Photo of Dr. Clemens Just

Dr. Clemens Just advises clients on all aspects of corporate law and mergers and acquisitions transactions. Clemens has extensive experience acting for financial and strategic investors and on private and public takeovers. His experience includes corporate restructurings and insolvency law issues. Clemens also lectures regularly on these topics, including at the Frankfurt School of Finance and University Mainz. Read Clemens Just's full bio.

International investors with corporate transactions in Germany are often surprised to learn that significant costs can be incurred by a German notary as part of a normal corporate transaction.  The involvement of a German notary is in many cases required by law, and the corresponding costs for such notary are set by the German federal statutory cost order (Gerichts- und Notarkostengesetz – GNotKG) with certain caps, however, amounting up to EUR 53,170.  A recent change in the German federal statutory cost order for notaries has increased these costs.

In practice, structures can be modified to save notarial fees without any material deviations of the transaction documents.  For instance, international transaction documents are drafted often as bilingual documents. Under the changes in the new statutory cost order, the value of bilingual documents has increased by 30 percent.  It is worth considering if such translated documents should necessarily become a part of the notarial deed at all or if they may be attached as a non-binding convenience translation to save costs.  In addition, a choice of law clause, which leads to another 30 percent increase in the value of the transaction and unexpectedly higher notary costs, may be (and sometimes even has to be) avoided.

The notarial deed may also incorporate legal issues that increase costs but that do not have to be notarized at all.  Provided that this does not affect the completeness of the notarial deed, certain provisions that would trigger further notary costs (for example, a choice of law clause) can be separated from the notarial deed.  In addition, other legal facts that have to be notarized may be incorporated in one deed instead of two separate ones, thus saving costs as the German federal statutory cost order reduces the overall costs in a percentage basis the higher they are.  Certain transactions such as sales and transfers, or pledges of shares in a GmbH, can also be notarized by a Swiss notary, whose costs can be substantially lower than a German notary´s costs.

In sum, (international) investors should carefully consider ways to avoid increasing notarial fees when entering into corporate transactions in Germany.

Traditionally, a cross-border “migration” of a company from one European Union (EU) Member State to another EU Member State, while technically possible, has been cumbersome and costly.  Such a migration would involve either a wholesale move of the subject company’s business seat (i.e., the location of its chief executive office) or a cross-border merger of national companies could be considered.  But that has now changed. 

Recently, however, the VALE judgment of the European Court of Justice issued on July 12, 2012 has opened the door for EU companies to take advantage of a cross-border “conversion” (i.e. , the transfer of the registered office from one jurisdiction to another, including a change of applicable law, without the requirement of winding up, liquidating the company ).  Even though the VALE judgment was handed down in 2012, the precise procedural rules, in particular how local commercial registers would apply the rulings of the VALE judgment, remained unclear until recently.

In a recent judgment, the High Court of Nuremberg has become the first German High Court to apply the rulings of the VALE judgment.  The case concerned a conversion of a private limited liability company organized under the laws of Luxemburg into a private limited liability company organized under the laws of Germany.  Upon application, the company was deregistered from the Luxemburg register.  Subsequently, the subject company applied for registration with the German commercial register and for conversion into a German limited liability company.  The registration was rejected by the German Regional Court.  This decision was recently overruled by the High Court of Nuremberg citing the VALE judgment and its authorization of cross-border conversions.

The case is of key importance for companies that plan a corporate migration within the EU and, in particular, the relocation of their business to Germany.  Such a migration might be necessary in course of an international restructuring, a post-acquisition integration or after a change of market conditions.  The key aspect of a conversion is that the company maintains its legal identity, which means that no transfer of company contracts and assets occurs.  In practice, the cross-border conversion is one of the simplest ways to move business activities from one EU Member State to another EU Member State and should be taken into account in the future by companies considering international reorganization or restructuring.

Corporate Deal Source is pleased to present the first of many blog posts with an international flavor.  Today’s post discusses a German Supreme Court decision that recently altered the fiduciary duty landscape for a GmbH (i.e., a German limited liability company).  Dr. Clemens Just summarizes briefly below how the German Supreme Court came to the conclusion that an individual lacking a formal appointment as a managing director of a GmbH may indeed owe fiduciary duties to the GmbH.  Understanding these new implications is critical not only for German deal-makers but also for international deal-makers doing deals in Germany.

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Under German corporate law, the managing director of a GmbH (German limited liability company) has general fiduciary duties to the company.  While this concept has not been laid down in German corporate law statutes, it has been widely accepted by German courts.  The precise scope of these fiduciary duties is somewhat unclear, but there is in general a broad understanding that managing directors of a GmbH: (i) must keep sensitive company matters confidential, (ii) in the event of a direct conflict of interest between the managing director and the company, the managing director must act to protect the company and (iii) the managing director is prevented from exploiting its position in the company to enrich itself at the expense of the company, i.e. by accepting a commission fee in exchange for arranging a transaction with the company.

In a recent decision, the German Supreme Court (BGH) had to analyse the question of whether a managing director in fact (i.e. a person without a formal appointment as managing director but who directly or indirectly exercises substantial influence over the company’s business decisions) may also be subject to such fiduciary duties.  This fiduciary duty was analyzed in connection with a criminal embezzlement action, however, the fiduciary relationship of the person to the company had to be clarified.  The BGH held that while the threshold whether an individual can be deemed to be a “managing director in fact” is high, once that threshold has been passed, the person in question will have fiduciary duties to the company.  Consequently, an individual who can be viewed as managing director in fact cannot argue that the lack of a formal appointment as managing director precludes him owing fiduciary duties to a company.  It should therefore be carefully checked whether the test criteria of a managing director in fact of a GmbH may apply, as this may mean that such person has fiduciary duties to the company in question and could be liable for damages if it violates those fiduciary duties.