New rules for cross-border conversions
As of 01 March 2023, new regulations for cross-border conversions, i.e. cross-border mergers, cross-border demergers and cross-border changes of legal form (§§ 305 et seq. UmwG) within the EU will apply in Germany. They are based on EU Directives (Directive EU 2017/1132, the so-called Company Law Directive - GesRRL and Directive EU 2019/2021, the so-called Cross-Border Directive - UmwRL). These directives were transposed into German law by the so-called UmRUG. The purpose of this law is to protect minority shareholders in cross-border transformations and to establish regulations for creditors and employees. Within these regulations, the provisions of the cross-border merger serve as a regulatory model for cross-border demergers and changes of legal form.
A cross-border merger is a merger in which at least one of the companies involved is subject to the law of the other member state of the European Union or another contracting state to the Agreement on the European Economic Area (§ 305 sub-section 1 UmwG). Companies eligible for merger are, for example, the German GmbH, the French s.a.r.l. or the Dutch B.V. In order to carry out a merger, a merger plan must be drafted. In § 307 subsection 2 UmwG, 16 subsections list in detail what a merger plan must contain, including: the exchange ratio of the shares, the amount of the additional cash payments, the anticipated effects of the merger on employment, information on the valuation of the assets and liabilities, etc. The merger plan must be notarised (§ 307 section 4 UmwG). In the same way as a merger plan, the representative bodies of the companies involved must prepare a merger report (§ 309 sub-section 1 sentence 1 UmwG). In it, the legal and economic aspects for the shareholders and the employees of the participating companies are to be set out.
New for German legal practice is the abuse test to be carried out by the German registry court (§ 316 para. 3 UmwG). Thus, in implementation of the Companies Directive, it is to be examined whether the merger may possibly serve abusive purposes. Abuse is to be assumed, among other things, if everything is formally correct, but possibly withdrawing shareholders or employees (also the public authorities in the case of an outward merger) could suffer disadvantages. The register court has to consider the individual case. To this end, it can question the companies involved, ask them to submit further information or even engage external experts who can determine a possible abuse. In doing so, the registry court must investigate ex officio, as for example in administrative court proceedings. In individual cases - especially if the registry court receives information that a merger has been abused - this can lead to a considerable delay of such application proceedings. Any company carrying out a merger procedure (or a change of legal form or a demerger) is well advised to prepare the merger plan and merger report very carefully and to implement them expertly.
Author: Dr. Dieter Jasper, LL.M.