M&A COVID-19 Wire V
1. Proposed Legislation: Extension of Review Periods for German Merger Control
- A formulation assistance for the draft of a law to mitigate the consequences of the COVID-19 pandemic in competition law of the German government provides for an extension of the German merger control review periods. The initial phase I review period shall be extended from one month to two months. The phase II review period (for in-depth reviews) shall be extended from four months to six months. This shall apply to all notifications filed with the German Federal Cartel Office between 1 March 2020 and 31 May 2020 (end of the day) unless clearance has already been granted or is deemed to be granted.
- The extension of the review periods shall provide the Federal Cartel Office with sufficient time for its investigations in relevant markets, in particular as regards third parties.
2. Insolvency Law Instruments for the Restructuring of Companies in Crisis
In order to restructure a company that has fallen into crisis due to the COVID-19 pandemic, the so-called protective shield procedure or insolvency proceedings under self-administration can be considered in addition to regular insolvency proceedings. In the case of the protective shield procedure, the reorganisation of the company with the help of an insolvency plan is provided for as a statutory rule, while the implementation of an insolvency plan is optionally possible in the case of self-administered insolvency proceedings or regular insolvency proceedings. In the following, the individual procedures are briefly described:
- If the debtor combines the insolvency application with a request for self-administration, the insolvency court may - unless the request is obviously futile - order self-administration already for the preliminary insolvency proceedings. In provisional self-administration, the existing management prepares the insolvency proceedings in its own administration. For this purpose, the insolvency court appoints a provisional administrator to monitor the management/self-administration.
- In provisional self-administration, the debtor remains in principle entitled to manage and dispose of the assets. The management is thus given the opportunity - insofar as this has not already been done before the application is filed - to prepare its own restructuring concept. The self-administration can then be continued in the opened insolvency proceedings and the prepared reorganisation concept can be implemented.
- The debtor's management will usually lack the experience and expertise under insolvency law to carry out the insolvency proceedings in self-administration. In practice, therefore, the management is usually supported by a restructuring consultant (with general power of attorney) or a restructuring expert appointed to the board, so that in addition to the administrator, another insolvency expert is involved in the proceedings.
Protective Shield Procedure
- The protective shield procedure is a variant of the (provisional) self-administration procedure, which is aimed at the continuation of the company to be restructured. The debtor is given a period of up to three months to submit an insolvency plan to reorganise the company by ordering provisional self-administration in the protective shield procedure. The protective shield procedure presupposes that the enterprise is only imminent insolvent and/or over-indebted at the time of the application. Furthermore, the restructuring must not be obviously hopeless, which must be certified by an expert at the time of application (so-called "Section 270b Certificate").
- In contrast to provisional self-administration, the debtor can propose the provisional administrator in protective shield proceedings, whereby the court is in principle bound by the proposal (unless the person proposed is obviously unsuitable). The court can also order that the debtor can establish liabilities in the insolvency assets already in the provisional self-administration procedure, which considerably facilitates the financing of the company under the protective shield procedure. Upon application, enforcement measures can also be prohibited or temporarily suspended.
- The term "protective shield proceedings" must not hide the fact that these are insolvency proceedings which are basically aimed at satisfying creditors. The best possible satisfaction of creditors is to be achieved by the continuation of business operations. Within the scope of the protective shielding procedure, the administrative and disposal powers therefore remain with the company. The operative business can therefore (initially) be continued under the protective shield. However, at the end of the protective shield, i.e. usually three months after the application has been filed, a concept for satisfying or compensating creditors in the form of an insolvency plan must be available and implemented.
- Reorganisation by means of an insolvency plan, e.g. within the framework of the protective shield procedure, is a flexible instrument for the reorganisation and restructuring of the debtor company within the framework of the aforementioned insolvency proceedings. Creditors' interests can thus be satisfied away from fixed quotas to satisfy their insolvency claims and participate in the reorganisation of the company. For example, instead of an insolvency quota, creditors can be compensated by granting shares in the restructured company (so-called Debt-to-Equity Swap).
- The insolvency plan can also make use of classic instruments of a transferring restructuring (asset deal). With the equity capital contributed by an investor to acquire the assets, creditors can be compensated under the insolvency plan. A share deal or a capital reduction with subsequent capital increase, in which the legal entity of the debtor company is retained, is also possible. In this case, an investor takes over the shares against payment of a plan contribution in accordance with the provisions of the insolvency plan. The plan contribution is then used to satisfy creditors. In the insolvency plan, the debtor's liabilities can be modified or waived, i.e. the debtor is discharged from debt so that the investor acquires shares in a company freed from its liabilities.
- In addition, the insolvency plan can also be used to maintain customer, supplier and other contracts that are associated with the company and beneficial to it. In order to increase the willingness of creditors to support the insolvency plan, better fortunes clauses can be provided. Under these clauses, creditors will receive a share of the company's future profits in the event of a successful restructuring.
3. Improved Loan Terms and Introduction of a new Express Loan
- KfW has extended the loan terms for KfW Entrepreneur Loan and ERP Start-up Loan. From 22 April 2020, the loan period will be
- for loans up to EUR 800,000.00 maximum ten years (previously: maximum five years), and
- for loans over EUR 800,000.00 maximum six years (previously: maximum five years).
- At state level, LfA Förderbank is working on the introduction of an express loan for companies with up to ten employees. The express loan is to be available to companies, sole proprietors and members of the liberal professions if they
- have been active on the market at least since 1 January 2019 and have up to ten employees,
- were not in difficulty as defined by the EU as of 31 December 2019; and
- have generated a profit in the sum of the years 2017 to 2019.
- The maximum amount of the loan will depend on the size of the company:
- up to five employees: EUR 50,000.00; and
- up to ten employees: EUR 100,000.00,
whereby the loan amount may not exceed 25% of the annual turnover in 2019.
- LfA Förderbank intends to release the financing partner from 100% of the risk.
- Further information on state aid measures for companies can be found here: State aid for affected companies
4. Novel of German Foreign Trade Act
- The German cabinet has resolved a draft law to amend the German Foreign Trade Act. The draft law is expected to be introduced into parliamentary proceedings very soon. In addition, investment review is to be further tightened through amendments to the German Foreign Trade Ordinance.
- In the future, all notifiable transactions are to be subject to a prohibition on implementation. A notifiable investment in a German company will be provisionally invalid. The legal transaction effecting the realisation of an investment will only become (retroactively) effective once the Federal Ministry of Economics and Technology (BMWi) clears the acquisition or does not timely block the transaction or the clearance is deemed granted.
- Various grounds for prohibition are to be introduced to help prevent de facto implementation of a transaction that would undermine the intent and purpose of investment review. In particular, the acquirer may not have target company information disclosed to it that are relevant for the review of potential risks or the non-disclosure of which has been ordered by the BMWi. An acquirer is also to be prohibited from exercising voting rights, whether directly or indirectly. This includes accepting voting instructions. It is furthermore prohibited to allow an acquirer profit distribution rights accompanying an acquisition or an economic equivalent thereof. Violations of these prohibitions can be punished with up to five years in prison or with fines.
- The criteria for a prohibition of investments shall be lowered. Until now, the BMWi has only been permitted to prohibit acquisitions or issue orders when an investment endangers public order or security in the Federal Republic of Germany. In the future, a lower level of risk will suffice. An "anticipated impairment of public order or security" is to be sufficient in the future.
- The BMWi will submit proposals in the near future to amend the German Foreign Trade Ordinance to supplement the provisions of the German Foreign Trade Act. A strategy paper suggests that a particular focus will be planned expansions of the notification requirements for investments, which currently mainly cover investments into critical infrastructures and related sectors, into the areas of artificial intelligence, robotics, semiconductors, bio-technology and quantum technology. In the light of the COVID-19 crisis, it is expected that other sectors like medical devices, vaccines etc. will be added to that list of sectors.
- For a more detailed summary, please see also our respective Client information.
5. COVID-19-Pandemic and Event Contract Law
- In order to protect organisers from high debts and insolvencies, the Federal Government plans to provide far-reaching facilitation for organisers of music, cultural, sports or other leisure events by way of a formulation assistance for a draft of a law to mitigate the consequences of the COVID-19 pandemic in the event contract law as of 8 April 2020. This could be of particular importance for affected portfolio companies in this sector.
- A so-called voucher solution is planned, according to which the organiser is entitled to hand over a voucher to the holder of an admission ticket or other entitlement to participate purchased before 8 March 2020 instead of a refund of the admission price or other remuneration, if a music, cultural, sports or other leisure event could not or cannot take place due to the COVID-19 pandemic. The same shall also apply to rights of use for a music, cultural, sports or other leisure facility. This provision shall only apply if an organiser or operator of a leisure facility is liable for reimbursement under applicable law. This is to be affirmed if the service, which can no longer be provided, has already been paid for in advance. The new regulation does not affect the current legal situation that one does not have to pay if the contractual partner does not perform on his part.
- The value of the voucher must include the full admission price or any other consideration including any advance booking fees. No costs may be charged for issuing and sending the voucher. The voucher can only be paid out if (i) the reference to a voucher is unreasonable for him in view of his personal circumstances or (ii) he has not redeemed the voucher by 31 December 2021.
- The planned legal regulation only covers leisure events or facilities. Events that take place in a professional context, in particular further training, seminars, trade fairs and congresses, are expressly not covered.
- The wording of the draft law of 8 April 2020 (in German) can be found under the following link.
- For further information, please refer to the official questions and answers regarding the voucher redemption of 8 April 2020 (in German) under the following link.
6. Voucher Redemption for Package Holidays and Air Passenger Rights
- Package holidays and air passenger rights are governed by European law. The German legislator is also aiming for a comparable voucher solution for these cases (see above) and has therefore approached the EU Commission. It remains to be seen whether and when a uniform European regulation will be adopted.
- In connection with the COVID-19 pandemic, the EU Commission has published interpretation guidelines (in German) on the EU regulations on passenger rights.
7. Short-Time Working Allowance, new occupational Health and Safety Standard and COVID-19-Tracking-Apps
- According to the Federal Employment Agency, the number of companies in Germany that have registered short-time work has risen to 725,000. The increase of the short-time work allowance from 60% (or 67% for employees with children) to 80% (and 87%) has been the subject of controversial discussions in recent days. The coalition committee has agreed on an increase of the short-time work allowance yesterday evening. From the fourth month, the short-time work allowance will be increased to 70% (and 77%) and from the seventh month to 80% (and 87%). This applies to employees who receive short-time work allowance for working hours reduced by at least 50%. In addition, from 1 May 2020 until the end of 2020, existing additional earning opportunities will be expanded.
- Other companies, however, are resuming operations and also see an end to short-time work in sight. In the course of the relaxation of the COVID-19 measures, the Federal Ministry of Labour and Social Affairs has presented the new uniform occupational safety standard (so-called SARS-CoV-2 occupational safety standard). According to this standard, companies are to ensure occupational safety and health and, for example, extend occupational medical precautions, ensure that a safety distance of 1.5 m is maintained at work, take additional hygiene measures and ensure that risk groups are particularly protected. The legal nature of the new occupational health and safety standard is unclear. The Federal Minister of Labour, Hubertus Heil, spoke of "clear and binding nationwide standards", but it seems that these are (still) recommendations at present. In any case, this is not an occupational safety strategy in the sense of the Occupational Safety and Health Act, which could lead to measures or fines in the event of non-compliance. A national occupational health and safety conference would be required for such an occupational health and safety strategy. Further information on the new occupational health and safety standard can be found under the following link (in German).
- To implement the occupational health and safety standards, a temporary advisory group of experts and representatives of the Federal Ministry of Labour and Social Affairs, the Federal Institute for Occupational Safety and Health, the Robert Koch Institute, two representatives each of the German Trade Union Confederation, the Confederation of German Employers' Associations, the accident insurance institutions and the federal states is to be set up to monitor the further development of the COVID-19-pandemic and make any necessary adjustments to the present occupational health and safety standard.
- Various COVID-19 tracking and tracing apps are currently being discussed, such as the Corona Data Donation App of the Robert Koch Institute (information in German under the following link). With regard to data protection law, the entitlement to process the personal data is based on the user's consent (e.g. reference is made to section 2 of the data protection declaration of the Corona Data Donation App - in German). However, this consent is only deemed to have been given effectively if it is given voluntarily. Voluntariness can no longer be assumed if, for example, employers instruct their employees or at least exert (psychological) pressure to use such an app.
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