The German Bundestag has extended the applicability of the Capital Investor Model Proceedings Act (KapMuG) until 31 December 2023. The decision was made following a public hearing of experts and extends the Act beyond its previous expiry date of 31 October 2021.  Dr. Thomas Hauss (Partner) and Dr. Thiemo Schäfer (Partner) from McDermott Will & Emery in Düsseldorf explain the position.

When the KapMuG first came into effect in 2005, it was a novelty in German law as it introduced a procedural framework for mass actions related to capital market law. The KapMuG aimed to make it easier for shareholders and investors to pursue damage claims based on false, misleading or omitted public information of the capital market. The KapMuG was completely revised in 2012.

Today, most experts agree that KapMuG has not fulfilled its purpose. Proceedings are generally considered to be too long, too inconvenient and too complex. As a result, most experts spoke in favour of the extension but advocated a comprehensive reform. The German legislator intends to use the time until 31 December 2023 for a review of the current provisions. This review will likely occur against the background of the envisaged implementation of a directive on class actions for the protection of the collective interests of consumers on a European level.

Germany securities litigation current cases overview

Wirecard scandal

On 16 June 2020, Wirecard AG (Wirecard) was informed by its auditor, Ernst & Young GmbH (EY), that no sufficient audit evidence could be obtained for alleged cash balances of EUR 1.9bn in escrow accounts at banks in the Philippines. On 18 June 2020, Wirecard issued an ad hoc publication which stated that the publication of the consolidated financial statements of 2019 had to be postponed due to indications of incorrect balance confirmations. It later admitted that the money probably never existed. As a result, the share price of Wirecard plummeted by over 95%. On 25 June 2020, Wirecard filed for insolvency.

Due to Wirecard’s lack of funds, claimants are looking for alternative/additional culprits to make good on their losses, ie EY and the German Federal Financial Supervisory Authority (BaFin). EY, as they had testified Wirecard’s consolidated financial statements in the past. And BaFin as it allegedly failed to investigate when suspicions about Wirecard first arose long before June 2020.

Individual claims against Wirecard and its (former) top management, EY and BaFin are pending. Additionally, applications for the initiation of KapMuG proceedings against Wirecard, EY and BaFin have been filed.

Porsche and Volkswagen exhaust gas scandal

KapMuG proceedings are still pending against VW and Porsche at the Court of Appeals of Braunschweig (file no. 3 Kap 1/16) (“Braunschweig-KapMuG”) and against Porsche at the Court of Appeals of Stuttgart (file no. 20 Kap 2/17 – see below) (“Stuttgart-KapMuG”).

On 27 March 2019, the Court of Appeals of Stuttgart decided that the Stuttgart-KapMuG claim against VW and Porsche was inadmissible (file no. 20 Kap 2/17). The court held that the proceedings were blocked by the Braunschweig-KapMuG, which had been initiated earlier and concerns similar questions.

On 16 June 2020 (file no. II ZB 10/19), the German Federal Court (BGH) overturned this decision and decided that the Stuttgart-KapMuG was not blocked. The BGH held that the Braunschweig-KapMuG and the Stuttgart-KapMuG do not refer to the same subject matter, as the first refers to (omitted) public capital market information of VW, whereas the second refers to (omitted) public capital market information of Porsche. According to the BGH, the fact that events at VW are at least indirectly significant in both proceedings shall not be decisive.

Recently, the Court of Appeals of Stuttgart appointed the British Wolverhampton City Council Pension Fund as model plaintiff. The appointment of the model plaintiff marks the official start of the proceedings. However, due to various deadlines for comments, the hearing in the Stuttgart-KapMuG will likely not begin before spring 2021.