Gesellschaftsrecht und M&A

Completing M&A Transactions in the Corona-Crisis – Tele Signings and Closings

Dr. Stephan Bauer, LL.M.

The current COVID 19 pandemic creates various logistic difficulties for completing M&A transactions. Almost every country in the world has issued strict entry bans or has imposed quarantine obligations of two weeks for incoming travelers. Also within EU-countries, travelling is heavily restricted and logistically difficult due to limitations in air traffic.

Signing and closing M&A transactions often requires the involvement of notaries, in particular when shares in limited liability companies (GmbH) need to be sold and assigned or when real property needs to be sold and transferred in asset deal transactions or mixed asset and share deal transactions. Some documents are required in original versions (not only scanned PDFs), partly for evidence reasons, partly for submission to e.g. commercial registers. Finally, some transactions involve public authorities such as e.g. the German Federal Cartel Office (Bundeskartellamt, “BKartA”)) or the German Ministry of Economy and Energy (BMWi), which currently partly work from home.

Experience so far shows that none of the aforementioned restrictions has deal-breaker qualities. Here is a short summary of how to sign and close M&A transactions in Germany without having to leave the home office or the office.

1. Tele Signings

The shares in some German companies, such as stock corporations (Aktiengesellschaft) or limited partnerships (Kommanditgesellschaft) can be sold and transferred without observing form requirements. Therefore, a sale and transfer is generally possible by exchanging signed PDF copies by e-mail and the original signed copies by mail or courier. According to Section 126 para. 2 of the German Civil Code, it is not necessary that all parties sign on the same execution original of the contract. The existence of originals is mainly relevant for reasons of evidence in court or arbitration proceedings in case the valid signature is disputed. 

Shares in limited liability companies (GmbH) can only be validly sold and transferred by notarial agreement where all involved parties or their representative are physically present at a notary. It is possible to separately notarize an offer to conclude a share purchase agreement at one notary and an acceptance of such offer at another notary. However, such procedure increases the notary costs by a 1.5 fee if the offer and the acceptance are notarized at two different notaries. 

Another possibility is to send representatives to the notary meeting on the basis of powers of attorney. Notaries are reluctant to have their notarial assistants act as authorized representatives to sign the actual share purchase agreements (and not just the reference deed) for reasons of professional duties as well as for liability reasons. Therefore, it is usually required to authorize another person (e.g. a lawyer present in the city where the share purchase agreement is notarized). It is recommendable for deal counsel (and their clients) to participate in the notary meeting via video or telephone conference and to have the notary display the share purchase agreement to all involved parties via a tool such as GoTo Meeting or Microsoft Teams, so that the parties and their counsel can intervene in case they detect last minute errors. 

In any case, tele signings, in which deal counsel are not physically present, need to be even more thoroughly prepared than notary sessions with physical presence. Important points should not be left open until the notarization date.

2. Regulatory Requirements

The COVID 19 pandemic does not change the procedure at the BKartA. As before, the BKartA has one month to decide whether it wants to enter into a stage two proceeding (Section 40 para. 1 of the German Antitrust Act (Gesetz gegen Wettbewerbsbeschränkungen,GWB”). Such one month deadline is a hard deadline and cannot be extended. Therefore, if the BKartA has not reacted to a complete filing (containing all information required according to Section 36 para. 3 GWB) within one month after its receipt, the acquisition or merger is deemed to have been released. 

Experience shows that the competent case handlers and Chairwomen/-men of the different departments of the BKartA can be reached by telephone (in home office) and react fast to questions or announcements.

Also proceedings before the BMWi in foreign investment control cases according to Sections 55 et seq. of the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, “AWV”) do not change due to the COVID 19 pandemic. The respective case managers at the BMWi can be reached by telephone and response times have not significantly slowed down. However, it has to be noted that – once the BMWi has entered into a stage two investigation according to Section 55 AWV – the four month deadline according to Section 59 para. 1 AWV, during which the BMWi has to decide whether or not to prohibit or restrict the acquisition, is far less strict than the one month deadline according to Section 40 para. 1 GWB in merger control proceedings. Experience shows that the “complete documents according to Section 57 AWV” as referenced in Section 59 para. 1 AWV are often interpreted rather widely by the BMWi.

3. Tele Closings

In many M&A transactions prior to the outbreak of the COVID 19 pandemic, closings were held physically. All closing documents are signed and the purchase price is paid. The COVID 19 pandemic has increased the need for non-physical closings. How to structure such tele-closings depends on the closing actions to be performed. Below, several typical closing actions are outlined with solutions on how to deal with them in a tele-closing:

  • Appointments, dismissals and resignations of managing directors, members of the management board, members of supervisory and advisory boards: all such documents are legally effective when made in writing. However, originals of shareholder resolutions and resignation letters are required in order to have the respective appointments, dismissals and resignations registered in the commercial register. Therefore, it is advisable to have the respective originals sent to the notary appointed by the parties in escrow already in advance of the closing. 

  • Share transfer deeds and share certificates of German companies: it is advisable to declare the transfer of shares already in the share purchase agreement, subject to the usual conditions precedent (payment of purchase price, fulfillment or waiver of closing conditions) and notarize required commercial register applications for the registration of the share transfer in German limited partnerships (Kommanditgesellschaft) already at the notarization of the share purchase agreement and direct the notary to hold it in escrow and file it only upon the direction of the parties to file it.

    In case share certificates need to be handed over (in case of stock corporations (Aktiengesellschaft) with bearer shares), one possible solution is to deposit the share certificate(s) at an escrow agent, which can be a lawyer, a bank, a notary or another trustworthy person, and direct such escrow agent to only release the share certificate to the purchaser once the seller(s) have/has confirmed to have received the purchase price.

  • Closing Actions involving other Jurisdictions: in case of multinational transactions involving closing actions in different jurisdictions, logistical problems can occur. For example, notaries in several non-German jurisdictions currently only accept urgent assignments (e.g. testaments, protective powers of attorney). Also, in several jurisdictions the judiciary only works to a limited extent. Therefore, all required steps need to be planned sufficiently early in advance and most carefully. It can be recommended to notarize documents at notaries in jurisdictions without notarial restrictions (if needed with an apostille) and have the local notaries only file the notarized documents with the competent authority. 

  • Purchase Price Payment: purchase price payments usually work as before. However, it needs to be diligently prepared that the recipient banks can confirm payment receipt on the same day in the form as agreed by the parties. Experience shows that some bank offices, especially at smaller banks, currently take more time to confirm payment receipt.

  • Closing Memoranda: Closing memoranda and protocols, in which the parties confirm that all closing conditions and closing actions have been fulfilled or waived and that no closing obstacles (e.g. a material adverse change or warranty breaches) have occurred, usually only have declaratory effect and facilitate the proof that closing has occurred and the condition precedents for the valid transfer of the shares in the target company have been fulfilled. Closing memoranda are often used as proof to notaries that shares have transferred, so that the notary can file commercial register applications held in escrow or file updated shareholder lists in the electronic commercial register. Closing memoranda can be treated in tele-closings like other required original documents (cf. the comments regarding share certificates above).

In summary, M&A transactions in Germany can be signed and closed in COVID 19 pandemic times without major restrictions. However, creative solutions and diligent preparation are key.


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