Last Updated on May 29, 2021 by LawEuro
Stock Corporation Act (Laws / Regulations of Germany)
Chapter 4
Securitisation of the external stockholders in the case of control agreements and profit and loss absorption agreements
Section 304
Appropriate compensation
(1) A profit and loss absorption agreement must provide appropriate compensation for the external stockholders by way of a recurring payment of money in proportion with the shares in the share capital (payment of compensation). A control agreement must guarantee to the external stockholders, unless the company is also under obligation to remit its entire profits, a specified annual participation in the profits as appropriate compensation, in keeping with the amount determined for the payment of compensation. Determining an appropriate compensation may be refrained from only if the company has no external stockholder at the point in time at which its general meeting adopts a resolution as to the agreement.
(2) At a minimum, the annual payment of an amount is to be committed to as compensation that foreseeably could be distributed as an average participation in the profits for the individual share of stock, based on the company’s current revenue situation and its future revenue prospects, taking account of appropriate depreciations and value adjustments, but without forming other revenue reserves. Where the other contracting party is a stock corporation or a public partly limited partnership, that amount may be committed to, as compensation payment, that accrues to the shares of stock in the other company in each case as a participation in the profits, based on an appropriate conversion ratio. The appropriateness of the conversion is determined based on the ratio in which shares of stock of the other company would have to be allotted to one share of stock of the company in the case of a merger.
(3) An agreement providing for no compensation at all, in contravention of subsection (1), shall be null and void. An action for avoidance of the resolution adopted by the general meeting of the company to consent to the agreement or to its amendment pursuant to section 295 (2) may not be based on section 243 (2) or on the fact that the compensation determined in the agreement is not a fair equivalent. Where the compensation determined in the agreement is not a fair equivalent, the court determined in section 2 of the Act on Valuation Proceedings under Corporate Law (SpruchG) is to determine, upon a corresponding petition having been filed, the compensation contractually owed; if, in this context, the agreement provides for the compensation to be calculated pursuant to subsection (2), second sentence, then the court is to determine the compensation pursuant to this regulation.
(4) Where the court determines the compensation, the other contracting party may terminate the agreement within two (2) months of the decision having become final and conclusive without observing any period of notice.
Section 305
Settlement payment
(1) Except for the duty to provide compensation pursuant to section 304, a control agreement or a profit and loss absorption agreement must include the duty of the other contracting party, upon a corresponding demand being made by an external stockholder, to purchase the latter’s shares of stock in return for an appropriate settlement payment determined in the agreement.
(2) The agreement must provide for the following as settlement payment:
1. Where the other contracting party is a stock corporation or public partly limited partnership not controlled by another company and in which no majority ownership interest is held and has its seat in a Member State of the European Union or in some other contracting party of the Agreement creating the European Economic Area: the allotment of own shares in this company,
2. Where the other contracting party is a stock corporation or public partly limited partnership controlled by another company or in which a majority ownership interest is held, and the controlling enterprise is a stock corporation or public partly limited partnership having its seat in a Member State of the European Union or in some other contracting party of the Agreement creating the European Economic Area: either the allotment of shares of stock in the controlling company or in the company holding a majority of the ownership interest, or a cash settlement,
3. In all other cases, a cash settlement.
(3) If shares of stock in some other company are allotted by way of settlement payment, then the settlement payment is to be deemed appropriate if the shares of stock are allotted in the ratio in which shares of stock in the other company would have to be allotted to one share of stock in the company in the case of a merger; in this context, indivisible residual amounts may be compensated for by additional cash payments. The appropriate cash settlement must take account of the company’s circumstances as given at the time its general meeting adopts the resolution regarding the agreement. It is to accrue interest from midnight of that day onwards on which the control agreement or the profit and loss absorption agreement entered into force at five (5) percentage points per annum above the respectively applicable basic rate of interest pursuant to section 247 of the Civil Code (BGB); the assertion of further-reaching damages is not precluded.
(4) The duty to purchase the shares of stock may be limited in time. At the earliest, the period shall end two (2) months following the date on which the entry of the agreement’s existence in the Commercial Register pursuant to section 10 of the Commercial Code (HGB) was published by notice. Where a petition has been filed to have the court specified in section 2 of the Act on Valuation Proceedings under Corporate Law (SpruchG) determine the compensation or the settlement payment, the period shall end at the earliest two (2) months following the day on which the decision as to the last petition ruled on has been published by notice in the Federal Gazette (Bundesanzeiger).
(5) The action for avoidance of the resolution adopted by the general meeting of the company to consent to the agreement or to its amendment pursuant to section 295 (2) may not be based on the fact that the settlement payment provided for in the agreement is not appropriate. Should the agreement not provide for any settlement payment at all, or a settlement payment that does not comply with subsections (1) to (3), the court specified in section 2 of the Act on Valuation Proceedings under Corporate Law (SpruchG) shall determine, upon a corresponding petition having been filed, the settlement payment that is to be granted under the agreement. In the cases governed by subsection (2) no. 2, and where the agreement provides for the allotment of shares of stock in the controlling company or in the company holding a majority of the ownership interest, the court in this context is to determine the ratio in which such shares of stock are to be allotted, and if the agreement does not provide for the allotment of shares of stock in the controlling company or in the company holding a majority of the ownership interest, the court is to determine the appropriate cash settlement. Section 304 (4) shall apply mutatis mutandis.
Section 306
(repealed)
Section 307
Termination of the agreement in order to provide security to external stockholders
If, at the time the resolution is adopted by its general meeting regarding a control agreement or a profit and loss absorption agreement, the company does not have an external stockholder, the agreement shall end at the latest as per the end of the financial year in which an external stockholder holds an ownership interest.
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