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5 April 2013
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Schultze & Braun News

Recent publications

Frank Tschentscher,
Cross-Border Insolvencies,
Accountancy Live, March 2013

Dr Volker Beissenhirtz,
Mezzanine Programmes in Germany: Looming Challenges for Companies and Funds
International Corporate Rescue, Vol. 5, Special Issue, 2013, 12-15

Frank Tschentscher,
The Modern German Insolvency Regime: Process, Reform, Financing and Creditor Ranking
International Corporate Rescue, Vol. 5, Special Issue, 2013, 20-24

Dr Annerose Tashiro,
Consumer Bankruptcy Law Reform in Germany: Is It Any Good?
ABI Journal, November 2012

Frank Tschentscher,
This England, bankruptcy hotspot
Economia, economia.com, November 2012

Frank Tschentscher,
Personal insolvencies on rise for first time in year
The Telegraph, November 2012

Frank Tschentscher,
FDs must smash emergency glass and call for help sooner
Accountancy Age, August 2012

Dr Annerose Tashiro
From Bondholder to Equityholder: Still a Difficult Route in Germany?
ABI Journal, June 2012, 44-45, 84-85

Frank Tschentscher
Germany welcomes new Insolvency rules
The Lawyer, www.lawyer-monthly.com, April 2012, 1-2

Frank Tschentscher
Germany : Good Tidings
The European Lawyer 02 2012, 31-32

Frank Tschentscher
The Germans are not coming
Accountancy Age, 12.03.2012

Dr Annerose Tashiro / Patrick Ehret / Frank Tschentscher
Trust, Parallel Debt Mechanism under N.Y. Law Are Now Recognized in French Insolvency Law
ABI Journal February 2012, 30 et seq.


Trust agreements in cross-border restructuring cases –
Novem Car Interior Design – a high level case study

Handelsblatt, Hilton Hotel, Frankfurt/Main, 24.04.2013
LL.M. (Nottingham), Attorney at Law in Germany,
Solicitor (England and Wales) Frank Tschentscher

Restrictive liability clauses: How far professionals can go to contractually elude their civil liability?
AIJA Seminars, Marseille, France, 21. - 22.06.2013
LL.M. (Chicago), Attorney at Law in Germany, Attorney in New York,
Dr H. Philipp Esser
Group Insolvency Law Reform in Germany – Status of the Discussions
The reform of German insolvency law for company groups is making progress. A draft reform act to amend the German Insolvency Act (Insolvenzordnung) was presented by the Federal Ministry of Justice in the beginning of 2013.

Dr H. Philipp Esser, LL.M.
Attorney at Law in Germany
Attorney at Law in New York
Dr H. Philipp Esser
Various interest groups have now provided their comments on the draft. The objective of the reform is to better coordinate insolvency proceedings of entities that belong to the same company group. To improve coordination the draft proposes a central jurisdiction for one insolvency court and – possibly – the appointment of the same insolvency administrator for all company groups and alternatively a new coordination procedure for group companies subject to insolvency proceedings before different insolvency courts and with different insolvency administrators. The draft act explicitly does not suggest the concept of a substantive or procedural consolidation.

According to the first part of the proposal, an insolvency court with jurisdiction for the insolvency proceeding of one group company shall under certain conditions and upon demand also have jurisdiction for other group companies, even if their center of main interests (COMI) is not located in the district of such insolvency court.

If an insolvency court thus finds to have jurisdiction for all insolvency proceedings of the group, other group insolvency proceedings may be removed to such group forum. Different insolvency courts hearing petitions of group members shall further discuss among each other whether they can possibly appoint the same insolvency administrator. In such discussions, the courts may in certain cases even disregard the recommendations of a preliminary creditors’ committee. In general, insolvency courts and administrators and creditors’ committees of group companies shall better coordinate among each other. The interest groups involved in the legislative deliberations have generally welcomed this proposal.

The draft amendment act also clearly rejected concepts of substantive or procedural consolidation of group companies’ insolvency proceedings or insolvency estates. The Federal Ministry of Justice and the interest groups involved consider a substantive consolidation irreconcilable with the German law principle of the separation of liabilities of corporate entities. Any procedural consolidation of various insolvent group companies was not deemed helpful because of intragroup conflicts of interest.

In addition, a new “coordination proceeding” (Koordinationsverfahren) shall facilitate the coordination of different insolvency proceedings over group member companies in the future. The coordination proceeding may include appointing a coordination administrator and submitting a coordination plan.

The coordination plan requires the consent of a group creditors’ committee and the confirmation of the coordinating group insolvency court. It may suggest measures to restructure the group’s operating business and to deal with intragroup claims, agreements or lawsuits. However, a group member’s insolvency administrator is not bound by the coordination plan. He only needs to explain any deviations to the parties involved in the insolvency proceeding of his debtor. This aspect and the anticipated bureaucratic burdens involved with the new coordination procedure have been criticized strongly by the interest groups.

Due to the federal elections in Germany on 22 September 2013, it is not entirely clear when and with which modifications the current proposal will be enacted. Therefore, the group insolvency law provisions in the proposal for a reform of the EU Insolvency Regulation (Reg. 1346/2000) published in December 2012 may become effective faster than the German proposal. Whichever proposal will be faster, this would be an important step towards more legal clarity in the practically very important area of group insolvency law.

Dr H. Philipp Esser, LL.M. (Chicago)
Attorney at Law in Germany
Attorney at Law New York
The most recent example of the efforts by the Frankfurter Allgemeine Zeitung (FAZ) publishing house to take over the insolvent Frankfurter Rundschau (FR) at the end of February 2013 shows that different approaches with a legal system may sometimes converge and may even impede one another.

Dr Annerose Tashiro
Attorney at Law in Germany
Registered European Lawyer (London)
Dr. Annerose Tashiro
Dr Annerose Tashiro
Without this takeover, FR would have completely disappeared. There were no other serious prospective purchasers in addition to the FAZ. However, the FAZ already had a dominant position in the Frankfurt area and nationally, and the takeover of another Frankfurt newspaper in the shape of the FR therefore triggered the issue of a prohibition of this merger under cartel law.

It is typically assumed that the objective of insolvency proceedings is to bring about an adjustment in the market. Companies that are no longer able to maintain their market position must adapt, grow smaller or perhaps disappear completely. In addition, there is often the desire and the difficulty for insolvency administrators or turnaround managers to find buyers in order to be able to save the company’s core business or a branch of the business along with the associated employees and also the know-how, or sometimes even to restructure the whole business operation.

On the other hand German law contains provisions which regulate and sometimes even restrict the merger of companies, e.g. via the prohibition on cartels, for the purposes of maintaining effective competition. To this end legislators have introduced additional duties for the shareholders acquiring control.

Typically, the two areas of market adjustment through insolvency law and through regulation under competition law or capital market controls pursuant to securities legislation do not converge. The example of the FAZ/FR shows, however, that this sometimes does happen.

Legislators did not regulate this situation specifically under competition law. Only section 36 (1) of the Act against Restraints on Competition (Gesetz gegen Wettbewerbsbeschränkungen – GWB) provides for a special exemption from the prohibition of the merger if the merger will lead to improvements in the conditions of competition. An example of this is the “rescue merger”, where a company which would otherwise exit the market without the merger is to be taken over by a competitor with a dominant position in the market. The Bundeskartellamt (Federal Cartel Office) therefore requires a structural improvement in the relevant markets.

This means that what has to be compared is the exit of the failing company from the market with the situation of its acquisition by a dominant participant in the market. The Bundeskartellamt considers that a structural improvement is precluded if the merger would result in the transfer to the most dominant company in the market of market share which, in the absence of the merger, would otherwise be distributed among the competitors in the market. Also to be taken into consideration is, however, whether an improvement in the conditions of competition might occur in other markets, which in turn outweighs the disadvantages of the merger. Consequently, the disadvantages of market dominance therefore have to be weighed against the advantages of retention of a business unit that is capable of being competitive in other markets.

Another focus of the investigation is the issue of causality in relation to any deterioration in market conditions and whether this would also have occurred without the merger. Three requirements have to be examined in this regard.

1. Is the failing company capable of surviving without the merger?

2. Is there an alternative to a takeover by the dominant undertaking?

3. If the failing company were to leave the market, would its remaining potential fall to the acquiring company in any case?

In weighing all the factors, the distribution of assets (de-concentration) and, on the other hand, the interests of the employees in maintaining the company in business also play a role.

In the case of newspapers and the media it is therefore not only the reader market that has to be taken into consideration, but equally also the advertising business and also the pure printing. The overall assessment of the facts and implications for the various markets necessarily also results, within the context of an overall weighing of all the factors, in discretionary decisions by the Bundeskartellamt on industrial policy. It is therefore imperative that the relevant appraisal of the facts, and identification and definition of the markets occurs rapidly and that there is coordination with the Bundeskartellamt at an early stage in order that these last chances within insolvency proceedings do not pass by.

The decision of the Bundeskartellamt of 27 February 2013 not to prohibit the takeover of the Frankfurter Rundschau by the Frankfurter Allgemeine Zeitung came literally at the last minute.

A clash between insolvency law and (capital) market regulations under the Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz) is equally possible. In this case the acquisition of control of a quoted company (at least 30% of the voting rights) is subject in principle to a reporting requirement and gives rise in addition to the obligation to make a takeover offer. However, 30% of the voting rights includes not only the offeror’s own, directly held shares but also the shares of subsidiaries of the offeror and of companies with which decisions are made in close coordination, known as “acting in concert”. The offeror and each of its affiliated parties will be deemed to be acting in concert if the intention is to exert influence on the future structure and the overall business operations of the company.

Legislators recognised here too that the obligation to make a takeover offer could at least interfere with the readiness of investors to invest in companies to restructure, or could possibly even destroy it altogether.

Exemption from the obligation to make a takeover offer is therefore possible for the purposes of restructuring a company under section 9 (1) No 3 of the Implementing Regulation to the Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz-Ausführungsverordnung). The requirements are a grave and serious crisis affecting the target company and the possibility, with the acquisition of 30% of the voting rights, of restructuring the company. In addition a corresponding restructuring expert opinion must be presented; expert reports will typically be provided here by accountancy firms who attest that restructuring is possible. The takeover company or company acquiring control must in addition also make an overall contribution towards saving the company and restore the company’s financial solvency.

Here too there is risk in delay. In order that such a request for exemption can be submitted to BaFin (Federal Financial Supervisory Authority) and the deadlines met, a corresponding request must already have been lodged with BaFin prior to the control threshold being reached but in any event within 7 days of the threshold being reached. Along with personal data relating to the parties involved, the restructuring expert opinion, which must be produced in accordance with standards of the institute of certified accountants and state that restructuring is possible and worthwhile, must also be submitted.

This exemption is consequently also a discretionary decision by BaFin and it is advisable to conduct preliminary discussions and make the necessary preparations in good time in order to avoid being affected by the obligation of having to make a takeover offer. Producing restructuring expert opinions can be quite an extensive process; whether and when BaFin then makes the decision is likewise not always predictable. And meanwhile within the crisis situation or even insolvency, time is continuing to ebb away.

For the stakeholders in insolvency proceedings the provisions on attribution of voting rights, which de facto penalise agreements for the purpose of joint action and for decision-making relating to the fate of the company, known as “acting in concert”, are particularly hazardous in this regard. The threshold of 30% can quickly be reached from twice 15% or three times 10%, which triggers the obligations under the Securities Trading Law (Wertpapierhandelsrecht).

Dr Annerose Tashiro
Attorney at Law in Germany
Registered European Lawyer (London)

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