On 20 January 2023, the German legislator adopted the Act implementing the Directive (EU) 2019/2121 regarding corporate transformations. It will enter into force upon its promulgation. The Act regulates cross border transformations of corporations. Whilst the existing rules on cross-border mergers are revised, the Act provides for an all-new statutory basis on cross-border splits and changes of legal form.
What’s new?
Europe-wide harmonisation
- Cross-border transformations of corporations will be harmonised throughout the EU.
- In future, not only cross-border mergers but also splits and changes of legal form will be regulated in the German Transformation Act (Umwandlungsgesetz) and be subject to EU-wide and compatible procedures.
- The existing rules on cross-border mergers will be revised.
- All cross-border transformations will be codified collectively in a new part of the German Transformation Act.
Digital exchange
- National company registers involved shall communicate with each other in a digitally integrated process. In particular, relevant documents shall be transferred electronically.
- This is favourable as it will accelerate transformation processes.
Liquidity Protection
- In the event of inappropriate share-exchange ratios, German Stock Corporations (Aktiengesellschaften, AG), partnerships limited by shares (Kommanditgesellschaften auf Aktien, KGaA) and European Stock Corporations (Societas Europaea, SE) may grant shares instead of additional cash payments.
Protection of minority shareholders, creditors and employees
- The rights of minority shareholders will be standardised, e.g. by the possibility to demand a more favourable share-exchange ratio in court valuation proceedings (Spruchverfahren).
- Company creditors may demand security if enforcement of their claims will be endangered by a cross-border transformation.
- Employees are granted comprehensive information rights at an early stage in the process.
- German registry courts (Registergerichte) will monitor malpractices.
When will the new rules apply?
The Act will presumably enter into force between February and April 2023. Transitional provisions will apply to transformations then in progress.
Resume
The uniform legal framework for cross-border changes of legal form, mergers and splits is favourable. It provides an appropriate level of protection for shareholders, creditors and employees. Unfortunately, the legislator has missed the opportunity to include partnerships. The Act will only apply to corporations (GmbH, AG, KGaA, SE). Therefore, German law will continue to lack a statutory basis for cross-border transformations of partnerships.
It remains to be seen whether the amendments of the Act will accelerate cross-border transformations in practice.
