Following its adoption in the Bundestag on 20.01.2023, the Act Implementing the Reorganisation Directive (UmRUG) cleared the final hurdle in today's (10.02.2023) Bundesrat session. The promulgation and consequently the entry into force on the following day should take place next week.
The UmRUG implements the EU Directive on cross-border transformations, mergers and divisions and also contains significant changes for national transformations.
Until now, only the cross-border merger of corporations was regulated by law. The German Transformation Act did not provide for regulations on other transformation processes, such as cross-border demergers or cross-border changes of legal form. According to ECJ case law, these unregulated transformation transactions were nevertheless permissible and possible due to the freedom of establishment (Art. 49, Art. 54 TFEU). In practice, however, this situation led to implementation uncertainties and ambiguities, which were due in particular to the different structuring of cross-border conversions in the legal systems of the Member States. With the aim of strengthening the internal market and thus competition, productivity and economic growth, cross-border conversions were harmonised throughout Europe, in Germany by the UmRUG.
In connection with the introduction of the legal framework for cross-border demergers and changes of legal form, the previous regulations for cross-border mergers will also be amended. For example, the introduction of a legally compliant Europe-wide compatible procedure for digital communication between the commercial registers involved means a significant streamlining of the processes for cross-border transformations.
Only corporations are covered by the scope of application of the UmRUG. However, a partnership with no more than 500 employees can continue to be a receiving company. Other conversions of partnerships are, however, possible by invoking the freedom of establishment.
In the case of cross-border conversions, the court of the transferring entity shall, before issuing the conversion certificate, conclusively examine all aspects within its jurisdiction, in particular the protection of creditors and minority shareholders. The court of the receiving legal entity then only examines the aspects within its jurisdiction, including the protection of co-determination. This clear division of tasks is a clear procedural simplification, as these aspects were sometimes examined several times in the past.
The main provisions of the UmRUG:
Protection of shareholders
The rights of shareholders to withdraw from the company in return for cash compensation and to assert a claim for improvement of the exchange ratio now exist in all forms of cross-border conversion.
When the conversion becomes effective, the acceptance of the cash compensation offer leads to the withdrawal of the shareholder from the company by operation of law, so that in the case of cross-border conversions, the shareholder is not a shareholder of the target company against his will. In the case of national conversions, on the other hand, the previous, more streamlined exit solution remains in place.
The claim for improvement of the exchange ratio exists both in national and cross-border conversions and in the future not only for the shareholders of the transferring legal entity but also for the shareholders of the acquiring legal entity. Through this standardisation, all shareholders only have the possibility to have the exchange ratio reviewed in the appraisal proceedings, but can no longer prevent or delay the conversion.
New is the possibility to provide in the conversion plan or contract of public limited companies that the improvement of the exchange ratio is fulfilled by issuing shares.
Protection of creditors
For the first time, there is an EU-wide minimum standard for creditor protection. Creditors have a right to security so that their claim cannot be jeopardised by the conversion. The assertion of this claim takes place before a central national court of the respective company. Only when it is ensured that no creditor has asserted a claim for security or that the security has been provided, does the commercial register issue the conversion certificate.
Protection of workers
The protection of employees is a central component of the UmRUG and is guaranteed on the one hand by information and consultation rights for works councils and employees, but also by detailed protective regulations on the right of co-determination. As with the conversion to an SE, there is a negotiation on the future right of co-determination and the continuation of the status quo if the negotiation fails. What is new compared to the SE solution, however, is that the obligation to negotiate already comes into effect when the number of employees reaches 400. The negotiation process can also be shortened by proactively applying the fall-back solution.
The protection of employees is also flanked by the abuse check on the part of the commercial register. Here, the legislator has defined standard indications of abuse from labour law. In cases of abuse, the commercial register may not issue the conversion certificate.
Procedural facilitation for all conversions
In the case of conversions, the effects of the conversions on the shareholders and employees must be presented in a report as a rule under the law. The UmRUG now defines more cases (in particular group situations) in which the report is dispensable. In the future, shareholders of only one participating company will also be able to effectively waive their company's report. This also applies to national conversions.
The UmRUG creates significant improvements for cross-border as well as national transformations. Cross-border conversions in particular are streamlined through greater standardisation and are thus likely to increase in importance. It would be desirable for a further amendment to also cover cross-border conversions of partnerships, as these are possible anyway in the course of the freedom of establishment without a procedure being provided for.