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Beyond Borders: Eversheds Sutherland's ICR insights series. EU Mobility Directive – Legal Update – Germany

  • Germany
  • Corporate
  • Labor law and trade union issues

24-11-2022

Country specific - Germany

This country specific outline contains further information regarding the implementation of the provisions of the EU Mobility Directive into German law and provides further local insight.

For further information and to access any of our other country-specific briefings that we have prepared, please refer to the bottom section of our general briefings page here.

Cross-border mergers, divisions and conversions

Status of implementation

The German draft proposal (the “Proposal”) implementing Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions (the “Directive”) has been passed by the German government and is now in the parliamentary process. The plenary session of the German Parliament, Bundestag, has referred the different parts of the Proposal to three of its specialist committees. The specialist committees conducted expert hearings in the first week of November 2022. Depending on the outcome of the debate in the specialist committees, the German Parliament could possibly pass the Proposal before year-end so that the Directive would be implemented into German law within the deadline of 31 January 2023.

Summary of German current and future legal landscape

Apart from cross-border mergers, Germany currently lacks a clear unified framework for conversions (redomiciliations) and divisions across borders. To date, only domestic divisions and conversions are regulated under German law. In absence of a cross-border legal framework (apart from the European company or SE), however, we do regularly see cross-border conversions being implemented, both inbound and outbound, by applying EU case law regarding freedom of establishment and movement (notably, Luxembourg Court of Justice in Cartesio, Vale and Polbud). The Directive (and the Proposal) currently provide for guidance on the formalities for implementation of such cross-border conversions. However, to date, cross-border divisions are largely non-existent. With the implementation of the Directive, Germany will have a unified legal framework for mergers, divisions and conversions across border within the EU/EEA, safeguarding rights of creditors, employees and (minority) shareholders. We expect these important structuring tools will further facilitate cross-border transactions.

Permitted companies and geographic scope

In the German context, the cross-border transaction can take place between German limited liability companies (the German GmbH (Gesellschaft mit beschränkter Haftung), the German stock corporation (Aktiengesellschaft) and the German partnership limited by shares (Kommanditgesellschaft auf Aktien)) and limited liability companies from the other EU/EEA Member States. The provisions will also apply to Germany domiciled European stock corporations (Societas Europaea, SE), however, with certain modifications. Other entities, such as partnerships other than a partnership limited by shares (Kommanditgesellschaft auf Aktien), may need to rely on the freedom of establishment and relevant EU case law as a basis or, alternatively, convert into a limited liability company. Under the Directive, these cross-border transactions are principally limited to EU/EEA Member States and Germany does currently not permit those transactions with limited liability companies outside of the EU/EEA.

Timing

With implementation of the Directive, generally speaking, the German side of a simplified, non-complex cross-border transaction (i.e. a transaction involving companies with (each) only one shareholder, no employees and no secured assets) takes approximately 4 months to complete at minimum, given the prescribed 3 month creditor opposition period. More complex cross-border transactions could take up to 6-12 months for actual implementation, particularly, as formalities in the EU/EEA Member State of exit and entry will both need to be complied with.

The Directive provides for an extensive legal framework and (largely) harmonised legal process for these cross-border transactions and introduces specific safeguards for creditors, employees and (minority) shareholders. For any further guidance and advice on these matters, please do reach out your local Eversheds Sutherland contact.

Competent authority, pre-transaction certificate and anti-abuse check

As for any domestic German conversion, merger or division, in Germany the commercial register (Handelsregister) is the designated competent authority that executes the German realisation of the cross-border transaction. In that capacity, the commercial register must attest, by means of the issuance of a so-called pre-transaction certificate, that all the German requirements for the cross-border transaction have been complied with and that the cross-border transaction has successfully been executed so far. This is a material formality in the end stage of the German part of the cross-border transaction. As part of its pre-transaction certificate due diligence, the commercial register will have to conduct an anti-abuse check. The commercial register will not issue the pre-transaction certificate and will not authorise the cross-border transaction if it determines that the transaction has been set up for unlawful or fraudulent purposes aimed at evading European or national law.

In case of an outbound cross-border transaction, meaning a transaction whereby a German company converts to or transfers (assets) (in)to a company based in another EU/EEA Member State, the cross-border transaction shall subsequently be finalised in the other Member State involved. Based on the pre-transaction certificate issued by the German commercial register, the designated competent authority of the other Member State is able to proceed and legally complete and effect the procedure locally.

In case of an inbound cross-border transaction, meaning a transaction whereby a company (or companies) based in another EU/EEA Member State transfers (assets) (in)to or is converted into a German company, the cross-border transaction shall subsequently be finalised in Germany. To be able to legally complete and effect the procedure in Germany (please refer to the next paragraph), the German commercial register will require a pre-transaction certificate from the designated competent authority of the other Member State(s) involved.

The German commercial register plays a central role in any German cross-border transaction. However, the procedure will also require specialist legal advice from and supervision and coordination by lawyers of the respective Member States involved. Eversheds Sutherland has specialist lawyers in all relevant jurisdictions who regularly advise on cross-border reorganisations.

Effective date, method and manner of inbound cross-border transactions

Inbound cross-border transactions (i.e. inbound conversions, mergers and divisions) become effective in the form, manner and on the date as prescribed by German law. Inbound and outbound cross-border transactions must be executed in the form of a notarial deed before a German civil-law notary. The conversion, merger or division will become legally effective by operation of law once the respective reorganizational measure has been registered with the German commercial register. Following completion of the cross-border transaction, the German and other local trade or court registers will update their records accordingly.

Miscellaneous

As part of the Proposal, the German legislator also intends to introduce amendments to the existing legal framework for cross-border mergers.

Key local contacts

Should you have any questions or in case you require any assistance in this regard, please do not hesitate to contact us.

Other country specific

For reference, please find other country-specific information we prepared as part of this Insight Series here.