With its decision of 17 December 2013 (Az. II ZB 6/13) the Federal Supreme Court of Germany (the Bundesgerichtshof) reinstated an attractive opportunity for cost savings − especially for high stakes M&A or financing transactions.

Notarisations in Switzerland prior to the implementation of MoMiG

According to section 15 (3) of the Act for Private Limited Companies (the GmbHG), the transfer of shares requires an agreement in notarised form. Prior to the law that inter alia updated the German Limited Liability Companies Act (MoMiG, which came into force in November 2008), it was generally accepted that notarisations may be held in front of a foreign notary if such notarisation was equivalent to that required under German law. In practice, share transfers were often notarised by Swiss notaries because there were certain cost advantages. Unlike in Germany, notary costs are negotiable in Switzerland.

After the implementation of MoMiG: skepticism about notarisations outside Germany

After the implementation of MoMiG in November 2008, numerous legal commentators doubted whether foreign notarisations of share transfers would still be possible. They specifically referred to the increased importance of the list of shareholders, which is an integral factor for the acquisition of shares in good faith (cf. section 16 (3) of the German Limited Liability Companies Act, GmbHG). Due to the increased emphasis on the list of shareholders, the legislator shifted the obligation for the establishment of the list from the manager to the notary. This means that if a notary is involved in a change in shareholders, he is obliged to submit the list according to section 40 (2) of the GmbHG1. A foreign notary, on the other hand, is not subject to this obligation because of the principle of territoriality. Therefore, according to some authors, foreign notaries are not entitled to perform a notarisation of a transfer in a foreign country as a domestic notary would be2.

The Regional Court in Frankfurt (Landgericht Frankfurt) held, in its judgment of 7 October 2009, that a Basel‑based notary could not meet the obligations laid down in section 40 (2) of the GmbHG, because of a lack of official powers in Germany. Therefore, a revised assessment of the ability of foreign notaries to notarise transfers ”is not only possible but even likely”3. Due to these developments, legal advisors found themselves in the position of feeling obliged to recommend a safe route to notarisation through a German notary.

Decision of the Bundesgerichtshof of 17 December 2013

In its decision of 17 December 2013 (Az. II ZB 6/13), the Bundesgerichtshof has expressly confirmed the resurrection of the system from before MoMiG came into force. Under this system, the required notarisation could be ”effected by a foreign notary even after ... MoMiG [came into force], if the foreign notarisation is equivalent to the German one”. Following this decision, the Registration Court is not permitted to ”reject a list of shareholders submitted for the Commercial Register only because the notary is based in Basel/Switzerland”. The Bundesgerichtshof goes on to explain that it is irrelevant whether the foreign notary is obliged to submit the list of shareholders according to section 40 (2) of the GmbHG because if their notarisation is equivalent to that of a German notary, they are entitled to perform the submission4.

The Bundesgerichtshof has been hesitant to respond to the question whether the notarisation by a notary based in Basel/Switzerland is equivalent to the German notarisation. However, it refers to its own and Regional High Court decisions, where such equivalence was recognised “at least until the coming into force of the MoMiG” . The Bundesgerichtshof highlighted that the Registration Court is only allowed to examine whether the list of shareholders meets the formal requirements of section 40 (2) of the GmbHG. According to the Bundesgerichtshof, the formal right of inspection allows the Registration Court to reject a list of shareholders submitted by a foreign notary only if a foreign notary is ”under no circumstances” entitled to submit a list of shareholders. For a notary based in Basel/Switzerland this is, however, generally not the case.

Assessment and outlook

With its decision, the Bundesgerichtshof has confirmed that the notarisation of transfer of shares is performable by a notary based in Basel/Switzerland. It remains to be seen how legal commentators are going to critique this. There are already some critical comments still doubting the equivalence of foreign notarisations. For example, it has been highlighted that a notary in Basel is not obliged to read the notarised documents aloud according to the local law of notarisation procedure, yet this is a central and indispensable duty in Germany, which was pointed out by the Bundesgerichtshof in other judgments5.

Against this backdrop, it is recommended in the meantime, that the responsible Registration Court or financing bank be consulted before the certification of assignment of shares abroad, in order to ensure a smooth transaction (however, the effectiveness of the transfer does not depend on the submission of the list of shareholders). Overall, it can be said that with this decision the Bundesgerichtshof has reinstated an attractive opportunity for cost savings, especially for high stakes M&A and financing transactions. The industry will adapt to this.