A recent Federal Court of Justice ruling sets out the requirements for subordination agreements designed to avoid insolvency. The court used the opportunity to clarify a number of basic and previously disputed questions concerning the nature and requirements of such agreements, which are a typical restructuring tool for stabilising a company in a crisis.
There is some uncertainty in self-administration proceedings as to the scope and content of a 'substantial impairment of interests', which will lead the court to refuse an application for self-administration and, where alleged by creditors, will trigger severe consequences for the restructuring process. A recent Cologne District Court decision has further clarified the definition of a 'substantial impairment of interests'.
In a decision which is expected to bring major changes to the regime of directors' liability, the Federal Court of Justice recently changed its previous jurisprudence on payments made after the occurrence of mandatory insolvency reasons. The court clarified that directors must reimburse payments after the occurrence of illiquidity or overindebtedness only if those payments were not compensated.
German insolvency law offers insolvency plans as a means to restructure a company in insolvency proceedings. An insolvency plan can include solutions that are almost as flexible as an out-of-court restructuring agreement. Recent amendments to insolvency law have extended the array of restructuring options and consequently insolvency plans are gaining in popularity.
The Federal Court of Justice recently ruled that the presumption of an intentionally disadvantageous transaction based on awareness of impending illiquidity can be rebutted if the debtor has made a congruent payment against a fair and immediate consideration which was essential for the continuation of the business and beneficial to the creditors.
The Federal Court of Justice has held that knowledge of impending illiquidity leads to a strong presumption of the debtor's intention to disadvantage its creditors; even liabilities which will become due in future must be taken into account when considering whether illiquidity may occur under certain circumstances. Such circumstances have a major impact on restructuring efforts and the risk of clawbacks.
Environmental auditing is not compulsory. However, the significance attached to proactive environmental management means that this system is already expected of many companies. Public reports on environmental performance are required only from the few facilities subject to the EU Seveso II Directive. Reporting may become necessary in light of the increasing trend for corporate social responsibility.
Any pre-acquisition liabilities associated with acquired assets generally remain with the seller. A buyer's principal concern is the potential for incurring liability for any contamination that may be present on the target's properties. If contamination migrates to nearby land, the buyer is also at risk of a civil claim from the owner of that land. When acquiring a company's shares, the buyer also acquires liabilities incurred by the target.
The regulatory regime relating to land contaminated by hazardous substances is based on the Soil Protection Act. Several public authorities, known as the soil protection agencies, are responsible for enforcing the regime. Non-compliance with the regulatory regime, particularly a clean-up order, can be punished by a fine or, in severe cases, imprisonment.
There is no separate permitting regime for waste generation. Permitting requirements are dealt with in the relevant building or Emission Control Act permits. Asbestos waste is treated as hazardous waste and several official notifications must be made to transport it. Non-compliance with the regulatory regimes for waste and asbestos can consist of imprisonment or a fine.
An environmental impact assessment (EIA) must be carried out for large-scale projects. The list of projects requiring an EIA is set out in the Environmental Impact Assessment Act. EIAs are conducted by the permitting agency and form an integral part of the permitting procedures for a project. Permits and licences are not required.
In the past 20 years the development of renewable energies has made significant progress. According to the Renewable Energies Act, the share of renewable energy in Germany's overall power supply is set to total 30% by 2020. Germany has also adopted the Integrated Energy and Climate Programme, which aims to reduce greenhouse gas emissions by 40% by 2020 compared to 1990 levels.
The Federal Supreme Court recently confirmed that foreign arbitration agreements which do not adhere to the formal requirements of Article II(2) of the New York Convention may still be valid under the less strict criteria of Section 1031 of the Code of Civil Procedure.
The Federal Supreme Court has rendered an important decision dealing with the international jurisdiction of German courts in execution proceedings against sovereign assets of foreign states. In the case at hand, even a waiver of the debtor state's immunity under German law could not establish the jurisdiction of German courts for the granting of execution orders into sovereign claims.
The Federal Supreme Court has changed its jurisdiction on preclusion in enforcement proceedings relating to international arbitral awards. The court held that a debtor is not required to exhaust all available remedies at the (foreign) seat of arbitration to preserve its right to argue in enforcement proceedings in Germany that no valid arbitration agreement exists.
The European Court of Human Rights has recently pointed out that excessively long judicial proceedings constitute a systemic problem in German procedural law and stated that the German legal system does not provide for an effective remedy against this. The government has since submitted a draft law with the aim of implementing an effective remedy against unreasonably long judicial proceedings.
The Federal Supreme Court has ruled that, despite being of an extra-contractual nature, liability for damages on tort may trigger a court's jurisdiction in accordance with Article 13(1)(3) of the Lugano Convention, provided that these claims are so closely linked to the contract that they are indissociable from it. This development will significantly increase the protection afforded to consumers.
Irrespective of certain weaknesses that German restructuring and insolvency law may have, creditors whose claims are secured by land charges can nevertheless choose between several feasible possibilities for realising encumbered real estate. German law tends to be somewhat reluctant to allow creditors to grasp direct control of real estate. As such, the Federal Ministry of Justice's recent proposals should be welcomed.
Emergency laws which are enacted in the wake of the financial crisis are unavoidable for creditors and the rules that they establish are hard to predict. As long as these foreign laws achieve the collective satisfaction of creditors' claims, the risk of a pending lawsuit in Germany being suspended cannot be excluded. However, the chances of litigating such cases in the German courts may be better than in other EU countries.
The Frankfurt Higher Regional Court has frozen assets on the basis of an ex parte application for preliminary enforcement of a foreign arbitral award. The decision was made under Section 1063(3) of the Code of Civil Procedure's preliminary enforcement provision, which allows successful claimants in arbitration to obtain securing measures like asset freezes even before exequatur of the arbitral award is granted.
The Federal Supreme Court's decision in Gebäckpresse confirms that there is a de facto necessity to apply for Community registration of designs which have been disclosed outside the European Union within one year of the date of disclosure. This is because any publication of a design has a novelty-destroying effect, regardless of whether it takes place inside the European Union.
The Federal Supreme Court ended the German practice of permitting claimants to seek the enforcement of foreign judgments confirming arbitral awards. Overturning a 25-year-old ruling, the court no longer offers claimants a choice between the enforcement of the original arbitral award and the recognition of its exequatur from jurisdictions following the procedural merger doctrine.
In the German courts, German lawyers present their cases based on German law. This scenario does not benefit from the use of the English language. While non-German parties should not be excluded due to language difficulties, oral arguments and briefings take place not for the benefit of non-German parties, but in order to convince the German judge.
The new Section 32 of the Federal Data Protection Act fails to draw a clear line between what constitutes permissible anti-fraud measures and what is considered impermissible interference with employees' personal rights. At least until a new act is passed on the protection of employee data, the uncertainty surrounding how to ensure the legality of internal investigation and control measures will remain.
The Supreme Court has held that disputes on the validity of shareholder resolutions in German limited liability companies are arbitrable, based on an arbitration clause in the company's articles of association. The court established a set of requirements for the validity of shareholder arbitration clauses that other jurisdictions may wish to take into account when considering their position on appropriate procedural safeguards.
In a recent case, the International Centre for the Settlement of Investment Disputes tribunal has refused to apply the 'most-favoured nation' clause of the German-Argentine bilateral investment treaty to its dispute settlement provision. It thereby contributed to the longstanding debate regarding the applicability of such clauses to dispute settlement provisions.
When negotiating a corporate acquisition, the buyer and the seller often agree on a standardized share purchase agreement. It is impossible for a seller to exclude itself from any liability for damage sustained by the buyer due to a defect which the seller was aware of but did not disclose. Many recent civil actions against enterprise sellers have been based on alleged breaches of disclosure obligations.
Companies that are formed under foreign law and that subsequently move their registered offices to Germany are currently denied legal capacity unless they establish a new company under German law. The European Court of Justice is to rule whether this practice is compatible with the freedom of establishment.
A Federal Ministry of Justice draft bill on the Euro Balance Sheet Act provides some relief from the legal obligation to disclose results for foreign companies' branch offices, and increases the threshold values at which annual financial statements must be disclosed.
The Registered Shares Act introduces important innovations with respect to the use of modern media in German stock corporations. It sets out new regulations concerning registered shares, and has introduced the possibility of proxy voting. The rules of post-formation acquisitions have also been amended.
Shareholders can request information only at the shareholders' meeting and only if the information is necessary to permit proper evaluation of the relevant item on the agenda. The Federal Constitutional Court has considered whether these restrictions violate a constitutional guarantee of ownership.
Security for building claims has been under discussion in Germany recently. The principal often requires a surety bond with the obligation to pay on first demand from the contractor in order to ensure proper performance of the building work. However, the extent to which this is permissible has been disputed.
Pursuant to a new act which implements EU law, the disclosure obligations of corporations and commercial partnerships in which no general partner is a natural person have become more rigid. Failure to meet the new requirements may be penalized by a fine.
Including: Types of Building Contract; The Award Rules for Building Works; Formal Requirements for the Building Contract; Construction of the Agreed Building; Payment for Building Work; When is Payment Due?; Payment Claim; Bearing of Risk; Acceptance; Warranty; Delay and Contractual Penalty; Termination; Security for Claims
Two new acts have incorporated European Union directives on the award of public building contracts into German Law. These acts safeguard the principles of competition and equal treatment of applicants
Construction contract award procedures in Germany have recently changed to enable rejected bidders to contest contract awards once they have been made.