoPeG is about

A COMPANY REGISTER

A major innovation is the possibility or in some cases obligation to register the civil law partnership in a specially created partnership register (similar to the commercial register for commercial partnerships and stock corporations).

UNDISCLOSED OR DISCLOSED PARTNERSHIP? – LEGAL CAPACITY OR NO LEGAL CAPACITY

Before asking whether and which changes to the partnership agreement must or at least should be made, there needs to be an answer to the fundamental question of whether the partnership under civil law is currently an undisclosed (Innengesellschaft) or disclosed partnership (Aussengesellschaft), what form it will take in the future and, accordingly, whether the partnership should be listed in the new partnerships register that will be established. Registration will be similar to entering commercial partnerships or stock corporations in the respective registers.

In order to put an end to the numerous past difficulties in distinguishing between undisclosed and disclosed partnerships, legislators created a clear rule expressly recognising the legal capacity of partnerships under civil law. The creation of a public register provides partnerships under civil law with an official publication to use as proof of their existence, identity, and the rules applicable to representatives.

For the distinction between partnerships with legal capacity and those without, the question of whether the common stated intention of the partners provides that the partnership should conduct legal affairs will be decisive. The partnership with legal capacity can acquire assets and conduct outward legal transactions in accordance with the new § 705 para. 2 BGB. Consequently, in a partnership with legal capacity, not only can the partners jointly own assets, but the partnership itself may too. The partnership without legal capacity is merely intended as a way to shape a legal relationship between the partners. A partnership without legal capacity may not hold assets.

UNDISCLOSED PARTNERSHIPS DO NOT NEED TO REGISTER

Partnerships that do not currently hold assets, even shares in a limited liability company, and do not conduct outward legal transactions, are not partnerships with legal capacity and therefore do not have to do anything in principle. However, in light of the substantial amendments introduced by the new §§ 705 et seq. BGB, it is also beneficial for such partnerships to consider whether and to what extent, for example, the partnership agreement provisions concerning the retirement of partners, the dissolution of the partnership, or the adoption of resolutions should be amended. The law applicable to partnerships is largely negotiable, as the new law confirms, making it highly likely in many cases that the current partnership agreement can remain as is.

DISCLOSED PARTNERSHIPS REQUIRE REGISTRATION FOR THE LAND REGISTRY OR SHARE REGISTER

The situation is quite different for partnerships that – to whatever extent – conduct legal transactions with third parties and, in particular, hold assets. The latter can include assets such as real estate, company shares, or other assets; however, the criterion is also fulfilled where the partnership provides services, assumes legal obligations, or otherwise presents itself as a partnership to third parties. In the future, these partnerships will be partnerships with legal capacity and can choose to register but are not required to register. However, if the partnership has more than sporadic involvement in legal transactions, it will be almost mandatory for the partnership to be registered. If the partnership (with legal capacity) is to be recorded in the land register as the owner of real estate or as a shareholder in the share register, the registration of the partnership in the new partnership register will be a mandatory requirement. This facilitates the use and information about the owners or shareholders and the partners behind the partnership, and is also a significant further step towards increased transparency in legal transactions and strengthening the fight against money laundering and terrorism financing.

3. Amendments to the partnership agreement? Are there any transition periods?

ENTRY INTO FORCE ON 1 JANUARY 2024 – IS THERE ENOUGH TIME LEFT?

The changes to the rules for partnerships under civil law in §§ 705 et seq. of the BGB will enter into force on 1 January 2024. Is there enough time left?

For both forms of BGB partnerships, regardless of the legal capacity, the question arises whether and to what extent in the future (a) the current rules in the partnership agreement can be maintained, (b) they need to be adapted to the new §§ 705 et seq. BGB that will apply from 1 January 2024, or (c) even whether the new rules offer novel options for structuring the partnership agreement. This question needs careful analysis, and the partners must reach an agreement on the approach. Given the diverse interests and types of partnerships under civil law, a blanket assessment is not possible. The legislator did not establish any notable conditions but instead expressly sought to provide maximum design flexibility.

LEAVE OR DISSOLVE – DOES A DECISION HAVE TO BE MADE BEFORE 1 JANUARY 2024?

The legislator saw a need to legislate given the trust of the partners in the existing statutory dissolution and retirement rules. Many partnerships have not adopted any rules on these issues or the rules they have adopted are insufficient. The MoPeG amends the relevant statutory provisions so that they strongly resemble the provisions in the German Commercial Code (HGB) for general partnerships (OHG) and limited partnerships (KG). However, this should not result in partners unwillingly being confronted with new retirement or dissolution rules that don’t meet their expectations or needs. For this reason, each partner should have the option of maintaining the status quo. According to the transitional rule in Article 47 of the MoPeG, until 31 December 2024, i.e. for a period of 12 months after the MoPeG enters into force, or before one of the grounds arises within this period which would lead to the dissolution of the partnership or the retirement of a partner, each partner shall have the right to unilaterally demand that the partnership continues to apply the current statutory provisions. This demand can be overruled by a partnership resolution.

The partners, therefore, have more than two and a half years to demand that the partnership continue to apply the current statutory provisions for termination, retirement, or dissolution after the entry into force of the MoPeG. If one of the grounds for dissolution or retirement only arises after 31 December 2024, the new rules will apply, i.e. the partnership agreement or, where the partnership agreement does not contain an appropriate provision or the provision is not in line with the new statutory rules, the new statutory provisions will apply. The partners can, however, reject the partner’s demand where they have the necessary majority and partnership resolutions do not need to be unanimous – as is common nowadays. If the partner making the demand does not have a blocking minority, the other partners can outvote him, which would mean that the new rules introduced by the MoPeG would apply to all.

4. Summary

That is why, in addition to reviewing the partnership agreement in light of the new rules, partners should critically assess the termination and dissolution requirements. The focus should be on the possible reasons for dissolution or termination that might not be imaginable today, whether it is removing a partner or a partner terminating the partnership agreement. This will help avoid surprises, especially during separation attempts where there is often a high potential for conflict.

Roland Startz

What is the aim of the TraFinG?

The TraFinG is designed, in particular, to make it possible to network the European transparency registers and thus step up the fight against money laundering and terrorism financing.

How will this aim be achieved?

As the German Transparency Register currently only has to be notified if the information on economic beneficiaries is not available from other German registers (e.g. from the Commercial Register), the German Transparency Register does not have all information on the economic beneficiaries, in particular of stock corporations and partnerships (so-called substituting register).

In order to network the European transparency registers, the German Transparency Register must be transformed into a full register. This is the only way to ensure that all the information on economic beneficiaries will be available in a uniform data format so that it can be retrieved throughout Europe through the transparency registers of all EU Member States.

Which significant amendments does the draft bill introduce?

In order to achieve this aim, the draft bill proposes to delete without replacement the so-called notification fiction, which has meant that many stock corporations and partnerships, in particular, have so far not had to notify their economic beneficiaries to the German Transparency Register. In the future, almost all companies with a registered office in Germany will have to notify their economic beneficiaries to the Transparency Register.
According to the draft bill listed stock corporations (and their subsidiaries) will have to notify to the Transparency Register in the future; these companies are currently exempt from this requirement.

What deadlines must be observed?

According to the draft bill, staggered transitional periods will apply within which those compa-nies, which were not previously required to notify their economic beneficiaries to the German Transparency Register, will now have to make the necessary notifications:

• Stock corporations (AG), partnerships limited by shares (KGaA) and societas europaea (SE) will have until 31 March 2022;

• Limited liability companies (GmbH), cooperatives, European cooperative and partner-ships will have until 30 June 2022;

• All other companies that have an obligation to notify (e.g. GmbH & Co. KG) will have until 31 December 2022.

What obligations will foreign companies have?

The reporting obligation to the German Transparency Register for foreign companies in the event of the acquisition of property located in Germany (asset deal), which has already been in place since 1 January 2020, will now be extended to share deals.

According to the draft bill, foreign companies will also have to notify the German Transparen-cy Register of their economic beneficiaries when they wish to acquire shares in a German company that owns real estate in Germany. Notification will be required wherever the planned share deal triggers the obligation to pay property transfer tax in accordance with § 1 para. 3 of the German Real Estate Transfer Tax Act (GrEStG). Under the current law, this will be the case where at least 95 % of the shares are acquired in a company that holds real property.

Foreign companies will only be exempt from this notification requirement if all information about their economic beneficiaries has already been notified to a transparency register of another EU Member State.

If a foreign company has failed to fulfil its notification requirements prior to the notarisation of the sale and purchase agreement (asset or share deal), the German notary is prohibited from notarizing.

What are the consequences of a breach of the obligations to the Transparency Register?

Failure to fulfil the notification requirements or providing false or incomplete information to the Transparency Register or failing to notify within the required time limits constitute administrative offences. Fines of up to EUR 150,000 can be imposed on companies or their directors for simple infringements, while fines of up to EUR 1 million or twice of the economic benefit of the infringement can be imposed for repeated or systematic infringements.

In addition to fines, since 1 January 2020, binding decisions imposing fines for the infringement of the obligation to notify the Transparency Register will also be published on the website of the Federal Office of Administration (Bundesverwaltungsamt) for five years for anyone to view (naming and shaming). The website specifies the type of infringement as well as the name of the company.

Need for further action and conclusion

The elimination of the so-called notification fiction will mean numerous German companies will have significantly more work. These companies must not only notify their economic beneficiaries to the Transparency Register for the first time, but they must also regularly review the information that has been provided and update it as necessary. This means that companies will need to implement a compliance system (effective internal monitoring and reporting system).

In the future, foreign companies must comply with their reporting obligations to the Transparency Register when acquiring shares in a German company with property in Germany. If they fail to notify the economic beneficiaries to the German or foreign Transparency Register, the German notary will not be able to perform the notarisation. It is therefore advisable to find out more about the requirements to notify the German Transparency Register before any notarisation is to take place.

We will let you know of the final legal text of the TraFinG and its practical effects before it enters into force.


Petra Bolle

Volker Szpak

Contrary to the obligation to file for insolvency, the duty to notify losses under company law has not been suspended due to the COVID-19 pandemic. A managing director who fails to comply with this duty may not only be found liable for the resulting damages but may even be criminally liable.

What does the duty to notify losses under German Company Law mean?

For limited liability companies, the duty to notify losses is established in § 49 para. 3 of the German Limited Liability Companies Act (GmbHG). This requires managing directors to inform the shareholders without undue delay and to convene a meeting of shareholders if half of the share capital has been lost.

What time limits apply to the duty to notify losses under German Company Law?

“Without undue delay” generally does not mean immediately. The managing director should have the possibility of combining the notification of losses with proposals for restructuring or even initiating some measures. There is no rigid deadline. However, in light of § 121 para. 1 German Civil Code (BGB), waiting two weeks to notify the losses and convene a meeting of shareholders will generally not be considered “without undue delay”, unless there are special circumstances.

From a practical perspective, it should be noted that this period begins when the loss first appears based on a prudent judgment of the circumstances. In other words, when preparing the annual, monthly or quarterly reports, this period starts when the first figures already indicate that the duty to notify has been triggered and not first when the final financial reports are adopted and the exact amount of the losses is ascertained. Where there are doubts as to whether the losses exceed the thresholds to trigger the duty to notify, an interim statement must be prepared on the basis of the figures for the next month or quarter.

“Without undue delay” also applies to setting a time for the shareholders meeting. The law is designed to enable shareholders to take a swift decision. A managing director must therefore ensure that the shareholder meeting takes place as soon as possible in light of the notice periods.

Are there any special rules that apply in light of social distancing rules due to the COVID pandemic?

In light of the current social distancing rules due to the Coronavirus, there is some dispute as to whether there is still an obligation to convene a traditional meeting of shareholders (face-to-face meeting) or whether, exceptionally, resolutions can also be adopted by written procedure. As long as there is no legal certainty in this respect, in order to ensure that they fulfil their legal obligations under § 49 para. 3 German Limited Liability Companies Act, managing directors should state in the invitation to the shareholder’s meeting (face-to-face meeting) that the meeting may be held virtually and resolutions adopted by written procedure if all shareholders declare that they would prefer this approach.

What happens when the managing director breaches their duties?

If the managing director breaches their duty to convene a shareholder’s meeting, the managing director shall be liable towards the company for damages that could have been avoided had the managing director convened the shareholder’s meeting without undue delay.

If the managing director fails to inform the shareholders without undue delay or at all of the loss of half of the share capital, the shareholder can face criminal prosecution. A negligent breach of the duty to notify losses can result in a fine or imprisonment of up to a year imposed on the managing director; in the case of a willful breach of the duty, the managing director may face imprisonment for up to three years.

Summary

In light of the serious criminal and liability consequences, managing directors are well advised to constantly monitor the economic position of the company and to obtain an overview of the asset value if there are signs of critical developments (e.g. such as through the establishment of an efficient early warning and crisis management system). This is the only way for managing directors to guarantee that they can fulfil their duty to notify losses in good time.

Petra Bolle

Numerous companies in Germany are facing the question of whether they will survive the corona crisis. Due to the government-imposed lockdown, many stationary outlets, stores and restaurants are closed. Christmas business has been cancelled, carnival did not take place and what happens at Easter remains uncertain. The drop in sales is - without exaggeration - dramatic.

State aid does not suffice

To overcome this crisis, many of the affected companies have applied for state aid or intend to do so. However, the disbursement of these aids is proving more difficult than hoped. In fact, even the application process is very formalistic and complicated. Faced with the large number of applications, the authorities are simply overburden in processing. Companies often wait months for a decision on their application. Having become aware of this problem, the legislator has once again extended the suspension of the obligation to apply for insolvency. Until 30 April 2021, the following applies in principle: If a company affected by the corona crisis applies for state aid by the end of February 2021, which is suitable for eliminating the factual insolvency, the company does not have to file for insolvency despite the company's factual insolvency.

Nevertheless, it is already evident that many companies affected by the corona crisis will not receive any or sufficient state aid and will have to, and be able to, take care of their own rescue.

Protective shield procedure as a way out

One option is the so-called protective shield procedure. It allows companies that are threatened with insolvency and have a fundamentally functioning business model to reorganise themselves in self-management. The existing management remains fully authorised to act and has all the instruments of the German Insolvency Code at its disposal. This way, the protective shield protects against enforcement measures by creditors. Wages and salaries are paid by the Federal Employment Agency for three months and the hurdles for any necessary staff reductions are low.

Disadvantage: High costs

A serious hurdle to the implementation of such a protective shield procedure is the related costs. These costs result in particular from the high requirements for the preparation and implementation of the reorganisation concept on which the protective shield procedure is based. These costs must be paid out of the company's liquid assets. However, this is difficult if the company's cash has been exhausted due to the crisis and the company is only living off the current account. As soon as the banks learn of the protective shield procedure, they usually freeze the credit lines immediately.

Create reserves in credit accounts at an early stage

In this situation, companies are at an advantage if, in addition to their current accounts, they still have credit accounts with banks with which they have no credit relationship. A company threatened with insolvency can use these accounts to finance the protective shield procedure. In any case though, care must be taken to ensure that the use of these funds is in accordance with the company's financing agreements. Without a diligent examination of the relevant disposal restrictions in the loan agreements, the management otherwise puts itself at risk of personal liability towards the banks and possibly even criminal liability.

Conclusion

Corona means one thing above all: Uncertainty. Hence, it is all the more important for every company to act prudently in a future-oriented manner. In view of possible payment difficulties, the protective shield procedure should not be disregarded as a solution. Companies should ensure that they have this option and take the necessary measures.

Heinrich Meyer

Dr Moritz Handrup

What is the EU Whistleblowing Directive?

The Directive determines new compliance duties. Specifically, companies must create opportunities for employees and third parties to anonymously report alleged and actual irregularities (= internal whistleblower system). The idea is that the company's management will thereby become aware of (alleged) irregularities and be able to react. The national legislation must to transpose the Directive. The corresponding draft bill is now available and can be downloaded here (in German): Link.

Who is affected?

The EU Whistleblowing Directive applies to all companies with 50 employees or more and to companies with a turnover of EUR 10m per year or more. Companies in the financial services sector must establish internal whistleblowing systems regardless of the number of employees.

Furthermore, the EU Whistleblowing Directive now provides extensive protection for employees. They can report irregularities both to their own company as well as to external bodies (authorities) without having to fear labour law sanctions. This is especially true if there is no internal whistleblowing system.

Which violations may employees report?

Employees, customers, suppliers and other third parties may ‑ as of today ‑ report violations of EU law (e.g. data protection law), violations of national law (e.g. working time violations) as well as violations of internal policies to the internal or external whistleblowing system.

What do affected companies have to be prepared for?

The legislator has the explicit goal that especially medium-sized companies deal more actively with the topic of compliance and take first measures. In order to enforce these goals and increase the pressure, authorities must now provide their own, so-called external whistleblowing systems.  In this way, authorities are to become aware of wrongdoings within companies. Employees are also allowed to report grievances directly to the public if companies or authorities do not follow up on their tips. All in all, companies must prepare themselves for the wind blowing a little harder from the legislator which will focus in particular on grievances and breaches of rules within the private sector.

Are there new liability risks?

Yes, there are. Compliance violations often lead to personal liability of those involved. Compliance violations may also lead to personal liability of (uninvolved) directors, unless they have taken precautionary measures, such as establishing an internal whistleblowing system. The breach of the new obligation to establish such an internal whistleblowing system further increases the liability risks.

How must reports be handled under data protection law?

The Whistleblowing Directive stipulates that data processing may not violate the General Data Protection Regulation. This does not make it any easier to establish whistleblowing systems in practice. After all, the Whistleblowing Directive protects the individual whistleblower, while the GDPR protects the accused in addition to the whistleblower. This may lead to conflicts.

Do affected companies have to act now and prepare the whistleblowing system?

Companies should apply the necessary judgment. Specifically, it is good advice to talk to an expert about the initial situation in one's own company and to establish one's own internal whistleblowing system with extra time before the new regulations come into force on 17 December 2021, i.e. in the 2nd or 3rd quarter of 2021. Here, the commissioning of an external compliance trust agency which can provide such a whistleblowing system as an external service provider (at low cost), is an option. Then the management would be exempt from liability while the company fulfils the new obligations.

Dr Maximilian Degenhart

Dr. Daniel Walden
Dr. André Depping

A fine of up to EUR 150,000 can be imposed for simple violations, while up to one million euro or twice the amount of the economic benefit of the infringement may be levied for serious, repeat or systematic infringements, even where information provided to the Transparency Register is not updated when changes later occur. These fines may be imposed on companies, but (depending on the facts) also against their executive directors or economic beneficiaries.

A modification could be a change of a beneficial owner of a company, but it could be as simple as a change of their place of residence (e.g. following a move) or a change of name due to marriage. In this respect, the information recorded in official identity documents will be decisive.

As notaries, lawyers and tax advisors, among others, have been obliged since 1 January 2020, under the threat of a fine pursuant to § 23a of the German Money Laundering Act, to notify the Transparency Register of any discrepancies the have identified between the entry in the Transparency Register and the documents provided by the company about its beneficial owner, the discovery of no longer up to date Transparency Register entries can be expected to increase.

However, this obligation to notify discrepancies is not the only way that outdated entries in the Transparency Register will be uncovered. When providing information about a beneficial owner, the Transparency Register compares the information provided with other information already in its database and notes any discrepancies. Fines apply if up-to-date information is not provided without delay.

Conclusion

The above explanations show that a one-time report to the Transparency Register is not enough.

In order to avoid discrepancy reports and any fines that may be imposed as a result, companies must also ensure that all information provided to the Transparency Register is checked regularly and kept up to date. Companies should therefore establish a compliance system (effective internal monitoring and reporting system) to regularly check and document – at least once a year - whether there are any changes concerning the reported beneficial owners.

Petra Bolle

In order to continue operating on the German market, investment firms and asset management companies domiciled in the United Kingdom will henceforth require a licence from BaFin or another supervisory authority of a member state of the European Economic Area (EEA). However, a prerequisite for the granting of such a licence is that the enterprise has its registered office in a member state of the EEA.

Joel F. Schaaf

Dr. Christoph Schmitt

1. What is the Competition Register?

The new Competition Register is a uniform, Germany-wide database designed to protect public tenders and the public authorities issuing them. If there are reasons not to award a public tender to a company (grounds for exclusion), that company will be entered in the Register.

2. Who will the new Competition Register affect?

All companies which bid on a public tender with a value of more than EUR 30,000. During the formal procurement proceedings for the tender, the public authority must check the new register and confirm that the company is not entered in the Register. If there is such an entry, the company will normally be excluded from the tender procedure.

3. What information does the Competition Register contain?

The Competition Register will be administered by the Federal Cartel Office (Bundeskartellamt). If there are grounds for exclusion from tender procedures, details about the company and the offence will be entered in the Register. The imposition of certain penalties by the courts or authorities against the company or related parties or persons constitute grounds for exclusion.

Blatant wrongdoing for offences such as terrorism financing or the formation of a criminal organisation will result in an entry in the Register. However, even a judgment imposing a fine of only EUR 2,500 can suffice for an entry in the Register. Money laundering, fraud that affects public budgets, tax evasion or even infringements of the German Act to Combat Undeclared Work or the Minimum Wage Act could result in an entry in the Register. Prior infringements of environmental, social or employment law obligations may also lead to an entry in the Register.

4. What’s new?

Until now, public authorities and companies in the public sector had to undertake a comprehensive review of the corruption register of the applicable state (Land), as well as the central Commercial Register when assessing a tender. Given that German authorities award public contracts valuing around EUR 500 billion annually, legislators recognised that they had to provide a more practical solution, despite being quite late to do so.

Another novelty is that offences which previously had to be recorded in the corruption register of the relevant Land now only have to be entered in the Competition Register. This significantly increases the potential for an offence to be entered in the Register. Previously, not all Länder had a register and those that did only included offences that had been committed in the Land in question.

5. What consequences does the entry in the Register have?

Although the authorities have some discretion, if there are grounds for exclusion the company will almost always be excluded from the procurement procedure.

From an economic perspective, this means that many companies are de facto excluded from being awarded public contracts, meaning a loss of significant business opportunities. This frequently results in the economic downfall of the company in the medium-term.

6. Can entries be deleted, or when can they be deleted?

Depending on the gravity of the offence, an entry will be automatically deleted after three or five years. Where an entry has been made about a company, it can apply to have the entry deleted before this period expires. For an application to be successful, the company must show that it CLEANED ITSELF UP. In addition to working closely together with the authorities and providing restitution for any damages caused, the fact that the company has adopted measures that will prevent further wrongdoing or at least measures that are designed to impede any further wrongdoing will be a decisive criterion for a successful application. The only way to fulfil this condition is to implement a legally watertight compliance system.

7. Can something be done about impending or existing entries in the Register?

A company will be heard before an entry is made about it in the Register and will have the opportunity to raise objections. If the objections are dismissed, the entry is made. If an application to have the entry deleted (see above) is denied, the company can claim legal protection before the Higher Regional Court (Oberlandesgericht).

8. Do I need to do something now?

If you have not already done so, you need to adopt suitable compliance measures. This is particularly true for publicly traded companies, as compliance with capital market law requires particular attentiveness to the specific day.

Compliance measures can reveal misconduct within the company at an early stage and can even prevent it from occurring. However, they can also help avoid convictions and reduce the amount of any fines imposed (and thus also avoid an entry in the Competition Register). This may even be possible when the misconduct occurs despite there being an appropriate compliance system in place. The compliance measures must only be capable of preventing misconduct. Companies will never be able to prevent every unfair act. They do not need to. To this extent, the legislators reward goodwill. Certainly, half-hearted or even flimsy efforts are insufficient. This is even more true given the fact that effective compliance systems are not rocket science.

Should you have any questions about this issue, please contact Dr Maximillian Degenhart under maximilian.degenhart@bblaw.com.

Dr Maximilian Degenhart

While the legal situation in some countries means it is less complicated to anchor steward ownership in the company structure in the early stages of establishment (in the Netherlands, for example, barely regulated foundations or trusts may be used), the current law in Germany makes it more difficult to implement this idea. For this reason, an academic working group has prepared a draft law^[1] as a proposed amendment to the German Limited Liability Companies Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung, GmbHG).

This article will explain the current legal position (1.) and the approach proposed in the draft (2.), it will look at some of the criticism of the draft (also 2.) and then consider the outlook (3.).

1. Current legal situation

1.1 Legal position

Steward ownership is designed to implement the principles of self-governance and profits serve purpose within the company from generation to generation.^[2]  Currently, in principle there are three possible alternatives available under German law: the veto model, the single foundation model and the double foundation model.

While the single foundation model sees all of the shares in the company held by a single foundation, in the double foundation model, the shares are split between a foundation and a trustee (which might also have the legal form of a foundation).

The one-foundation model monitors the adherence to set principles through two boards of the foundation. One board oversees the non-voting stock while the other board oversees the shares with multiple voting rights but without the right to dividends.

In contrast, in the double foundation model, the trustee controls the shares with multiple voting rights without the right to a share of the profits. The non-voting stock with dividend rights is held by the foundation.

The veto model divides the ownership of the shares into two or three groups. The first group of shareholders (with voting rights) are people working within the company or those who are closely connected to the company. The second group (where the group exists) will be made up of investors, non-profit organisations, employees or founders who hold non-voting shares with dividend rights. The member of the final group holds shares that have a veto right over any decision that is contrary to the steward ownership.

1.2 Problems with implementation

There are various implementation problems with the current legal framework. First, due to the lack of norms for the protection of legal transactions for the benefit of third parties, foundations will not normally directly offer themselves as a holding company. Further, while careful crafting of the statutes of a foundation in line with the law can circumvent the prohibition against a foundation having a purpose that only involves holding assets, this can result in high fees for legal and other advisors.

The veto model does not guarantee 100% security as the holder of veto shares can, although by infringing certain rules, approve the adoption of a change of statutes that would eliminate the steward ownership.

2. Draft law

2.1 Amendments

The draft prepared by the academic working group builds on the German Limited Liability Companies Act (GmbHG). It proposes a new sixth part that would normalise the steward-owned legal liability company as a legal form of the legal liability company, similar to the approach taken for the entrepreneurial company (Unternehmergesellschaft), and establish some mandatory elements. The German Limited Liability Company Act will continue to apply as it is, except where it is changed by the new part.

In addition to various smaller amendments, two guiding principles are highlighted:

a) Permanent asset lock

The draft requires the assets of the company to be permanently locked within the company, the so-called “asset lock”. Shareholders will have no claim to the profits, or the company assets in the case of the dissolution or liquidation of the company. Even in the case of a severance payment upon exit from the company, any refund will be limited to the capital contribution. One of the provisions of the draft law prohibits the cancellation or amendment of the principle of permanent steward ownership (permanence provision). However, the steward-owned limited liability company does not require a sustainable or general interest purpose. The company must use “in Verantwortungseigentum” or an abbreviation of this in its name.

b) Independence

In order to guarantee the company’s independence, the draft limits the circle of potential shareholders to natural persons, other steward-owned companies or a legal entity with assets that are permanently locked in a similar legal fashion (this last option is designed to allow foreign companies to be shareholders in a steward-owned legal liability company). This independence does not prevent the stewardship from being passed on, but does make it dependent upon shareholder approval.

2.2 Comparison to the Veto Model

While the veto model separates the stock based on the underlying shareholder function, the draft uses the permanent asset lock, comparable to that of a foundation. The corporate principle of a steward-owned company is protected by the permanency clause. Shareholders have general voting and participation rights (with the exception of rights to dividends or the proceeds of liquidation), but are permanently bound by the stipulated corporate object. The new structure means it no longer necessary to supervise that decisions that might be contrary to the steward ownership are not resolved on.

2.3 Criticism

In addition to criticism of the mandatory use of “steward ownership” in the company name (the publicity of the steward ownership in the company), the “asset lock” has been criticised in relation to the association sovereignty principle. The argument questions whether the prohibition against collective self-disempowerment can actually be effectively repealed in part based on the proposed permanence provision without actually implementing an independent legal form. 

3. Outlook

The draft law for the Amendment of the German Limited Liability Company Act is generally considered a success, especially by advocates of steward ownership. Despite the criticisms that need to be considered further on, the draft provides the first step towards the further promotion of steward ownership in Germany.

Tassilo Klesen

[1] Sanders, Dauner-Lieb, Kempny, Möslein, Veil, von Freeden, Draft Act for the German Limited Liability Company in Steward Ownership, 12 June 2020, page 9. The draft can be found under: LINK (retrieved on 28September 2020); Referred to as the “Draft” or “Draft Law”.

[2] See the article by Klesen, Tassilo “Steward ownership for Start-ups” dated 12 August 2019, available under: LINK

Initial situation

In practice, the possibility of Company Conversion is used more and more often. Unlike other forms of transformation (e.g. cross-border mergers), the Company Conversion has the advantage that it preserves identity and does not involve a transfer of assets. Consequently, as a rule, no real estate transfer tax becomes payable, no hidden reserves must be disclosed, there is no violation of holding periods, and public law approvals remain valid for the company.

Reasons for a Company Conversion are usually a better market environment and more favourable legal circumstances in the country of conversion, sometimes even a more attractive tax environment, more favourable regulations for employee participation and sometimes a simplified handling of insolvencies and liquidations.

Despite the undisputed admissibility of the Company Conversion, its practical implementation is currently still difficult due to the lack of a legally regulated procedure.

With the Company Law Package (EU Directive) which came into force on 1 January 2020, uniform EU regulations had been created for the first time, including a procedure for the Company Conversion. However, as these provisions of the Company Law Package do not have to be transposed into national law by the German legislator until 31 January 2023, the question arises as to whether these EU requirements must nevertheless already be observed now due to a so-called "pre-effect" when advising on and structuring Company Conversions.

This question was first addressed (as far as apparent) by the Higher Regional Court of Saarbruecken in its decision of 7 January 2020. 

The decision of the Higher Regional Court of Saarbruecken dated 7 January 2020

The Higher Regional Court (OLG) of Saarbruecken had to decide on a company conversion of a German GmbH into the legal form of a French corporation. The application for this Company Conversion had been rejected by the Local Court of Saarbruecken on the grounds that the preparation of a transformation report and the announcement of the draft transformation resolution could not be waived in view of the protection of creditors and employees.

In its decision, the Higher Regional Court of Saarbruecken confirmed the opinion of the Local Court of Saarbruecken and decided that ‑ due to the lack of national regulations on Company Conversions ‑ in addition to the regulations on the domestic change of legal form (§§ 190 et seq. of the German Reorganisation Act, UmwG), the regulations on cross-border mergers (§§ 122 (a) et seq. UmwG) and not, as had been discussed for a long time, the regulations on the cross-border transfer of the registered office of a European Corporation (so-called SE-Regulation) are applicable.

In its reasoning, the Higher Regional Court of Saarbruecken considers this result to be appropriate in anticipation of the new regulations on Company Conversion under the Company Law Package, and thus assigns a pre-effect to the Company Law Package even before its transposition into national law.

Assessment

In both consulting practice and in literature, the decision of the Higher Regional Court of Saarbruecken has often been criticised. According to the prevailing opinion, there is no obligation to consider the EU Directive before the deadline for an implementation into national law as determined in the Company Law Package expires.

Critics claim that rather than contributing to legal certainty, the Higher Regional Court of Saarbruecken has, by its decision, further increased the already existing legal uncertainty with regard to the procedure for Company Conversions.

For the consulting practice this means that it is still indispensable to coordinate the procedural steps necessary for Company Conversions early on with the competent registry court.

As an alternative, it should be considered to observe the additional procedural requirements under the Company Law Package ‑ as a precautionary measure ‑ until the highest German court clarifies the matter, or the EU Directive has been implemented in national law.

In addition to a legal implementation of a Company Conversion, we are also pleased to support you in determining whether a Company Conversion is a viable option for your company and what tax consequences would arise.

Legal status: 21 September 2020

Petra Bolle

Volker Szpak

For the time being, the Act only applies to the current calendar year 2020. An extension of this provision until 31 December 2021 is principally possible by means of a statutory instrument. If the regulations prove to be successful, it cannot be ruled out at this point that the regulations will be permanently transferred to the German Cooperatives Act (Genossenschaftsgesetz) at a later date.

Even though we believe that the amendments are to be welcomed in principle, the wording of the Act and its explanatory memorandum raise the question whether purely online general meetings ‑ as for public limited companies – are actually permitted.

The new legal regulation provides for general meetings of cooperatives to be held without a regulation of the Rules and without personal attendance. To this intent, the Act amends section 43 (7) of the German Cooperatives Act to the effect that members' resolutions can also be passed in writing or electronically if this is not expressly outlined in the cooperatives' Rules. In this case the board must ensure that the minutes are accompanied by a list of members who have participated in the passing of resolutions in accordance with section 47 German Cooperatives Act. The method of voting must be noted for each member who participated in the passing of the resolution.

The last sentence of the regulation in particular allows the interpretation that the amendment is only intended for mixed general meetings or meetings of representatives, and that a purely virtual meeting should not be the subject of the regulation (as otherwise the note on the method of voting would be unnecessary). The explanatory memorandum can also be understood to imply this, since here ‑ unlike, for example, in the case of the public limited companies ‑ the term "virtual" is only used in quotation marks (BT-Drucks. 19/18110, p. 28).

It is true that the view has already been expressed in the literature on cooperative law that a purely virtual general or representative meeting can also be permitted with the adoption of resolutions in electronic form of section 43 (7) sentence of the Cooperatives Act. That would of course require a corresponding provision in the Rules.

The above mentioned new regulation can be interpreted in such a way that only in the case of mixed general meetings or meetings of representatives within the framework of the Corona legislation is it not necessary to have an explicit provision in the Rules and ‑ in other words ‑ there must still be a meeting with personal attendance at which at least individual members are physically present. Purely online general meetings therefore still require an explicit provision in the Rules in the interests of legal certainty.

It should also be considered that holding and organising digital general meetings and maybe even meetings of the board of directors and the supervisory board entail considerable technical organisational effort, which might not be provided that easily, and also not at short notice. As a result, there may be considerable legal uncertainty with regard to urgent resolutions to be passed. We will be pleased to advise you on this.

Benjamin Knorr

With regard to changes to the Act on Mitigating Measures applying to stock corporations, we refer to the BB blog post of our colleagues Dr. Winfried Richardt and Oliver Köster.

1. Legal situation prior to the crisis

Pursuant to section 48 para 1 German Limited Liability Companies Act (Gesetz betreffend die Gesellschaften mit beschränkter Haftung, “GmbHG”), shareholders' resolutions of a GmbH are generally adopted in the shareholders' meeting. Pursuant to section 48 para 2 GmbHG, it is also possible to waive the shareholders' meeting if all shareholders agree to the adoption of resolutions in text form or to a written vote.

The purpose of section 48 para 2 GmbHG is to ensure each shareholder's right to participate in the adoption of resolutions. If your shareholders' agreement does not provide for a different regulation in this respect and stipulates the passing of resolutions without a shareholders' meeting in deviation from section 48 para 2 GmbHG, adopting resolutions in text form or with a written vote was previously not possible without the consent of all shareholders.

2. Difficulty with the former situation

Since we are all currently in “lockdown” in order to contain the COVID-19 pandemic, the protective function of section 48 para 2 GmbH effectively results in the situation that without the usual provision in the shareholders' agreement deviating from section 48 para 2 GmbHG, the vote of an opposing shareholder against a resolution being passed by circulation can lead to the de facto inability of the company to act.

3. Changes due to the new legal situation

With the Act to Mitigate the Consequences of the COVID-19 Pandemic under Civil, Insolvency and Criminal Procedure Law, the legislator is trying to solve this problem. Article 2 section 2 of the Act on Mitigating Measures provides that:

“By way of derogation from section 48 para 2 of the Limited Liability Companies Act, shareholder resolutions may be taken, in text form or by submitting votes in writing, even without the consent of all the shareholders.” (Emphasis added by the author)

As a result, passing resolutions by circulation – even without the usual provision in the shareholders' agreement – is currently permissible with the approval of a majority of the shareholders' votes. The purpose of the new regulation is to contain the COVID-19 pandemic by means of limiting physical contact on the one hand. On the other hand, the company's activities and the shareholders' right to participate are protected insofar as it is no longer possible for a single shareholder to prevent a resolution being passed in text form or by a written vote.

It should be noted that the new regulation is, without exception, intended to facilitate the decision-making process. If you have included the wording of section 48 para 2 GmbHG in your shareholders' agreement, this is merely a declaratory regulation which does not contain any regulatory content of its own that deviates from the intention of the legislator. Therefore, even in this case, it is no longer necessary for all shareholders to give their consent in order to pass a resolution by circulation.

4. Relevant period and duration of validity

Pursuant to Article 2 section 7 para 2, Article 2 section 2 of the Act on Mitigating Measures only applies to shareholders' meetings and resolutions taking place in 2020. This means that, for the time being, the provisions will only apply as long as the legislator considers it necessary to contain the pandemic.

Pursuant to Article 6 para 2 of the Act on Mitigating Measures, the Act will cease to have effect on 31 December 2021.

5. Conclusion

Most modern shareholders' agreements have long provided for the passing of resolutions without a shareholders’ meeting in derogation of section 48 para 2 GmbHG. If your shareholders' agreement does not yet contain such a provision, the Act on Mitigating Measures offers a sensible temporary solution. In the long term, however, it is recommended to consider a provision in derogation of section 48 para 2 GmbHG.

Valerie Hoffmann
Christian Philipp Kalusa

1. Introduction

In the wake of the corona pandemic, the German economy is facing one of the greatest - if not the greatest - challenges since the founding of the Federal Republic of Germany. The crisis is causing enormous uncertainty among companies in the real economy as well as on the financial markets. At the same time, it also brings with it special legal obligations for the management (cf. our blog post on "Relevance of SARS-CoV-2 (coronavirus) for the functional specifications of the management"). To mitigate the economic and social consequences which the pandemic has already caused and will continue to cause, the Federal Government and the states are providing extensive economic aid (cf. Overview of all support measures of the federal government and each individual federal state and Newsletter "Capital in Crisis - Federal Government establishes Economic Stabilization Fund".

The Act on the Establishment of an Economic Stabilisation Fund (Economic Stabilisation Fund Act - WStFG) which came into force on 28 March 2020 provides for the establishment of a special fund "Economic Stabilisation Fund - WSF" without legal capacity to support the real economy. By means of the WSF - flanking the special programmes of the Kreditanstalt für Wiederaufbau (KfW) - the necessary measures to stabilise the national economy and secure jobs are to be implemented for the period until the end of 2021.

State aid is, though, neither automatic nor (legally) free of charge. This is because the Ministry of Finance decides on the stabilisation measures of the WSF (in agreement with the Ministry of Economics) only at the request of the company concerned, and only after due consideration of a) the importance of the company for the German economy, b) the urgency, c) the effects on the labour market and competition and d) the principle of using the WSF's funds as economically and thriftily as possible. The benefits are to be made subject to conditions and requirements for the company. Both have significant legal implications for the duties of the management boards of companies that might be dependent on the WSF's assistance. In order not to be exposed to allegations of breach of duty and possibly enormous liability risks later on, the members of the management board and the supervisory board or the managing directors of companies that can and possibly have to resort to the financial support of the WSF should observe these duties exactly.

2. Background of the WStFG

The WStFG takes up where a tried and tested package of laws that was passed in the course of the financial crisis to support financial companies in particular has been left off. Hence, much is already known from the Financial Market Stabilisation Fund Act (FMStFG) and the Financial Market Stabilisation Acceleration Act (FMStBG) from 2008. As a result of the WStFG, not only financial companies but also companies in the real economy are now eligible for stabilisation measures. For this purpose, the WSF was established parallel to the already existing financial market stabilisation fund.r

The WStFG is divided into two articles. Article 1 extends the FMStFG into the Act establishing a Financial Market and Economic Stabilisation Fund. Article 2 develops the FMStBG into the Economic Stabilisation Acceleration Act.

Although the legislative package thus affects companies in both the financial sector and the real economy of all legal forms, the following comments focus on companies in the real economy in the form of public limited companies. However, the considerations are (to a large extent) transferable to companies in the financial sector and companies of other legal forms.

3. Legal implications for the management - avoidance of liability

Pursuant to section 76 (1) of the German Stock Corporation Act (AktG), the management manages the stock corporation (AG) under its own responsibility. In managing the company, he has to act in accordance with the diligence and due care of a prudent manager, section 93 (1) sentence 1 AktG. The same applies in principle to the managing director of a GmbH, section 43 (1) German Limited Liability Companies Act (GmbHG); however, he does not act without instructions but is subject to the instructions of the shareholders' meeting. If the management violates the statutory duties of care incumbent on it, it is obliged to compensate the company for the resulting damage (section 93 (2) AktG, section 43 (2) GmbHG).

In principle, the management is entitled to further entrepreneurial discretion (so-called business judgement rule). A breach of duty - and thus liability - on the part of the management board is excluded in any case if it (i) could reasonably assume, when making a business decision, (ii) on the basis of appropriate information (iii) acted in the best interests of the company, section 93 (1) sentence 2 AktG. This applies not only to stock corporations, but in principle also to other companies. However, the managing director of a GmbH is, due to the fact that he is bound by instructions in the case of difficult discretionary decisions, to a much greater extent obliged than the management board of an AG not to make the decision himself, but to leave it to the shareholders' meeting.

The broad entrepreneurial discretion finds its first limitation in the general obligation to secure the existence of the company and to avert damage. The management is legally obliged, as far as possible, to ensure the long-term existence of the company and its sustained profitability. Furthermore, it is generally obliged to avert damage to the company as far as possible. In addition, the management is obliged to ensure compliance with the law and the company's internal law, such as the articles of association (cf. our blog post on this and the resulting obligations in the corona crisis on "Relevance of SARS-CoV-2 (coronavirus) for the functional specifications of the management").

With regard to the WStFG, this entails for the management:

3.1. Obligation to apply for state aid?

Basically, the question arises whether and from which point in time the management board is legally obliged to apply for state support by the WSF. If the existence of the company is endangered and can only be secured by state aid of the WSF, the management board has to act in time within the scope of its obligation to secure the existence of the company and has to file a corresponding application. In any event, the Executive Board is obliged to set up a monitoring system for this purpose to identify any threat to the company's continued existence in good time, in accordance with Section 91 (2) AktG. When assessing the threat to the existence of the company as a going concern, it will also have to be taken into account whether there may be other options for securing the existence of the company, at least temporarily, which (initially) appear to be preferable to the WSF. In addition to other financing options, these may include other federal or state aid programs. Furthermore, it must be taken into account that the obligation to file for insolvency is suspended under certain conditions at least until 30 September 2020 under the Act to Mitigate the Consequences of the COVID-19 Pandemic, which came into force on 28 March 2020 (cf. our blog post on Federal Government Legislative Package to Mitigate the Effects of the COVID 19 Pandemic).

If the management board remains inactive despite the continued existence of the company being at risk, and if the company suffers causal damage (up to and including the destruction of its existence) as a result of its inactivity, it may be liable for the damage caused (although in this constellation the calculation of damages may well prove challenging). In the current economic environment, management board members are more obliged than ever to keep a close eye on the liquidity of their company and to take any necessary measures. Under certain circumstances, this can mean that the management board - if liquidity for its own company is not available on the free market or not available at comparable conditions - must apply for state aid from the WSF.

If, in the course of the audits, it turns out that the application for state aid from the WSF is useful or necessary for the company, the management must also take into account that the granting of state aid will regularly be linked to requirements and conditions which the company must fulfil (immediately). Depending on the type of state aid applied for, these requirements should be determined in accordance with the principle of proportionality (cf. explanatory memorandum in the government draft of the WStFG on Article 1 section 25 WStFG). The legislator underlines there that in the case of a guarantee, for example, "only" the agreement of a fair market consideration is important, while in the case of other stabilisation measures such as state participation, more far-reaching requirements and conditions are considered, such as limitations on the distributions and the remuneration of the members of the executive bodies (this is reminiscent of the limitation of the remuneration of the board of managing directors, e.g. at Commerzbank, due to the state participation in the financial crisis). The management board is therefore also obliged to carefully examine which type of state aid from the WSF is requested and is sufficient to ensure the continued existence of the company.

The management board will also be able to influence the stringency of the requirements through negotiations. It should therefore, to the extent possible, influence the conditions and requirements to be fulfilled by the company following the granting of state aid through negotiations with the state authorities.

3.2. Stabilization measures- follow-up obligations

State stabilisation measures under the WStFG are subject to conditions, see Article 1 section 25 WStFG. Companies that take advantage of WSF support measures must "guarantee a solid and prudent business policy. In particular do they have to make a contribution to the stabilisation of production chains and to securing jobs.", Article 1 section 25 (2) sentences 1 and 2 WStFG. To ensure these conditions, requirements can be agreed with the company, Art. 1 section 25 (2) sentence 3 WStFG.

The guarantee to be provided for a solid and prudent business policy was also already provided for in the previous section 10 (1) FMStFG for assisted financial undertakings. The Act still does not contain a definition of this. Although the German Stock Corporation Act also mentions business policy in Section 90 of the Act, it is still disputed what exactly is meant by this. For financial undertakings, however, solid and prudent business policy has been and is specified by the requirements of section 10 (2) nos. 1 to 8 FMStFG in conjunction with section 5 (2) FMStFV. It is to be expected that the Ministry of Finance, in coordination with the Ministry of Economics, will issue a statutory order for real economy companies corresponding to the FMStFV pursuant to section 25 (3) WStFG. This will contain more detailed provisions, in particular as regards the requirements to be met by the beneficiary companies in the real economy concerning

1. the use of the funds raised
2. the taking up of further loans
3. the remuneration of executive bodies
4. the distribution of dividends
5. the period during which the requirements are to be fulfilled
6. measures to avoid distortion of competition
7. industry-specific restructuring requirements
8. the manner in which the public authorities involved and the Fund are to be held accountable
9. a declaration of commitment by the management to comply with the requirements in clauses 1. to 6.
10. other conditions, as far as these are appropriate.

As in the case of the FMStG, the legislator still did not want to lay down uniform requirements for a solid and prudent business policy that applied equally to all companies. Rather, the requirements should be determined on a case-by-case basis, Art. 1 section 25 (3) sentence 2 WStFG. The explanatory memorandum to the government draft of the WStFG explicitly mentions the Federal Government's Public Corporate Governance Code, whose standards can serve as a guide. Specifically, the requirements can be defined between the beneficiary company and the state by contract, voluntary commitment or administrative act. The legal consequences for a company in the event of non-compliance with the agreed and specified requirements can and in all likelihood will also be determined by this statutory instrument, Art. 1 section 25 (3) WStFG.

Within the framework of the management of the company, the management board must comply with the above conditions specified by the WStFG as well as any conditions agreed to safeguard them or ensure their compliance, if necessary by means of organisational precautions and measures. If the management board does not fulfil these statutory obligations, it is in breach of its duty of legality. If the company incurs (causal) damage as a result, the management board is also subject to liability towards its company in this respect.

If necessary, the management board, with the consent of the supervisory board, must issue and publish a corresponding declaration of commitment to comply with the requirements imposed on the company, Art. 1 section 25 (3) sentence 1 no. 9 WStFG. As in the past, Art. 2 section 3 (1) WStFG clarifies as a precautionary measure that the provisions of the German Stock Corporation Act on the responsibility of the management board to manage the stock corporation on its own responsibility do not conflict with the permissibility and effectiveness of such a declaration of commitment. Since the WSF can, however, "only" set abstract guidelines for management decisions and not make individual specific transactions dependent on its approval, there is some evidence to suggest that the declaration of commitment would generally not violate the principle of independent management even without the legal clarification.

Further, it has also been clarified in Art. 2 section 3 (2) WStFG that the management board is also entitled and obliged vis-à-vis the company to comply with the declaration of commitment. This is primarily intended to avoid a dilemma of duties of the management board in external and internal relations. At the same time, however, it also becomes clear here: if the management board acts in contravention of the declaration of commitment made by it and this results in damage to the company, the management board is threatened with liability.

4. Summary

The management must continuously monitor and assess whether the continued existence of the company is at risk. If this is the case, it must also verify, among other things, whether and which state aid can or must be claimed. In negotiations with the relevant government agencies, it must seek to alleviate requirements and conditions for the company as far as possible. After having been granted state aid from the WSF, it must ensure that all conditions and requirements imposed on the company are complied with and, if necessary, make appropriate organisational arrangements for this purpose. In particular must it observe the declaration of commitment that may be required of it.

Dr. Daniel Walden

Martin Lawall

1. Introduction

In addition to amendments, particularly in insolvency law, the German Act on Mitigating Measures has temporarily created substantial facilitations for the holding of general meetings.

The amendments primarily relate to the options for electronic participation in the General Meeting (online General Meeting), the convening of the General Meeting, the time frame for the date of the General Meeting, advance payments on the balance sheet profit and restrictions on the right of contestation. Major legal amendments are briefly summarised below.

In light of the restrictions on freedom of assembly, companies should be able to make decisions and thus maintain their ability to act.

2. General Meeting of Shareholders in Online and Attendance Mode

2.1 Facilitation of the general meeting with shareholders attending

The executive board can now initially decide on (i) the participation of shareholders in the general meeting by means of electronic communication, (ii) the casting of votes by means of electronic communication (postal vote), (iii) the participation of supervisory board members by means of video and audio transmission and (iv) the video and audio transmission even without authorisation by the articles of association or rules of procedure.

The practical relevance of these amendments is per se likely to remain manageable, especially since they are initially based on a general meeting attended by shareholders and since many companies have already provided for the possibility of virtual components in their articles of association since the amendment of the German Stock Corporation Act by the First Shareholder Rights Directive Implementation Act (ARUG I), as described above under (i) to (iv). However, this regulation can also be seen as a module for the modification described below.

2.2 Online General Meeting

The groundbreaking feature is the first possibility of performing real general meetings online or virtually.

The executive board may decide that the general meeting be held as a virtual general meeting without the physical presence of shareholders or their authorised representatives.

The prerequisites for this are: (i) a video and audio transmission of the entire meeting, (ii) the exercising of voting rights and the granting of authorisation via electronic communication, (iii) the granting of an opportunity to ask questions via electronic communication and (iv) the granting of an opportunity to object to a resolution of the general meeting for shareholders who have exercised their voting rights electronically.

This means that the entire general meeting - including the general debate and votes - must be broadcast; a broadcast of only the speech of the executive board and, if applicable, the report of the supervisory board is not sufficient. The electronic exercise of voting rights will, in practice, be carried out via an online form or by postal vote in advance. The granting of authorisation according to the meaning and purpose of the law - putting the online general meeting on a par with the general meeting of shareholders attending - will be possible until the end of the general debate, and online voting until the end of the virtual voting.

In this context, the right to information pursuant to section 131 German Stock Corporation Act (AktG)will also be modified: The executive board can also stipulate that questions must be submitted by electronic communication at least two days before the meeting and decides which questions to answer at its own discretion.

The physical presence at the venue of the meeting is only legally compulsory for the chairman of the general meeting. The notary should also be present at the location of the chairman of the meeting. Due to the necessity of explaining the annual financial statements and answering questions from shareholders, it is advisable that the chairman of the executive board is also present in the meeting room. All other members of the executive board as well as the supervisory board can participate online.

3. Convening of the general meeting, in particular deadlines

According to the Act on Mitigating Measures, the general meeting must be convened no later than the 21st day before the meeting. Moreover, in deviation from section 123 (2) sentence 5 AktG, this minimum period is not extended by the registration period. In the case of listed companies, proof of the shareholding must refer to the beginning of the twelfth day prior to the meeting (modified record date) and, in the case of bearer shares, must be received by the company at the address specified for this purpose in the invitation to the meeting no later than the fourth day prior to the meeting; a shorter deadline for receipt of the proof is possible. Deviating provisions of the articles of association are irrelevant.

If a meeting is convened with a shortened notice period, the notification pursuant to section 125 (1) sentence 1 AktG (notification of the convening of the meeting including the agenda) must be made at the latest twelve days - instead of 24 or 30 days - before the meeting and the corresponding notification pursuant to section 125 (2) AktG to those recorded in the share register at the beginning of the twelfth day before the general meeting. Requests to add items to the agenda (section 122 (2) AktG) must be received by the Company at least 14 days prior to the meeting in the aforementioned case.

It should also be noted that an already convened general meeting must first be "de-invited" again and re-invited to the virtual general meeting with corresponding adjustment of the conditions of participation. A mere transfer from one form of meeting to another is not permitted.

4. Time frame for the holding of an ordinary general meeting

According to the previous regulation, the ordinary general meeting of shareholders must take place in the first eight months of the financial year (section 175 (1) sentence 2 AktG). This period was extended to one year. This provision does not apply to the legal form of a Societas Europaea (SE).

A provision which can be considered in this context - although it also applies to companies of other legal forms - is the modification of section 17 (2) sentence 4 German Transformation Act (UmwG). For the final balance sheet under transformation law, there was previously an eight-month period for the notification of the transformation measure to the commercial register. This deadline was also extended to twelve months by Art. 2 section 4 of the Act on Mitigating Measures.

5. Advance payments of balance sheet profit

Contrary to section 59 (1) AktG, the executive board may decide to pay a deduction from the net profit for the year in accordance with section 59 (2) AktG even without authorisation in the articles of association; however, the limitation to half of the previous year's dividend remains in place.

6. Supervisory board approval

The decisions of the executive board according to the Act on Mitigating Measures - i.e., in abridged form, the facilitation of participation, in particular the online general meeting, the abridged convocation, the advance payments on the balance sheet profit and the convocation in the extended convocation period - require the approval of the supervisory board. According to the wording of the Act, the restriction of the right to ask questions also requires the approval of the supervisory board.

7. Restrictions on the right of contestation

The right of contestation is restricted by the German Act on Mitigating Measures. Accordingly, the contestation cannot be based on violations of section 118 (1) sentences 3 to 5 and (2) sentence 2 of the AktG (in particular electronic confirmation of electronically exercised voting rights with regard to the corresponding provision for postal voting). The same applies to the violation of the provision pursuant to section 118 (4) AktG in the case of video and audio transmission. Furthermore, the same applies to a violation of the formal requirements for notifications pursuant to section 125 and a violation of section 125 (2) AktG (extended notification obligations).

The exclusion of contestation does not apply if the company can be proven to have acted with intent. It should be noted here that the general criteria will apply to the concept of intent. If the company acts in such a careless manner that the threshold for implied acceptance is exceeded - which will suffice - conditional intent will be affirmed. The high standards of due diligence, including appropriate documentation which have already been widely observed in the past, should therefore be maintained in order to keep a "distance" to contingent intent. This restriction may become particularly relevant with regard to the selection and scope of the questions answered or not answered. In this respect, too, certain uncertainties remain.

8. Scope of application

The regulations apply accordingly not only to the stock corporation but basically also to the partnership limited by shares (KGaA) and the SE.

The provisions, contained in Art. 2 section 1 Act on Mitigating Measures, came into force on the day after the announcement, i.e. on 28 March 2020. According to the Act on Mitigating Measures, they will cease to apply upon expiry of 31 December 2021, i.e. they will apply for the entire remaining year 2020 and also in 2021. Whether there will be an extension of the period of validity remains to be seen.

Dr. Winfried Richardt

Oliver Köster

On first sight, the draft bill adopted today largely corresponds to the government draft published on 23 March 2020 (cf. the blog post: Federal Government Legislative Package to Mitigate the Effects of the COVID 19 Pandemic).

Now, the Act has to pass the Bundesrat (German Federal Council). This will happen in an extraordinary meeting on Friday.

Dr Daniel Walden

1. Shutdown insurances

Shutdown insurances belong to the so-called loss of earnings insurances which offer protection in case of business interruptions. If operations are at a standstill, costs continue to arise because, among other things, rents, suppliers and staff have to be paid without any income being generated. These costs and the loss of profit are only partially covered by other insurance companies, so that loss of earnings policies can be taken out for this purpose. Such insurance covers the financial consequences of a shutdown or disrupted operation, for example after water damage or fire (fire operation interruption insurance). In the Corona crisis, special attention is paid to the shutdown insurance. Among other things, it protects companies if operations are interrupted for reasons of infection protection. A typical application for such a shutdown of operations is the discovery of salmonella at a food manufacturer or the closure of a care facility due to a multi-resistant infectious agent.

2. When does a shutdown insurance pay?

Companies affected by the measures to contain the coronavirus are now wondering whether a shutdown insurance policy would also cover the damage currently being caused in the fight against the corona pandemic.

As a matter of principle, a shutdown insurance pays in case of official measures on the basis of the Infection Protection Act. In the event of shutdown of operations, three preconditions must be met:

1. Shutdown of the insured operation,
2. on the basis of the Infection Protection Act,
3. due to the occurrence of a notifiable infectious agent.

3. Insurance coverage in the corona crisis?

Whether shutdown insurances in the current corona crisis are liable to payment must be checked individually for each insurance contract. It is true that the three conditions mentioned above all seem to be fulfilled: the current legal regulations force many businesses (such as cultural institutions, catering and retail businesses) to shut down (1). It is also a measure based on the Infection Protection Act (2) because under the Infection Protection Act the state governments are empowered to issue ordinances to combat communicable diseases (section 32 of the Infection Protection Act). Furthermore, the coronavirus is also a notifiable infectious agent (3). But the devil is in the details: Insurance cover is often not provided because the insurance policy does not cover every infectious agent that must be notified.

The insurance conditions usually contain a list of specified diseases and pathogenic agents. In all probability, the new coronavirus (2019-nCoV) will not be included in this list as it has only been known for a short time. Whether the insurance cover applies only to the diseases and infectious agents mentioned in the list or also to new diseases and pathogens must be analysed individually. For this purpose, the often different formulations of the insurance conditions must be examined closely. In some cases, the insurance only covers the diseases and pathogenic agents listed in the insurance conditions. In other cases, however, a reference to the Infection Protection Act is reasonable if the list of insurance conditions refers to the Infection Protection Act. Often it then corresponds to the version of the Infection Protection Act (section 6 and section 7) which was valid at the time of the conclusion of the contract. In these cases it depends on whether the insurance contracts contain a dynamic reference to the Infection Protection Act. Only then does the insurance cover extend to all notifiable diseases and infectious agents. This decision must be made individually for each policy.

If insurance cover exists in principle, the insurance has to be taken out only if the policyholders have fulfilled their duties of cooperation and their obligations. The insurance cover may no longer apply if the policyholder does not show proper conduct after the occurrence of an insured event and informs the insurer too late.

We therefore recommend taking a look at your insurance conditions. Please feel free to contact us.

Dr Philipp Sahm
(Lawyer)

The legislative draft contains far-reaching regulations in various fields of law:

• Civil law: Moratorium for consumers and micro entrepreneurs in respect of contractual claims arising from continuing obligations;
• Insolvency law: Temporary suspension of the obligation to file for insolvency and of payment prohibitions;
• Corporate law: Temporary facilitation of shareholder and general meetings without physical presence;
• Criminal procedural law: Temporary suspension of the interruption period of a criminal trial.

The proposed legislative package comes on top of the federal government's package of measures adopted last week to cushion the effects of the coronavirus. In particular, it addresses a number of central legal issues that arise for board members and managing directors with regard to the fulfilment of their legal obligations in times of the corona crisis (cf. the blog post https://www.beiten-burkhardt.com/index.php/de/blogs/die-relevanz-von-sars-cov-2-coronavirus-fuer-das-pflichtenheft-der-geschaeftsleitung).

The hastily prepared 52-page draft law in the form of a "Formulation Aid of the Federal Government" will first have to be analysed in detail with regard to the individual regulatory proposals and the respective substantiation given. It is also quite conceivable that there will be individual changes in the further, probably ever-record short legislative process. What must be pointed out, however, are the following new regulations which are potentially relevant for board members and managing directors of all companies and which became apparent already last week:

Temporary facilitation of the virtual shareholders' meeting

The ordinary general meeting (in the case of the stock corporation (AG)) or the shareholders' meeting (in the case of the limited liability company (GmbH)) must take place within the first eight months of the financial year, section 175 (1) German Stock Corporation Act (AktG) or section 42a (2) German Limited Liability Companies Act (GmbHG). For the duration of the current official prohibitions of meetings, general meetings/shareholders' meetings may also not be conducted as attended events. The legislative draft thus provides for:

• In 2020, the executive board of a stock corporation, KGaA or SE may, with the approval of the supervisory board, enable shareholders to participate in the general meeting and to vote by means of electronic communication even without the corresponding authorisation in the articles of association, hold a virtual general meeting without physical presence, reduce the period for convening the general meeting to 21 (instead of 28) days, hold the general meeting even after the first eight months have elapsed in the course of the remainder of the financial year and make advance payments on the balance sheet profit before the general meeting. The right of rescission is restricted accordingly (with the exception of intentional violations).
• In 2020, shareholders' meetings of limited liabilities companies can also be held in text form or by written vote without the consent of all shareholders.
• In the case of cooperatives, in 2020, resolutions of members or representatives at general meetings or meetings of representatives may also be passed in writing or electronically without the corresponding authorisation in the articles of association, the annual financial statements may be adopted by the supervisory board and (with the consent of the supervisory board) advance payments on expected dividend payments may be made. In addition, members of the management board and the supervisory board of a cooperative remain in office after expiry of their term of office until a successor is appointed. Meetings of the executive board and the supervisory board can also be held without being based on the articles of association or the rules of procedure by way of circulation in text form or by telephone or video conference.
• Members of the executive boards of associations and foundations will also remain in office in 2020 even after their term of office has expired, until their dismissal or until their successor is appointed. Members of associations can participate in the general meeting even without physical presence and can cast their vote by means of electronic communication or in writing in advance.

Temporary suspension of the obligation to file for insolvency and of payment prohibitions

In the event of insolvency (i.e. if the company is unable to meet the due liabilities) or overindebtedness (i.e. if the assets no longer cover the existing liabilities and there is no forecast of continuation), the management must file for insolvency within three weeks, sections 15a, 17, 19 German Insolvency Code (InsO). If it still generates payments after commencement of insolvency or after overindebtedness has been established, the executive board or the managing director is personally liable for this, if necessary, pursuant to section 92 (2) AktG or section 64 GmbHG. All these obligations are temporarily suspended:

• The obligation to file for insolvency pursuant to section 15a InsO (whether due to overindebtedness or insolvency) is suspended until 30 September 2020. This does, however, not apply if the factual insolvency is not due to the consequences of the spread of the SARS-CoV-2 virus, or if there is no prospect of eliminating an existing insolvency. It is, of course, assumed by law that the factual insolvency is due to the effects of the COVID 19 pandemic and that there are prospects of eliminating an existing insolvency if the company was not insolvent on 31 December 2019.
• Insofar as the obligation to file an insolvency petition is suspended thereafter, payments made in the ordinary course of business (including measures to maintain or resume business operations or to implement a restructuring concept) shall be deemed to be in compliance with the company's duty. In addition, new loans are privileged in terms of legal contestation and liability in order to create an incentive for the granting of such loans.

Dr Daniel Walden
 

The storm approaches

Already on 28 February 2020, Deutsche Post AG had published an ad hoc announcement on the effects of the coronavirus: At that time, the corona crisis was expected to have a negative impact on the group's earnings of around 60-70 million euros for the month of February compared to the original internal plan. The impact on the annual result would be determined by various factors, which may also have an opposite, positive effect during the resumption of production. From today's perspective, it was not yet possible to foresee over which period, in which divisions and to what extent there would be negative effects, and to what extent these could be offset by positive effects (see Ad hoc: Impact of Coronavirus and decision on StreetScooter).

On 4 March 2020, BaFin declared that it takes the current risk situation caused by the coronavirus very seriously. It said to be "in close communication with banks and other financial market players on possible reactions and contingency plans". It "continuously analyses the further development and possible effects on the financial industry"(see declaration of BaFin with regard to coronavirus). According to press reports, BaFin President Felix Hufeld on 16 March 2020 said that corona currently represented a significant burden, but not a systemic risk, to the financial sector.

Following first declines in the DAX since 21 February 2020, 9 March 2020 was a "Black Monday" on the stock exchanges. Against the background of growing fears of recession and a price war looming over oil, the DAX suffered a historic slump of almost 8 percent on this single day. It shouldn't stop there. In particular on 12 and 16 March 2020 there were more serious setbacks.

All this is reason enough to briefly summarise the legal obligations to which management boards, managing directors and supervisory boards should pay particular attention in the current situation. Generally speaking, the triad of climate change/climate protection, digitalisation and geopolitics is already bringing about changes with unprecedented dynamism and posing major challenges for companies (see Walden, NZG 2020, 50 on fundamental aspects). The effects on the economy caused by the spread of the new coronavirus and by the countermeasures are both unforeseen and acute. These effects must be managed just as carefully as all other events and conditions that affect a company. A company - and thus its management - must undoubtedly deal with such an inward impact. In more detail:

Risk identification

The most important basis for management action in crisis situations is the identification, analysis and evaluation of risks for the company. As a mandatory legal minimum standard, the establishment of a monitoring system is prescribed for stock corporations, which at least recognises at an early stage those developments that endanger the continued existence of the company, s91(2) AktG (German Stock Corporation Act). This provision is intended to also have an impact on those German limited liability companies (GmbH) which, due to their size and structure, are comparable to a German stock corporation (AG) and, according to the prevailing opinion, even beyond them. According to the past decisions of the German Supreme Court (BGH), the managing director of a GmbH is also obliged to carry out a continuous economic self-assessment. The managing director must therefore create an organisation that enables such managing director to have an overview of the economic and financial situation of the company at all times; the specific requirements of this duty depend on the specific circumstances of each company (see below for the duties in the event of imminent or actual insolvency). A comprehensive risk management system adapted to the individual circumstances of each situation is therefore the normal procedure, irrespective of the disputed question of whether or not the management board or the managing director are under a mandatory legal obligation to establish such a comprehensive risk management system.
In order to create an adequate information basis for their entrepreneurial decisions, the management is always well advised to set up such a system in order to be able to identify risks for the company and take them into account.

With regard to the coronavirus, this means that the management should continuously analyse in which respect risks related to the coronavirus exist for their specific company, with what probability they could occur and what consequences this would have for their company. It is clear that, in view of the novelty of the situation and the uncertainty about future developments, there is considerable uncertainty with regard to assessment and forecast already at the level of risk identification.

Risk management options

On the basis of the coronavirus-related risks identified for a specific company, the next step is to ask whether and how each risk can be avoided, reduced or diversified and what advantages and disadvantages are associated with this for the company in each case. At this point it becomes even clearer that the estimates can have a considerable forecasting impact. This is because mitigation measures in response to an identified risk may include further uncertainties. There may, for example, be the question of the economic and legal consequences when existing contracts cannot be fulfilled and the risks with potential alternatives. It is also clear that mitigation measures can sometimes be very costly.

Principle: Business decision

The management is generally entitled to broad entrepreneurial discretion (called the business judgement rule). A breach of duty - and thus liability - on the part of the management board is definitely excluded if the management board (i) could reasonably assume, when making a business decision, (ii) to act on the basis of appropriate information and (iii) in the best interests of the company, s93(1) 2nd sentence AktG. This applies not only to stock corporations, but basically also to other companies. However, in the event of difficult discretionary decisions, the management of a GmbH, for example, is obliged to a much greater extent than the management board of an AG not to make the decision itself, but to leave it to the shareholders' meeting. This follows from the fact that the management is bound by the instructions of the shareholders' meeting.

The management will therefore be on the safe side if it creates an appropriate information basis with the help of the aforementioned steps of risk identification and management and then makes decisions on this basis for the benefit of the company. Mere inaction is not regarded as a business decision. Rather, the management should actively consider whether and, if so, what risk management measures will be taken. In doing so, it must take particular account of the effects of the mitigation measure or failure to take such measures on the company. Obvious aspects are: costs, operational risks, effects on existing and future contractual relationships, in particular risks in connection with possible legal disputes, as well as effects on the design of the business model, effects on the company's reputation (especially with business partners, but also generally with the public) and official requirements and sanctions. At this point, the pronounced forecasting character is accompanied by a broad entrepreneurial discretion. A duty would be breached only if the limits of responsible action oriented towards the well-being of the company and based on a carefully determined basis for decision-making were clearly exceeded. A recent ruling of the Higher Regional Court (OLG) of Cologne once again underlined the central importance of the aspect of the appropriateness of the information basis. In particular, the adequate scope of the information basis depends on the degree of importance of the decision for the company (see blog post: Higher Regional Court of Cologne on Management Board liability: Adequate Information Basis is Essential).

According to the prevailing opinion in stock corporation law, the management board may take into account the interests of the shareholders as well as the general public (stakeholders) in its decisions. Depending on the circumstances of the individual case, it is quite possible, for example, to refrain from certain business activities for the purpose of preventive health protection or to offer goodwill solutions, even if this (initially) has a negative financial impact on the company.

Limitation I: Obligation to secure the existence of the company and avert damage

The above-mentioned broad entrepreneurial discretion with regard to dealing with the consequences of coronavirus finds its first limitation in the general obligation to secure the existence of the company and to avert damage. The management is legally obliged to ensure, as far as possible,  the long-term existence of the company and its sustained profitability. Furthermore, it is generally obliged to avert damage to the company as far as possible.

Limitation II: General legal obligation

In addition, the management is obliged to ensure compliance with the law. In the present context, this obviously means in particular compliance with obligations under employment and occupational safety law, administrative cooperation obligations and official directives. But there are also many other legal questions that arise:

Listed and over-the-counter companies must examine whether the individual effects of the coronavirus on the company constitute inside information which must generally be published ad hoc, unless there is a legitimate interest in a delay of disclosure, see Art. 7, 17 MAR. According to the BAFin consultation version on Module C of the 5th edition of the Issuer Guidelines, circumstances that only indirectly affect the issuer may also qualify as inside information. This may include, for example, market data or market information, which in individual cases may also affect the situation of issuers or financial instruments. This can be the case, for example, with natural disasters.

As mentioned above, the management must permanently monitor the economic situation of the company and, if there are signs of any crisis developing, obtain an overview of the asset situation by preparing an interim balance sheet or asset status. In view of the duty to ensure liquidity, solvency forecasts must also be prepared regularly. This is based in particular on the following legal obligations:

• If the annual balance sheet of an AG or an interim balance sheet is drawn up, or if it can be reasonably assumed that there is a loss equalling half of the share capital, the management must convene an annual general meeting without any delay and must notify this situation to the meeting, s92(1) AktG. A GmbH must convene a shareholders' meeting not later than at the point where the annual balance sheet or balance prepared during the course of the financial year shows that half of the share capital is lost, s49(3) GmbHG (German Act on Limited Liability Companies). It may also be advisable for a GmbH to convene a shareholders' meeting earlier when a crisis emerges.
• In the event of insolvency (i.e. if the company is unable to meet the due liabilities) or over-indebtedness (i.e. if the assets no longer cover the existing liabilities and there is no positive going concern forecast), the management must file for insolvency within three weeks, ss15a, 17, 19 InsO (German Insolvency Code). If a company still makes payments after insolvency has occurred or after over-indebtedness has been established, the executive board or the managing director may be held personally liable under s92(2) AktG or s64 GmbHG. In addition, the question of a punishable delay in filing for insolvency often comes "as a reflex" in such constellations.