The Ministry of Finance and the Ministry of Justice have agreed on the introduction of a 'squeeze-out' procedure into the German Stock Corporation Act.
They plan to incorporate the squeeze-out procedure into a law for the transformation of the 13th European Directive on Take-overs (the '13th Directive'), that is, in a Fourth Act for the Promotion of the Financial Market (4. Finanzmarktföderungsgesetz). This is the reason for the involvement of the Ministry of Finance.
As regards timing, the European directive will probably be issued in September this year. The European Council reached a majority agreement on the subject matter at the end of June. Only Spain and the UK were still reluctant to agree. However, it can be expected that the 13th Directive will be formally issued within the intended time frame.
The plan is then to introduce the German bill for a transformation act of the 13th Directive by the end of the year or early next year. It is not yet clear whether the bill will be introduced as a bill presented by the government (Regierungsentwurf) or first as a bill drafted by the competent reporter in the Ministry of Finance (Referententwurf).
Apparently the Ministries of Justice and Finance have agreed to enact a Take-over Act even if, contrary to all expectations, the 13th Directive is not issued this autumn. A 'squeeze-out' would then be permissible if a stockholder holds 95% or more of the outstanding shares. Two issues are still discussed in this respect: first, whether the 'squeeze-out' should be limited to listed companies. This will probably not be the case as companies in which such a percentage is reached might be delisted voluntarily or involuntarily. The second question is whether or not the 'squeeze-out' must be preceded by a (voluntary) cash offer. Again, this will most likely not be the case because it should not make any difference how the threshold of the 95% has been reached.
The Committee for Commercial Law of the German Bar Association has prepared a draft for a new Section 327 Stock Corporation Act which is presently discussed within the Ministries of Finance and Justice. According to the draft, a stockholder owning 95% of the issued share capital has the right to acquire the shares of the other stockholders against the payment of adequate compensation. The right to acquire may only be exercised through a resolution of the general meeting. The majority shareholder determines the amount of the compensation which has to take into account the circumstances of the company at the time of the resolution. The resolution may not be challenged on the ground that the compensation is too low. However, the minority stockholders have the right to have the competent court review the compensation. If the court finds that the compensation is not adequate it determines an appropriate compensation. The same procedure applies in the case of a merger.
For further information on this topic please contact Oleg de Lousanoff at Hengeler Mueller by telephone (+49 69 17 09 50) or by fax (+49 69 72 57 73) or by e-mail ([email protected]).
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