Transformation Directive (UmRUG) implemented – by Andreas Ludl

The Act on the Implementation of the Conversion Directive was originally scheduled to come into force in January 2023, after the Federal Cabinet had adopted the draft law on the Conversion Directive (EU) 2019/2121 on 6 July 2022. After a tough legislative process, the law transposing the Transformation Directive finally came into force last week – the Bundestag has decided on the draft law on 20 January 2023. The Act essentially entered into force on 1 March 2023.

The regulations for cross-border conversions are found in a newly inserted sixth book of the Act. The regulations on cross-border mergers – previously regulated in §§ 122a et seq. UmwG – also move there. In addition to the cross-border merger (§§ 305 ff. UmwG n.F.), the cross-border demergers (§§ 320 ff. UmwG n.F.) and the cross-border change of legal form (§§ 333 ff. UmwG) are regulated there.

The essential basic principles are as follows:

·                Right of withdrawal against cash compensation (in the case of mergers, demergers and changes of legal form).

·                Right to improvement of the exchange ratio (in the case of mergers and demergers).

·             Exclusion of the right of rescission with regard to valuation complaints (in the case of mergers, demergers and changes of legal form). The valuation complaint is rather to be asserted in the adjudication proceedings. The appraisal proceedings will be available to both groups of minority shareholders, thus ending the different legal protection for minority shareholders of the transferring and the acquiring company.

Not only in the case of cross-border conversions but also in the case of purely domestic mergers, demergers and changes of legal form, public limited companies are also granted the possibility to compensate for necessary adjustments of the exchange ratio not only by an additional cash payment but also by granting additional shares. This possibility considerably improves the liquidity protection of the legal entity otherwise affected by an additional payment obligation.

The protection of creditors has been increased compared to the previous national conversion in Germany and the previous cross-border mergers pursuant to §§ 122a UmwG in the previous version. Upon request, the transferring company must provide security to entitled creditors prior to the registration of the cross-border conversion. Creditors can block the registration if they sue for security.

The role of the registry courts is strengthened by the UmRUG in cross-border conversions. This relates in particular, but not only, to the abuse test. A preliminary certificate is issued on the examination as a basis for further proceedings abroad. Europe-wide exchange of register courts – In the case of cross-border conversions, the legality control is (still) carried out in two stages (with the first control stage in the source state and the second control stage in the target state). The procedure for the preliminary certificate in Germany as the source state is partially restructured by the UmRUG. In future, the preliminary certificate must be sent directly to the competent control authority in the destination state via the Business Registers Interconnection System (BRIS). With regard to the newly introduced abuse control, it is clarified that no preliminary certificate has to be issued in cases of abusive conversions.

Amendment of the rulings procedure. A large number of changes have also been made to the appraisal procedure (including rules for improved cooperation between the appraisal panels involved to avoid divergent decisions in cross-border conversions; the introduction of a general obligation to be represented by a lawyer; the admissibility of a pleading settlement and a majority-consensual appraisal; and the introduction of a requirement to state reasons for appeals).

With the exception of the cross-border merger, which has already been codified, forms of cross-border transformations will now be regulated by law, thus creating more legal certainty.

The new UmRUG adds further legal tools to the previous options. Cross-border transformations therefore have new opportunities – this applies especially to the transfer of individual parts of companies or business divisions that are to be transferred to other EU countries.

The APTIQ Global legal team is happy to support you with all related challenges.