German companies are currently coming to terms with new legislation that places obligations on them in the event of a change in control of the business.

The German Risk Limitation Act, which came into force in August 2008, was introduced to increase the transparency of the corporate veil, by requiring investors to disclose more information than they were required to disclose in the past.

The new legislation has implications for employers as well as investors. A company’s Economic Committee (or its Works Council) must now be informed about a change in control of the company, i.e. where at least 30% of the voting rights in a company are held. Previously there was no duty to provide this information to companies without an Economic Committee. Furthermore, they were only entitled to this information in the event that all the shares in the company were being bought, not just a controlling stake.

The Economic Committee (or Works Council) now has the right to see information about the potential purchaser of such a stake as well as the purchaser’s intentions with regard to the future business operations of the company and the implications for employees. The only exception is where the release of the information would damage the interests and business secrets of the company being acquired.

This new legislation has caused a significant amount of additional administrative expense for employers, especially smaller ones. They cannot however afford to ignore the new provisions, as they then run the risk of the Works Council commencing proceedings in the Labour Courts or of facing a fine of up to €10,000.00.