Article 4 of the contract deals with representation matters and assurances by the seller. The seller confirms first of all that his/its company is a properly established company which, from a legal point of view, is allowed to carry out all forms of business and activities which a company of its kind can conduct. This type of contractual clause is unusual under German law. The proper establishment and structuring of the seller can be proved under German law by the submission of the relevant documents. These documents include the incorporation deed of the company, the original Articles of Association and all resolutions passed by shareholders. An up-to-date extract from the trade and commercial registry also forms part of the said documents.
The proper authorisation to enter into and to conclude the contract is also confirmed by the seller in Article 4.2 of the master contract. This type of confirmation by the seller is certainly meaningful with agreements in Germany for the purchase and sale of a company. This also applies in particular to the statement made under section (b) that the contract can be effected by the seller alone independently of any involvement by third parties but proof of the correctness of the statement made under section (b) is normally required in asset purchase agreements in Germany.
There is no statutory basis for this information and disclosure under German law, however. The authorisation of the seller to sell the company is normally provided by the submission of current extracts from the trade and commercial registry. This registry includes the company in its actual legal form together with the directors acting as representatives of the company. The submission of these documents is absolutely essential for the purchase and sale of a company in Germany.
Other rulings apply in the subsequent assurances with regard to the financial status of the company. Such an assurance is necessary in order to be able to contest the contract based on the incorrect assurance of the seller in the event of any possible divergence between the seller's disclosure and the actual facts and circumstances.
The same also applies with regard to the seller' assurances concerning his/its legal position and the condition of the parts of the company to be sold. They buyer is also able to enforce rights against the seller in this case in the event of discrepancies between the assurances given and the actual facts and circumstances.
The assurances given on the real estate under section 4.7 are of no importance in German practice. As mentioned earlier, the contract has to be notarised if a conveyance of real estate is involved. Statements made by the seller in the notarised contract on the real estate forming part of the undertaking to be sold always have to be secured by corresponding extracts from the land registry. These are to be attached to the contract in the form of Appendices; this is not only designed as security for the buyer but is also required under the in rem principle of definitiveness which applies in Germany.
An inclusion of lists relating to the installations, equipment, vehicles and inventory items as well as the assurance of the seller that these lists are conclusive and complete as also envisaged in the master contract is absolutely essential with a company purchase in Germany in view of the principle of definitiveness. This also applies to disclosures regarding the intellectual property of the company and existing contracts with the company and disclosures on existing insurance arrangements. Licenses of all kinds which have been issued in favour of the company being sold should also be included in the contractual agreement.
The assurances of the seller on matters concerning employees are not possible in their present version under German law. It is irrelevant to discuss general employment matters in the contract. German law stipulates extensive statutory rulings with regard to entering into employment contracts and also concerning various matters under the trade union law which can normally be included in the contract but which can under no circumstances be waived by the contracting parties. Matters relating to employment contracts and trade unions are therefore of major importance in the case of a company purchase and sale in Germany. A number of comments on this problem are to be found in the introduction on the purchase and sale of company in Germany preceding the general commentary.
Inclusion of the assurances given under Section 4.20 on environmental law matters is important with the purchase and sale of a company. The statutory regulations which govern the operations of a company in environmental law matters cannot be waived by agreement by the contracting parties; the assurance of the seller that he/it has compiled with these regulations during his/its business operations is nonetheless necessary in order to be able to make the seller liable for actions in breach of environmental law regulations conducted during the period of his/its management of the company.
There are no reservations under German law with regard to the other assurances of the seller set out in Article 4.
For further information please contact Dr Erich Michel, Wessing Berenberg-Gossler Zimmermann Lange, Freiherr-Vom-Stein-Strasse 24-26, Frankfurt am Maim 60323, Frankfurt, Germany- Tel: +496 997 1300, Fax: +496 997 130100.
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