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Procedures for Mergers and De-Mergers to be simplified

May 2010 - Corporate & Commercial. Legal Developments by Avocado Rechtsanwälte .

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The German Federal Ministry of Justice has submitted a draft bill introducing revisions to the German Transformation Act (Um­wand­lungs­ge­set­z). The draft provides for a simplification of mergers and de-mergers of companies and would in particular have an impact on the reorganization of stock corporations. The main goal of the bill is to reduce the bureaucratic obstacles that accompany the transformation and reorganization of companies.

The planned revision provides for the implementation of two EC-Directives (Directive 2009/109/EC of the European Parliament and of the Council of 16 September 2009 amending Council Directives 77/91/EEC, 78/855/EEC and 82/891/EEC, and Directive 2005/56/EC as regards reporting and documentation requirements in the case of mergers and divisions). The German Transformation Act is partially based on provisions of Community law and therefore must be amended accordingly by 30 June 2011.

Revisions planned include a further simplification of the preparations required for a general assembly (Hauptversammlung) of a stock corporation (Aktiengesellschaft) where transformation measures are to be decided upon. In the future, it will therefore be possible to submit documentation electronically to inform shareholders. Furthermore, an interim balance sheet (Zwischenbilanz) may be waived and instead, a mid-year annual statement (Halbjahresfinanzbericht) will be sufficient. Other changes relate to mergers between a parent company and its wholly-owned subsidiary where a resolution of the general assembly of the parent company may be waived to a greater extent than currently possible. Furthermore, the bill aims to facilitate squeeze-outs among stock corporations by lowering the minimum shareholding requirement from 95% to 90% where a stock corporation proposes to merge with a subsidiary which is likewise a stock corporation.

In this case, the parent company could first force all of the shares of its subsidiary to be sold by the minority shareholders and then proceed with a merger according to the simplified conditions which apply to the merger of a wholly-owned subsidiary. This lower threshold will, however, remain an exception to the rule as the system of excluding minority shareholders will remain unchanged, i.e., the 95% threshold which is required for squeeze-outs will remain. According to the revision planned, valuations which are required under both the Transformation Act and the German Stock Corporation Act (Aktiengesetz) may now be conducted by the same experts as a cost saving measure. The draft bill has been sent to the federal states and organizations for review.

The Federal cabinet plans to vote on the bill before the summer break and is expected to come into force in the second half of 2010.