2008-07-02 Schultze & Braun

Distressed company investors warned: new German law may mean they are compelled to take-over the whole business

Hedge funds, investment banks, private equity firms and other distressed debt investors targeted

A new German law set to passed today (Friday 4 July 2008) that will come into force this summer means that investors who together hold or acquire at least 30% of a distressed business’s shares (or voting rights) may have to buy out all other shareholders if they agree to attempt to reorganise the company.
The change results from the Risk Limitation Bill (Risikobegrenzungsgesetz) that today was passed by the German Parliament. The affect of one amendment is that if investors acquiring or holding 30% or more of the stock of a German company work together in attempting to restructure a distressed company, they are now compelled to bid for all of it.
Annerose Tashiro, a specialist cross-border restructuring lawyer at Schultze & Braun, said: “The legislation intends to ban stakeholders acting in concert to influence the management of a listed company concerning its future structure or its overall business purpose. The effect of the change is that if investors seek to cooperate together to reorganise a distressed company ahead of it going into administration, they will have to bid for all shares if, together, they hold at least 30% of the stock or plan to acquire. There are some exemptions, but there will be much uncertainty around when they apply.
“This is a very broad definition so hedge funds, investment banks, private equity firms and others involved in distressed debt with the intention to seek an equity stake need to particularly beware – even having the option to buy shares may come within the definition.”
“This legislation is part of a campaign by German legislators against large financial investors,
particularly foreign ones, who were memorably labelled as “locusts” by one finance minister. It is designed to make it harder for large investors to impose their will on smaller ones, but it woefully misses this objective as it will also be hugely off-putting for small stockholders if they fear cooperating with others could leave them in a position of having to launch a buy-out.”
In order to protect companies, their minority shareholders and also their employees, the new law also imposes several new obligations to create greater transparency around the identity of investors. These include requirements to disclose the identity of the owner, the origin of the investment and the purpose of the investment.

For further information please contact our spokesperson:
Mail: Presse@schubra.de, Phone: +49 (0) 7841/708-0

Additional information:
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