In the German market, target companies are generally acquired out of insolvency through an asset sale. While this still holds true for the lion’s share of transactions, an increasing number of target companies are being acquired through a share sale.

The process always starts with an insolvency plan and the insolvency estate transferring the target assets to special purpose vehicles (SPVs) of the estate. The way in which the target assets are transferred, however, differs from case to case depending on the specific goals of the investor. If, for example, one of the main values of the estate lies in lease contracts and the landlords do not agree to a transfer of these contracts to the investor, the transfer of the target assets to an SPV would be effected by operation of law under the German Transformation Act. This allows the investor to acquire the shares in the SPV holding the lease contracts without having to obtain any consent from the opposing landlords. This is, however, only one example of a legal way to transfer assets to the SPV and the method of transfer should be tailored for each individual case.

The legal risk involved should always be taken into account, as the German Insolvency Code does not provide any specific provisions for such a deal structure and there are currently no court rulings which give rise to discussions in German legal literature. It is still unclear, for example, as to whether insolvency claims may transfer by operation of law under the German Transformation Act to the SPV together with target assets.