The completion of take-private transactions in Germany was
traditionally lengthy and prone to attack from professional minority
shareholders who took advantage of the rule that every shareholder of a
German stock corporation can file an action to set aside a shareholder
resolution for violation of the law or the articles of association. All
take-private measures as well as other corporate transactions, which
need to be registered with the commercial register in order to take
effect (for example statutory mergers with and into a non-listed entity,
domination and profit and loss transfer agreements or squeeze-out
resolutions) could be blocked by the filing of a shareholder claim even
if only initiated by one single minority shareholder. Although a special
court procedure to overcome the blocking effect of shareholder suits (Freigabeverfah-ren)
has been offered for some time by the German Stock Corporation Act,
this release procedure was time consuming, going over two court
instances and sometimes lasting more than 12 months.
|Dr Wolfgang Grobecker
||Dr Eva Nase|
By enactment of the Law regarding Implementation of the
EU-Shareholders' Rights Directive (ARUG), the German legislator
shortened and simplified the release procedure with positive practical
Instead of two instances, the higher regional court is the first and
final instance for the procedure. The company is successful in the
procedure if it can either demonstrate that the shareholder claims are
inadmissible or manifestly without merits or that the disadvantages to
the company resulting from the blocking outweigh the disadvantages for
the claimant if the measure is executed (the so-called balancing rule).
According to the Act, when weighing the interests of the company against
the interests of the claimants, the court should now in general only
consider economic interests. This will typically result in the economic
interests of the company prevailing over the economic interests of the
minority shareholders who have filed the claim.
The Act introduces a minimum shareholding quorum. Shareholders
holding less than €1,000 ($1,260) of nominal value, will no longer be
able to block a resolution adopted by the shareholders meeting.
The Act also brings in various procedural alleviations to prevent a
delay of the release proceeding. For instance, service of process in the
release proceeding is simplified and corporations are given the right
to inspect the files in court at an early stage.
Court practice positively assumed the statutory amendments. The
release proceedings of various higher regional courts in Germany
rendered since the enactment of the Act have been completed in a
timeframe of two to five months. For planning purposes, a timeline of
four to five months from the date of the shareholders' meeting should be
sufficient to complete a release proceeding and to effect registration
of the shareholder resolution and the taking-private transaction with
the commercial register.
Wolfgang Grobecker and Eva Nase