Reinhard Eyring and Philip Cavaillés

BEARER AND REGISTERED SHARES IN THE LIGHT OF THE 2012 COMPANY LAW AMENDMENT*

The government’s draft company-law amendment was adopted by the Federal Cabinet on 20 December 2011. Whereas  previous reforms (UMAG, ARUG, VorstAG and BilMoG) made fundamental changes, the 2012 company-law amendment develops company law only selectively. The government’s draft differs sometimes considerably from the ministerial draft of 2 November 2010, particularly on whether unlisted companies should be limited to the issuance of registered shares. The following are the significant changes on bearer and registered shares in the government bill.

Changes made by the 2012 Company Law Amendment

The company-law provision relating to the securitization of membership rights, §10 AktG, will be revised by the company-law amendment. A company’s previous option to issue either registered or bearer shares will be eliminated. The ministerial draft stipulated that unlisted companies could issue only registered shares. This scheme was weakened due to considerable criticism from academics, professionals and associations, and the option right (partially) preserved.

An option right is to continue, even if the registered share is to be the ordinary case, §10(1), first sentence, AktG-E. Bearer shares can according to §10(1), second sentence No. 1, AktG-E only be issued by listed companies, or, in accordance with No. 2, if entitlement to individual certification is barred and a Global Note is deposited with a securities depositary or a comparable foreign custodian. A company is listed if its shares are traded on a regulated market (§3(2) AktG). The unofficial market is not a regulated market. The new arrangement allows access to the free trading of bearer shares, if the claim to individual certification is barred and a global certificate is deposited.

The aim of the change

The aim of the new rules is to create a more transparent shareholder structure in unlisted companies. The Financial Action Task Force, an intergovernmental organization for measures against money laundering, which was created on the basis of an initiative by the leaders of the G7 countries, criticized that the lack of transparency would facilitate such crimes as money laundering and terrorism financing. The reporting thresholds of §§ 20, 21 AktG (disclosure above 25 percent of shares held) were not considered sufficient. The draft assumes that in suspicious cases investigators can through the collective securities deposit retrieve timely information and through the custody chain determine the identity of the shareholder.

Opinion

Basically, the option right and freedom of design are welcome. The mandatory collective deposit should facilitate the establishment of the identity of shareholders of questionable companies. To ensure protection even in the period between establishment and deposit, §10(1), second sentence No. 2 and third sentence, AktG-E provide that §67 AktG is applicable mutatis mutandis. Until the deposit of the global certificate, holders of bearer shares are to be registered in the share register.

Whether the goal of full transparency in the shareholder structure is achieved is questionable. In future, the possibility for a third party to be registered as a shareholder still remains. The Commercial Law Committee of the German Bar Association already pointed this out in its criticism of the ministerial draft.

It would have been possible to achieve more transparency by, for example, lowering or expanding company-law thresholds.

Established rights

§26f(1), second sentence, EGAktG-E gives wide-ranging protection for established rights. For companies that were founded before the day of the Cabinet decision (20 December 2011) and have issued bearer shares, the new provision of §10(1) AktG-E does not apply. A transitional period after the expiry of which the shares should be changed is not provided for.

For the date of founding of the company, by §23(1), first sentence, AktG it is that of the notarization of the Articles of Association.

Conclusion

The more than one-year period between the publication of the ministerial draft on 2 November 2010 and the adopted government bill on 20 December 2011 reflects the controversy over the content of company-law amendment. Also, there are still different views on how the objectives can best be implemented. It remains to be seen whether the 2012 Company Law Amendment makes it possible largely to achieve the objectives set out. Particularly in relation to combating terrorist financing and money laundering, this seems doubtful.

The introduction of the (partial) share-type option right in unlisted companies is welcome, however.

*By Reinhard Eyring, Partner and Dr. Philip Cavaillés, Rechtsanwalt and Solicitor (England & Wales), Ashurst LLP