New ownership rules add to costs for German firms

German companies are facing costly administration schemes following the introduction of legislation that places obligations on them in the event of a change in control of the business.

The German Risk Limitation Act, which came into force in August 2008, was introduced to raise the corporate veil, by obliging investors to disclose more information than they had done in the past.

The new law has implications for employers as well as investors. A firm’s economic committee or works council must now be informed about a change in control of the company where at least 30% of the voting rights in a company are affected.

Previously, there was no duty to provide this information to companies without an economic committee. And they were entitled to this information only in the event that all the shares in the company were being bought, not just a controlling stake.

The economic committee or works council now has the right to see information about the potential purchaser of such a stake, as well as the purchaser’s intentions concerning the future operations of the company and the implications for employees. The only exception is where the release of the information would damage the interests and business secrets of the firm being acquired.

This new legislation has caused a significant amount of additional administrative expense for employers, especially smaller ones. They cannot afford to ignore the new provisions, however, as they then run the risk of the works council commencing proceedings in the labour courts or of facing a fine of up to €10,000.

www.linklaters.com

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