Germany: Implementation Of Revised "Transparency Directive", Including New Regulations For A "Delisting Compensation"

In a draft dated 30 September 2015 of the German Implementation Act (Umsetzungsgesetz) ("Draft Act") implementing the revised Transparency Directive which will need to become effective 27 November 2015 at the latest, the German legislator seeks to regulate compensation of outstanding shareholders in case of a delisting.

Currently, other than a voluntary purchase offer as set forth in German stock exchange premium segments' terms and conditions, neither German law nor its interpretation by the highest courts requires a mandatory offer and compensation to shareholders in case of a delisting. The Draft Act requires such a public purchase offer and compensation as a prerequisite for a delisting unless the issuer's shares are on-traded post delisting on another domestic stock exchange or European Economic Area ("EEA") stock exchange where comparable delisting requirements apply. No conditions may be attached to the public purchase offer and it has to comprise a cash consideration, calculated on the basis of the weighted average stock exchange price during the previous six months. Under special circumstances—for example, where events such as market manipulation or publication of incorrect inside information might have materially influenced the past stock exchange price—the amount of the cash consideration will be calculated on the basis of an enterprise valuation of the issuer. These requirements apply equally to a delisting of shares of non-domestic issuers.

Through the Draft Act, the German legislator also seeks to amend the scope of financial reporting for listed companies and major shareholding reporting requirements. The Draft Act eliminates the requirement for listed companies to publish quarterly financial reports (other than half- and full-year financial reports), although this requirement still exists at most German stock exchanges' premium segments. Furthermore, issuers will be required to publish their half-year financial reports within three months (currently: two months) after expiration of the half-year reporting period. The Draft Act also contains a new reporting requirement for issuers operating in the "extraction of minerals or logging of primary forest industries" to report any substantial payments (including contributions in kind) they have made to state agencies or communal agencies in connection with their operations.

Generally, changes to major shareholder reporting requirements are less substantial. These changes include determinations as to the precise point in time an owner of instruments has "knowledge" of circumstances constituting an exceeding, reaching or falling below relevant reporting thresholds. Furthermore, in contrast to the current law, the time the contractual arrangement is concluded, rather than the time of transfer of title of relevant instruments, will be the relevant event triggering a reporting requirement. Moreover, voting rights deriving from shares that were transferred as security (Sicherungsübereignung) are also subject to a voting rights attribution and both the collateral provider and the collateral taker are required to notify provided that the collateral taker has indicated to exercise the voting rights.

In case of a breach of reporting requirements, the scope of a "loss of rights" (including voting rights) will be extended, the maximum monetary penalties will dramatically be increased and German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, "BaFin") will be required (subject to exceptions) to publicly disclose names of persons in breach.

Private Investor Protection Act

On 3 July 2015 the German parliament passed the Private Investor Protection Act (Kleinanlegerschutzgesetz) seeking to further protect private investors investing in products / instruments outside the regulated markets. The most noteworthy changes are (i) an expansion of the scope of information to be included in the sales prospectus (Verkaufsprospekt) for instruments regulated by the German Capital Investment Act (Vermögensanlagegesetz), i.e. non-securities and non-fund investments, (ii) a prospectus requirement for the marketing of subordinated loans (Nachrangdarlehen) and profit-participating loans (partiarisches Darlehen) to the public, with an exception made for so-called internet crowd-funding up to a value of €2.5 million, (iii) a minimum term of an investment product of 24 months, (iv) a maximum validity of the sales prospectus of 12 months, (v) a much stricter regulation of the (public) advertising of the investments in assets and (vi) an obligation of an issuer to prepare annual financial statements (if not already required to do so by other laws). Furthermore, the new law expands BaFin´s power to intervene in market practice through the possibility of "shaming" (e.g. making public a breach due to marketing an offer without having published a sales prospectus in advance), as well as an extended authorisation for BaFin to examine an offeror´s financial accounting.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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