CONTRACT ETD/2008/IM/H1/53

Transcription

1 CONTRACT ETD/2008/IM/H1/53 IMPLEMENTED BY FOR DBB LAW COMMISSION EUROPEENNE Study on the feasibility of reducing obstacles to the transfer of assets within a cross border banking group during a financial crisis National Report GERMANY By Dr.Andreas LACHMANN Page 1 of 42

2 Part I - National regulation Summary Scope Conditions and sanctions... 9 a) Authorization... 9 b) Counterpart for the asset transfer...10 a) Compulsory counterparts and guarantees...12 b) Financial capacities of the transferor and the transferee...12 c) Information and transparency...13 d) Sanctions...14 e) Third parties...20 Supervisory authorities...20 Minority shareholders...21 Creditors...22 Employees...22 Deposit holders...23 Member State...23 Others...24 f) Private international law...24 Part II -Evaluation of potential solutions Transfers from the parent company to the subsidiary or from the subsidiary to the parent at arm s length:...26 Proposal n Transfers from the subsidiary to the parent company (in preferential conditions)...28 a) Prior and overall agreements...28 Proposal n 2:...28 Page 2 of 42

3 b) Strong guarantees covering the risk of outstanding payment...31 Proposal n c) Liability of the parent company for the subsidiary s debts...34 Proposal d) Improving transferability transfer through the introduction of a new concept of "banking group"...37 Proposal n e) Early intervention - prompt corrective action...40 Proposal n Part I - National regulation The German Law doesn t know specific regulations for transfer of assets, it knows just regulations which can affect on transfers of assets, e.g. regulations for substitute equity capital and refund of shareholders equity. A revision of this regulations will coming into force latest at the end of the year 2008 and will particularly change the handling of cash-pooling, the most important kind of transfer of assets. Subsequently we will describe the legal situation afterwards. 1. Summary Generally speaking, is the transfer of assets allowed (could you please precise briefly under which conditions): Page 3 of 42

4 In crisis situation: - from parent to subsidiary Transfer of assets to a subsidiary in a crisis situation of the subsidiary are allowed, but there could be negative effects if the subsidiary falls in insolvency within the next year (sec. 135 cl 1 no. 2 Insolvency Code). - from subsidiary to parent In principle a transfer of assets from a subsidiary to a parent is allowed, but it isn t allowed if the effect is a refund of the registered equity (sec. 30 cl. 1 s. 1 limited liability company law and sec. 57 cl. 1 s. 1 Companies Act). There are two exceptions: If it is a refund of the registered equity, regardless it is allowed if the transfer of assets take place within a control agreement or a profit transfer agreement in accordance with sec. 291 Companies Act or the subsidiary get a counterpart which is equal and full-fledged (sec 30 cl. 1 s. 2 limited liability company law and sec. 57 cl. 1 s. 2 Companies Act). The transfer of assets is also allowed if it is a refund of a shareholder's loan equal if it is a refund of the registered equity (sec. 30 cl. 1 s. 3 limited liability company law and sec. 57 cl. 1 s. 3 Companies Act). A legal uncertainness results from the relation between sec. 57 cl. 1 S. 2 and sec. 57 cl. 3 Companies Act. In accordance with sec. 57 cl. 3 Companies Act a distribution of profit is only allowed by paying out the annual net profit. If sec. 57 cl. 3 Companies Act would have to be considered, a transfer in accordance with sec. 57 cl. 1 s. 2 Companies Act would only be possible if the equity is negative but the annual net profit is positive. This doesn t make sense, because the legislator wished to facilitate cash-pooling. So we hold that sec. 57 cl. Page 4 of 42

5 1 s. 2 Companies Act makes sec. 57 cl. 3 Companies Act inapplicable for this cases. - from subsidiary to another subsidiary Transfer of assets from one subsidiary to another subsidiary will be handled like a transfer to the parent and from parent to a subsidiary. In going concern situations: - from parent to subsidiary Transfer of assets to a subsidiary in a going concern situation are allowed, but also here could be negative effects if the subsidiary falls in insolvency within the next year (sec. 135 cl 1 no. 2 Insolvency Code). - from subsidiary to parent In principle transfer of assets from a subsidiary to a parent are allowed, but they aren t allowed if the effect is a refund of the registered equity (sec. 30 cl. 1 s. 1 limited liability company law and sec. 57 cl. 1 s. 1 Companies Act). There are two exceptions: If it is a refund of the registered equity, regardless it is allowed if the transfer of assets take place within a control agreement or a profit transfer agreement in accordance with sec. 291 Companies Act or the subsidiary get a counterpart which is equal and full-fledged (sec 30 cl. 1 s. 2 limited liability company law and sec. 57 cl. 1 s. 2 Companies Act). The transfer of assets is also allowed if it is a refund of a shareholder's loan equal if it is a refund of the registered equity (sec. 30 cl. 1 s. 3 limited liability company law and sec. 57 cl. 1 s. 3 Companies Act). - from subsidiary to another subsidiary Page 5 of 42

6 Transfer of assets from one subsidiary to another subsidiary will be handled like a transfer to the parent and from parent to a subsidiary. Are there specific regulations for cross-border transfer of assets? There are no specific regulations for a cross-border transfer of assets. Are there any specific rules in Banking Law in relation to transfer of assets? - from parent to subsidiary Sec. 15 cl. 1 no. 9 of Banking Act ( Organkredit ) contains specific conditions for loans to companies at which the bank holds an interest over 10%. Firstly the loan is defined in sec. 21 Banking Act. It is an ultimate enumeration. If the transfer of assets is a loan in terms of sec. 21 Banking Act and if the loan amounts at the least 1% of the liable equity an unanimously decision of all directors and an acceptance of the supervisory board are needed. Furthermore the conditions of the loan has to be usual in the market. - from subsidiary to parent Sec. 15 cl. 1 no. 10 of Banking Act ( Organkredit ) contains specific conditions for loans to companies which hold an interest over 10% at the bank. If the transfer of assets is a loan in terms of sec. 21 Banking Act and if the loan amounts at the least 1% of the liable equity an unanimously decision of all directors and an acceptance of the supervisory board are needed. Page 6 of 42

7 Furthermore the conditions of the loan has to be usual in the market. - from subsidiary to another subsidiary If the transferor-subsidiary is controlled by the parent in accordance with sec. 19 cl. 2 Banking Act the regulation of sec. 15 cl. 1 no. 9 Banking Act applies. So, if the transfer of assets is a loan in terms of sec. 21 Banking Act and if the loan amounts at the least 1% of the liable equity an unanimously decision of all directors and an acceptance of the supervisory board are needed. Furthermore the conditions of the loan has to be usual in the market. Are there specific regulations for cross-border transfer of assets? There are no specific regulations for a cross-border transfer of assets. 2. Scope Does the notion of company groups exist? - Generally speaking in corporate Law? (If it exists, please give a definition, conditions and the main applications?) The German Law knows regulations for company groups. Particularly the Companies Act includes in sec. 18 cl. 1 s. 1 a definition of company group and in sec. 290 et seqq Commercial Code special regulations for annual statements of company groups are regulated. Sec. 18 cl. 1 s. 1 Companies Act: Page 7 of 42

8 If a controlling and one or more dependent companies are consolidated under a centralised management of the controlling company, they are a company group; - Is there in your national law a definition of group interest that specifically allows or facilitates intra-group transfer of assets? There are no definition of group interest that specifically allows or facilitates intra-group transfer of assets. For details see above. - Are there specific tax issues that need to be addressed in intragroup transfers of assets? There are no specific tax issues for a intra-group transfer of assets, but the transaction can be relevant under fiscal law depending on the circumstances. We can not generalize this. - Are there specific regulations for banking groups? The Banking Act contains a definition called financial holding companies (sec. 1 cl. 3a) and several definitions for parent companies (sec. 1 cl. 6), subsidiaries (sec. 1 cl. 7), parent institutes (sec. 1 cl. 7a), parent financial holding companies (sec. 1 cl. 7b), EU parent institutes (sec. 1 cl. 7c) and EU parent financial holding companies (sec. 1 cl. 7d). There are several sections with special regulations for banking groups. E.g. sec. 10a Banking Act regulates the minimum equity and sec. 15 Banking Act the loans to the group. Sec. 19 cl. 2 Banking Act contains also regulations about banking groups. Please specify any relevant information relating to intra-group transfer of assets that has not been dealt with in the previous questions and that would be useful for the study. Page 8 of 42

9 Nothing to add. 3. Conditions and sanctions a) Authorization Do decisions to transfer assets have to follow specific approval procedures such as the approval of the board of directors or the transferor or transferee or the approval of shareholders obtained through a special meeting of shareholders? For a control agreement or a profit transfer agreement in accordance with sec. 291 Companies Act a specific approval procedure has to be fulfilled; inter alia an approval of the shareholders meeting is needed. But this doesn t mean that an approval is needed for a transfer of assets, because a control agreement or a profit transfer agreement is not compulsory required for a transfer of assets. For details see above. Do transfers of assets need to be approved by other third parties or supervisory authorities? An approval of the supervisory authority is not required. Do transfers of assets have to be notified to other third parties or supervisory bodies or published? A notification to supervisory bodies and a publishing are not required. Would a specific agreement incorporating the terms and conditions of the transfer between transferor and transferee and executed by their authorized representative be required? Page 9 of 42

10 For a valid act - as well for a transfer of assets - an agreement between the parties of a contract is required, but this agreement needn t be formally concluded, an implied contract is sufficient. But if there is no written form and therefore it is not possible to evidence the details of the contract, the directors will be liable in accordance to the jurisprudence. Are there differences between transfers in going concern situations / transfers in crisis situations? In accordance of sec. 30 cl. 1 s. 2 limited liability company law and sec. 57 cl. 1 s. 2 Companies Act in case of an accounting insolvency a control agreement or a profit transfer agreement is needed if the counterpart isn t equal and full-fledged. A transfer of assets in going concern situation is also not allowed if the counterpart is not equal (infidelity, sec. 266 criminal act). Therefore the only difference is that the counterpart has to be fullfledged in a crisis situation. b) Counterpart for the asset transfer Is the transfer of assets treated differently by your national Law : - if it respects the arm s length principle/normal market conditions dealing (please explain what is considered as arm s length) Normal market conditions are required. See following. - if it is agreed under preferential conditions or disadvantageous to the transferee but advantageous to transferor and the group as a whole If the counterpart is not equal and the divergence is not economically justifiable it is an infidelity according to sec. Page 10 of 42

11 266 criminal code. This only doesn t apply if the shareholders had agreed. Under certain conditions the required acceptance of shareholders could be given with a control or a profit transfer agreement. If the worth of transfer of assets differs from the worth of counterpart it is also a hidden distribution of profit or a hidden contribution of capital in the amount of the divergence. - if there is no counterpart/compensation for the transfer If there is no counterpart for the transfer it is an infidelity according to sec. 266 criminal code. This only doesn t apply if the shareholders had agreed. Under certain conditions the required acceptance of shareholders could be given with a control or a profit transfer agreement. If there is no counterpart, it is also a hidden distribution of profit at transferor and a hidden contribution of capital at transferee. - if the transfer is included in a loan or credit agreement between transferor and transferee. If the conditions are usual in the market it s well, if not see above. Are there differences between transfers in going concern situations / transfers in crisis situations? In accordance of sec. 30 cl. 1 s. 2 limited liability company law and sec. 57 cl. 1 s. 2 Companies Act in case of an accounting insolvency a control agreement or a profit transfer agreement is needed if the counterpart isn t equal and full-fledged. Page 11 of 42

12 A transfer of assets in going concern situation is also not allowed if the counterpart is not equal (infidelity, sec. 266 criminal act). Therefore the only difference is that the counterpart has to be full-fledged in a crisis situation. a) Compulsory counterparts and guarantees Is there any compulsory counterpart or guarantee that transferee should provide to transferor? Because of missing specific regulations for transfer of assets there are no compulsory counterparts or guarantees. It accordance with sec 30 cl. 1 s. 2 limited liability company law and sec. 57 cl. 1 s. 2 Companies Act it is just necessary that the counterpart is equal with the transfer and full fledged or a control or profit transfer agreement is needed. Please specify any other relevant information relating to the conditions to be met for a transfer of asset to be authorized that has not been dealt with in the previous question and that would be useful for the study Nothing to add. b) Financial capacities of the transferor and the transferee Does the decision to transfer have to comply with conditions relating to the financial capacities/health of the transferor/transferee? Considering the rules of refund of registered equity the conditions of transfer of assets depend on the financial capacities/health of the transferor. Page 12 of 42

13 What are the consequences when the transfer has occurred but those conditions have not been respected? The directors will be liable according to sec. 43 limited liability company law and sec. 93 Companies Act. Are there any conditions relating to the consequences of the transfer on the financial situation of the group? The counterpart has to be full fledged if the transferor is in a crisis situation. What is the rank of claim of the transferor in case of insolvency proceedings of the transferee?please specify any other relevant information relating to Financial capacities of the transferor and the transfereethat has not been dealt with in the previous question and that would be useful for the study If the transfer of assets is a loan and the transferee is a subsidiary of the transferor the refund will be listed at the last rank (sec. 39 cl. 1 no. 5 Insolvency Code). Are there differences between transfers in going concern situations / transfers in crisis situations? The counterpart has to be full fledged if the transferor is in a crisis situation. c) Information and transparency Does specific information have to be communicated on the transfer to : - supervisors Page 13 of 42

14 Not for the transfer at itself, only in the approval procedure of a control or profit transfer agreement. - Shareholders Not for the transfer at itself, only in the approval procedure of a control or profit transfer agreement. - employees No. - third parties (specify who can have an access to this information and how) No. Please specify any other relevant information relating to Information and transparency that has not been dealt with in the previous question and that would be useful for the study Nothing to add. d) Sanctions When a transfer of assets has occurred what at are the sanctions (civil liability of the manager or the supervisory authorities, nullity, criminal penalty, ) that may be incurred : - under Insolvency Law Firstly in accordance with the renewed sec. 135 cl. 1 Insolvency Code a transaction may be contested which in consideration of a shareholders claim to refund of a loan in terms of sec. 39 cl. 1 no. 5 Insolvency Code or in consideration of an equivalent claim provided a security if Page 14 of 42

15 such transaction was made during the last ten years prior to the request to open insolvency proceedings or subsequent to such request, or provided satisfaction if such transaction was made during the last year prior to the request to open insolvency proceedings or subsequent to such request. Furthermore there are several other sections which could be fulfilled depending on the circumstances: Congruent Coverage, Section 130 (1) A transaction granting or facilitating a creditor of the insolvency proceedings with a security or satisfaction may be contested 1. if it was made during the last three months prior to the request to open insolvency proceedings, if the debtor was illiquid on the date of the transaction, and if the creditor was aware of his illiquidity on this date, or 2. if it was made after the request to open insolvency proceedings, and if the creditor was aware of the debtor's illiquidity on the date of the transaction, or of the request to open insolvency proceedings. (2) Awareness of circumstances pointing directly to illiquidity or to a request to open insolvency proceedings shall be considered equivalent to awareness of illiquidity or of the request to open insolvency proceedings. (3) A person with a close relationship to the debtor existing on the date of such transaction (section 138) shall be presumed to have been aware of the debtor's illiquidity or of the request to open insolvency proceedings. Page 15 of 42

16 Incongruent Coverage, Section 131 (1) A transaction granting or facilitating a creditor of the insolvency proceedings a security or satisfaction without his entitlement to such security or satisfaction, or to the kind or date of such security or satisfaction, may be contested if such transaction was made 1. during the last month prior to the request to open insolvency proceedings or after such request; 2. within the second or third month prior to the request to open insolvency proceedings, and the debtor was illiquid on the date of the transaction; 3. within the second or third month prior to the request to open insolvency proceedings, and the creditor was aware of the disadvantage to the creditors of the insolvency proceedings arising from such transaction on its date. (2) For application of subs. 1 No. 3, awareness of circumstances pointing directly to the disadvantage shall be considered equivalent to awareness of the disadvantage to the creditors of the insolvency proceedings. A person with a close relationship to the debtor on the date of such transaction (section 138) shall be presumed to have been aware of the disadvantage to the creditors of the insolvency proceedings. Transactions Constituting a Direct Disadvantage to the Creditors of the Insolvency Proceedings, Section 132 Page 16 of 42

17 (1) Legal transactions on the part of the debtor constituting a direct disadvantage to creditors of the insolvency proceedings may be contested if they were made 1. during the last three months prior to the request to open insolvency proceedings, if the debtor was illiquid on the date of such transaction, and if the other party was aware of such illiquidity on this date, or 2. subsequent to the request to open insolvency proceedings, and if at the time when the legal transaction was made the other party was aware of such illiquidity or of the request to open insolvency proceedings. (2) Legal transactions constituting a direct disadvantage to creditors of the insolvency proceedings shall be deemed equivalent to any other transaction of the debtor divesting the debtor of a right or barring the debtor's claim to such right for the future or maintaining a property claim against the debtor or rendering such claim enforceable against the debtor. (3) Section 130 subs. 2 and 3 shall apply mutatis mutandis. Wilful Disadvantage, Section 133 (1) A transaction made by the debtor during the last ten years prior to the request to open insolvency proceedings, or subsequent to such request, with the intention to disadvantage his creditors may be contested if the other party was aware of the debtor's intention on the date of such transaction. Such awareness shall be presumed if the other party knew of the debtor's Page 17 of 42

18 imminent illiquidity, and that the transaction constituted a disadvantage for the creditors. (2) An onerous contract entered into by the debtor with a person with a close relationship to him (section 138) directly constituting a disadvantage for the creditors of the insolvency proceedings may be contested. Such contest shall be excluded if the contract was entered into earlier than two years prior to the request to open insolvency proceedings, or if the other party was not aware of the debtor's intention to disadvantage the creditors on the date of such contract. Gratuitous Benefit, Section 134 (1) A gratuitous benefit granted by the debtor may be contested unless it was made earlier than four years prior to the request to open insolvency proceedings. (2) If such benefit comprises a usual casual gift of minor value the gift may not be contested. Persons with a Close Relationship to the Debtor, Section 138 (1) If the debtor is an individual, persons with a close relationship to the debtor shall be: 1. the debtor's spouse even if the marriage was contracted only after the transaction or was dissolved during the last year prior to the transaction; 2. the ascendants or descendants of the debtor or of the spouse designated at No. 1, the brothers and sisters Page 18 of 42

19 related by consanguinity and affinity to the debtor and the spouse designated at No. 1, and the spouses of such persons; 3. persons living in the debtor's household or having lived in the debtor's household during the last year prior to the transaction. (2) If the debtor is a corporation or a company without legal personality, the persons with a close relationship to the debtor shall be: 1. the members of the body representing or supervising the debtor, as well as his general partners and persons holding more than one quarter of the debtor's capital; 2. a person or a company having on the basis of a comparable association with the debtor under company law or under a service contract the opportunity to become aware of the debtor's financial circumstances; 3. a person having a personal relationship detailed at subs. 1 with a person named at No. 1 or 2; this shall not apply if the persons named at No. 1 or 2 are legally bound to secrecy regarding the debtor's affairs. - under Civil Law A creditor of transferor can contest the transfer of assets in accordance with the Act of Protection of Creditors ( Anfechtungsgesetz ), if the transfer of assets discriminates the creditors and other conditions - similar the regulations in the Insolvency Code (sec. 130 seqq.) - are full-filled. - under Company Law Page 19 of 42

20 Directors are liable in accordance with sec. 43 limited liability company law and sec. 93 Companies Act for illegal transfer of assets and if a (parent) company misuse her influence to an other (subsidiary) company the dominant company is liable for the damage (sec. 117 cl. 1 Companies Act). - under Banking Law If a loan in violation with sec. 15 Banking Act was given, the directors which are responsible are liable in accordance with sec. 17 cl. 1 Banking Act. Creditors can sue this claim also. - under Criminal Law A transfer of assets without an equal counterpart full-fills the elements of infidelity in accordance with sec. 266 criminal code. - Other Nothing to add. e) Third parties Supervisory authorities What is the role of the supervisory authorities in case of a transfer of assets (right to be informed, have to give an authorization..)? Please distinguish the home/host supervisory authorities. The supervisory authority (BaFin) need not to be informed and also an authorization of the supervisory authority isn t needed. A bank has to inform the supervisory authority only about the purchase and the disposal of a qualified interest (sec. 24 cl. 1 Page 20 of 42

21 no. 11 Banking Act) or a decrease of the capital below the minimum requirement in accordance with sec. 33 cl. 1 s. 1 no. 1 Banking Act (sec. 24 cl. 1 no. 10 Banking Act). Are there any conditions or consequences relating to solvency ratios (implementation of Bale I et II notably)? See above. Are there differences between transfers in going concern situations / transfers in crisis situations? No. Please specify any relevant information relating to the supervisory authorities that has not been dealt with in the previous questions and that would be useful for the study Nothing to add. Minority shareholders Does a minority shareholder of the transferor have any right concerning the transfer : - before the transfer or the decision to transfer (eg. right of opposition, right of approval, right to be informed ), - after the transfer (eg. Right to have the transfer annulled when transfer disadvantageous to transferor, request for an audit ). A minority shareholder has no special right concerning the transfer of assets itself. The minority shareholder has rights like all shareholders in the approval procedure of a control or Page 21 of 42

22 a profit transfer agreement. A shareholder can sue against the shareholders resolution which approve the agreement. Creditors Do Creditors of the transferor have any rights concerning the transfer : - before the transfer or the decision to transfer (eg. Right of opposition, acceleration rights, or right of approval, right to be informed ), - after the transfer (right to have the transfer annulled for fraud when transfer disadvantageous to transferor and aimed at fleecing creditors ) A creditor of transferor can contest the transfer of assets in accordance with the Act of Protection of Creditors ( Anfechtungsgesetz ), if the transfer of assets discriminates the creditors and other conditions - similar the regulations in the Insolvency Code (sec. 130 seqq.) - are full-filled. Employees Do Employees of the transferor have any right concerning the transfer : - before the transfer or the decision to transfer (eg. Right of opposition, acceleration rights, or right of approval, right to be informed ), - after the transfer (right to have the transfer annulled when transfer disadvantageous to transferor and likely to result in redundancies ) Only as a creditor. Page 22 of 42

23 Deposit holders Regarding the directive 94/19 : Who provides the deposit guarantee (the government, national bank, insurers )? For which amount? The deposit guarantees are provided by the Entschädigungseinrichtung deutscher Banken GmbH, the Bundesverband Öffentlicher Banken Deutschlands - Entschädigungseinrichtung GmbH and the Entschädigungseinrichtung der Wertpapierhandelsunternehmen. Deposits are secured up to a figure of 90% limited to 20,000 EUR. Is there a specific regulation concerning the deposit guarantee in case of a transfer of assets in another Member State? No. If a transfer of assets including deposited funds occurs, does the deposit insurer or guarantor have to be notified? No. Do Deposit holders of the transferor have any right concerning the transfer : - before the transfer or the decision to transfer (eg. Right of opposition or right of prior approval) - after the transfer (eg. right to have the transfer annulled as deposited funds not part of transferor s assets but belong to deposit holders ) Only as a creditor. Member State Page 23 of 42

24 In case of transfer of assets to/from a transferee/transferor located in another Member State, has the host/home Member State any right or obligation? No. Others Please specify any other relevant information relating to third parties that has not been dealt with in the previous question and that would be useful for the study Nothing to add. f) Private international law What is the applicable law in case of transfer of assets: If the transferor located in your member state and the transferee in another member state? In accordance with sec. 28 Introductory Act of Civil Code if failing a choice of applicable law the law of the state which has the closest association with the transfer is applicable. Normally that will be the law of transferors state. So if the transferor is located in Germany, German Law is applicable. If the transferor located in an other member state and the transferee in you member state? If the transferor is not located in Germany, the law of the location is applicable. Page 24 of 42

25 Please specify any other relevant information relating to Private international law that has not been dealt with in the previous question and that would be useful for the study Nothing to add. Part II -Evaluation of potential solutions The purpose of this second part is to analyze potential solutions to remove obstacles to asset transferability. Different categories of solutions will be proposed. We first would like to know which parts of your legislation would need to be amended in order to implement the solution. Second, we would like to have your personal opinion about the feasibility of the solutions regarding the legislation in your Member State. After that, we would like know if you consider that this solution is satisfactory and we would like you to explain why. Lastly, we would like to know what legal obstacles still remain in your Member State. Regarding those proposals, please consider that a transfer of assets from the subsidiary to the parent company in a crisis situation should not be considered as a transfer at arm s length. Page 25 of 42

26 1. Transfers from the parent company to the subsidiary or from the subsidiary to the parent at arm s length: Proposal n 1 Community legislation allows: - any kind of transfer from the parent company to the subsidiary and - transfers from the subsidiary to the parent at arm s length. Possible consequences or conditions: - Any restriction to those transfers have to be removed by Members States - After the transfer, specific information about the transfer have to be communicated to supervisors and shareholders Questions i) Please provide a summary of the national measures that should be revised in order to reach this result. Only sec. 15 German Banking Act would have to be revised; besides new special rules for banking law would permute the proposal. This new rules would have to declare that the transfers at arm s length are allowed and this transfers don t violate sec. 57 Companies Act and the rules of the Insolvency Code are not applicable for this cases. ii) In order to determine the feasibility of this solution, please explain precisely whether those modifications would entail frictions or even a disruption of your legal system or Page 26 of 42

27 entail substantial modifications but no major frictions with established legal principles or merely minor changes. This proposal would turn everything topsy-turvy and doesn t really match with the German Law. Today for upstream-loans a fully realizable claim of repayment or an agreement are needed. The claim of repayment of a downstream-loans will be subordinated (last rank) in insolvency of the debtor and repayment within the last year before filing insolvency is refutable. Furthermore the regulations in sec. 15 German Banking Act intend the covering and the financial stability of the banking companies. Besides the risk of an abuse would be very high. Such risks should be prevent by the rules of the Insolvency Code, which would have to be suspend for this cases because of removing all restrictions. So this proposal would entail frictions and disruptions of the whole legal system and disturb the trust to credit institutions. iii) Please precise if this solution does satisfactorily take into account interests of parent companies, subsidiaries, minority shareholders, creditors, deposit holders, employees, supervisory authorities or Member States as a whole That is a rhetorical question and not a question of the national law. This solution only takes into account the interests of transferee. Not even the transferor will be protected. This solution would discriminate the transferor, his shareholders and his creditors, deposit holders and employees. The confidence in banking would be shaken more and more. Page 27 of 42

28 iv) Please precise whether legal obstacles remain and how they could be removed in banking, insolvency and company law). This depends on the regulations. We cannot answer to this without any precise regulations. Reasonable regulations should not remain legal obstacles. 2. Transfers from the subsidiary to the parent company (in preferential conditions) a) Prior and overall agreements Proposal n 2: Similar EU instrument: Art Solvency II: Amended Proposal for a Directive on the taking-up and pursuit of the business of Insurance and Reinsurance Proposal: For this proposal, please consider that an EU instrument has been adopted, which provides that a group agreement under which the parent company and some of the entities of the group can mutually commit themselves to transfer assets in a crisis situation has to be allowed by the Member States. This agreement is endorsed by each legal entity being a party to the agreement. This agreement guarantees financial support from the parent to the subsidiary and from the subsidiary to the parent. This agreement could only be voluntary because of the freedom of contracts, the limited liabilities of companies and minority shareholder rights. Page 28 of 42

29 This agreement is submitted to the supervisory authorities. A group-wide view of solvency and liquidity would be a useful part of the supervisory assessment of an intra-group transfer. This group-wide approach will be required as part of the review of the CRD on 'colleges'. The agreement may already be submitted when the subsidiary asks for authorization to take up and pursuit the business of credit institutions. This agreement may also be submitted when the subsidiary asks for authorization and will be considered as a modification to the conditions of the authorization to take up and pursuit the business of credit institutions. Possible consequences or conditions: -The capital adequacy rules is still respected after the transfer -The transfer does not endanger the transferor s solvency -The amount of the transfer is to be reimbursed by the transferee to the transferor. In case of insolvency, the creditors of the transferor will be reimbursed before the creditors of the transferor up to the amount of transfers that occurred -After each transfer, the transferor informs supervisors and the shareholders during the ordinary General Assembly meeting following the transfer - If the good faith, competence and prudence of the transferor's management is not in question and if the transfer fulfils all the conditions specified above, then the transfer cannot be challenged under Insolvency Law. Questions i) Please provide a summary of the national measures that should be revised in order to reach this result. Page 29 of 42

30 In general this solution is possible in German Law already. This proposal in general implies an agreement according with sec. 291 Companies Act: control agreement or profit transfer agreement. Both has to follow a certain treatment; inter alia an acceptance of the shareholders meeting of the parent company and an acceptance of the shareholders meeting of the subsidiary are needed. Depending on the intended conditions a revise of several conditions would be required. For example: It isn t realisable to inform the shareholders about each transfer; it is satisfactory that the company has to communicate the amounts within the annual financial statements. Particularly in case of a cash-pooling or cashmanagement it isn t possible to inform the supervisory authority about each transfer. ii) In order to determine the feasibility of this solution, please explain precisely whether those modifications would entail frictions or even a disruption of your legal system or entail substantial modifications but no major frictions with established legal principles or merely minor changes. See before. Only merely minor changes should be required. iii) Please precise if this solution does satisfactorily take into account interests of parent companies, subsidiaries, minority shareholders, creditors, deposit holders, employees, supervisory authorities or Member States as a whole That is not a question of the national law. This solution only takes into account the interests of transferor and transferee. Page 30 of 42

31 In contrast the mentioned solution of German Law knows special regulations for the protection of creditors (so also for deposit holders) and minority shareholders. In conclusion the german solution also protect the interests of employees. iv) Please precise whether legal obstacles remain and how they could be removed in banking, insolvency and company law). This depends on the regulations. We cannot answer to this without any precised regulations. Reasonable regulations should not remain legal obstacles. b) Strong guarantees covering the risk of outstanding payment Proposal n 3 Similar EU instrument: Right of use of financial collateral under security financial collateral arrangements - Article 5 - Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements ( ML ) Proposal: For this proposal, please consider that an EU instrument has been adopted, which provides that a group agreement under which the parent company and some of the entities of the group can mutually commit themselves to transfer assets in a crisis situation has to be allowed by the Member States. This agreement is endorsed by each legal entity being a party to the agreement. This agreement guarantees financial support from the parent to the subsidiary and from the subsidiary to the parent. This Page 31 of 42

32 agreement could only be voluntary because of the freedom of contracts, the limited liabilities of companies and minority shareholder rights. This agreement is submitted to the supervisory authorities. A group-wide view of solvency and liquidity would be a useful part of the supervisory assessment of an intra-group transfer. This group-wide approach will be required as part of the review of the CRD on 'colleges'. The agreement may already be submitted when the subsidiary asks for authorization to take up and pursuit the business of credit institutions. This agreement may also be submitted when the subsidiary asks for authorization and will be considered as a modification to the conditions of the authorization to take up and pursuit the business of credit institutions. Possible consequences or conditions: -The capital adequacy rules is still respected after the transfer -The transfer does not endanger the transferor s solvency -The amount of the transfer is to be reimbursed by the transferee to the transferor. In case of insolvency, the creditors of the transferor will be reimbursed before the creditors of the transferor up to the amount of transfers that occurred -After each transfer, the transferor informs supervisors and the shareholders during the ordinary General Assembly meeting following the transfer - If the good faith, competence and prudence of the transferor's management is not in question and if the transfer fulfils all the conditions specified above, then the transfer cannot be challenged under Insolvency Law. Questions Page 32 of 42

33 i) Please provide a summary of the national measures that should be revised in order to reach this result. Only sec. 15 German Banking Act would have to be revised; besides new special rules for banking law would permute the proposal. This new rules would have to declare that the collateral given by the subsidiary is not a refund of capital and the rules of the Insolvency Code are not applicable for this cases. Furthermore the new rules would have to declare that the collaterals grant a priority right in insolvency for the subsidiary. ii) In order to determine the feasibility of this solution, please explain precisely whether those modifications would entail frictions or even a disruption of your legal system or entail substantial modifications but no major frictions with established legal principles or merely minor changes. This proposal is dissonant. If the subsidiary provides a collateral to a third party (imaginable is only an other bank), as long as the third party can not dispose the collateral, the subsidiary will not have any pecuniary claim towards the parent company. If the company then falls in insolvency it is paradoxical, if the subsidiary gets a priority right. The collateral will be given to protect the third party; this condition will discourage third parties, because nobody will give a loan with a collateral which is not of value. So, this proposal doesn t match with the German Law. For this collaterals an agreement of the parent and the subsidiary company is needed. Furthermore the regulations in sec. 15 German Banking Act intend the covering and the financial stability of the banks. Page 33 of 42

34 So this proposal would entail frictions and disruptions of the legal system. By the way the parent company could mortgage the shares of the subsidiary as collateral. This should be easier and less fraught with risk. iii) Please precise if this solution does satisfactorily take into account interests of parent companies, subsidiaries, minority shareholders, creditors, deposit holders, employees, supervisory authorities or Member States as a whole That is not a question of the national law. This solution only takes into account the interests of transferor and transferee. Maybe this solutions takes also the interest of the hedged creditor into account, but this doesn t work. All other creditors - in particular deposit holders and employees - would be discriminated. iv) Please precise whether legal obstacles remain and how they could be removed in banking, insolvency and company law ) This depends on the regulations. We cannot answer to this without any precised regulations. Reasonable regulations should not remain legal obstacles. c) Liability of the parent company for the subsidiary s debts Prior question Firstly, please indicate if in your Member State, the parent company can be held jointly and severally liable for the subsidiary s debts and why: -due to the specific legal form of the subsidiary where the shareholders are systematically liable for all decisions Page 34 of 42

35 -due to preferred shares under which the shareholder is systematically liable for some or all decisions of the company German Law doesn t know any liability of shareholders caused by the position as shareholder as itself. Proposal 4 Then, for this proposal, please consider that a EU instrument has been adopted and creates an automatic liability: - by means of a specific type of company where the shareholders are systematically liable for all decisions that are disadvantageous for the company - or by means of a preferred shares under which the shareholder is systematically liable for some or all decisions of the company Questions i) Please provide a summary of the national measures that should be revised in order to reach this result. Nothing would have to be revised. New special rules for banking law would permute the proposal. This new rules would have to regulate a new special legal form for banking or a new special type of shares for subsidiaries of a banking company. Furthermore regulations for the transformation from and to this new legal form are needed. How to deal with financial conglomerates is ambiguous. ii) In order to determine the feasibility of this solution, please explain precisely whether those modifications would entail frictions or even a disruption of your legal system or Page 35 of 42

36 entail substantial modifications but no major frictions with established legal principles or merely minor changes. It is unrealistic to forge an own new legal form or an own new type of shares for subsidiaries of a banking company. If a banking company buy shares of an other banking company, the subsidiary had to transformed from one legal form to the new legal form. But what will happen if the parent only buy 90% of shares? What amount of interest should be required for a transformation? What will happen with the other shareholders? What will happen if the parent sell the shares of the subsidiary? A liability due to the interest in a banking company doesn t match to the system of proprietary companies. Nobody will buy shares if there is a risk of liability. So this solution would make an increase of capital much more difficult. Banking companies no longer could get fresh money from the stock exchange. This proposal would entail frictions and disruptions of the whole legal system and disturb the trust to credit institutions. iii) Please precise if this solution does satisfactorily take into account interests of parent companies, subsidiaries, minority shareholders, creditors, deposit holders, employees, supervisory authorities or Member States as a whole That is not a question of the national law, but rather a question of the conditions. The liability of shareholders could be favourably for the creditors and deposit holders, but this presumes that the shareholders are credit worthy. We can t favour this. Private shareholders will sell there shares and for the employees and creditors (also deposit holders) this solution is risky. Page 36 of 42

37 iv) Please precise whether legal obstacles remain and how they could be removed in banking, insolvency and company law ). This depends on the regulations. We can not answer to this without any precised regulations. Reasonable regulations should not remain legal obstacles. d) Improving transferability transfer through the introduction of a new concept of "banking group" Proposal n 5 Similar EU instrument: Draft of the Ninth Company Law Directive for the conduct of groups containing a public limited company as a subsidiary Company Law Action Plan dated May 2003 : framework agreement for group companies Under the "Company Law Action Plan" dated May 2003, the European Commission recommended specific rules on the enforcement of the group policy, for which Member States are required to draft a "frame agreement" for group companies that allows them to adopt a coordinated group company policy, as long as the interests of the companies' creditors are protected. This initiative has not been pursued. There might be merit in further investigating whether the definition of banking groups might remove obstacles in terms of banking law. In that respect, a draft Ninth Company Law Directive on the conduct of groups containing a public limited company as a subsidiary was presented in December 1984 for consultation. The Commission did not pursue this work. The Directive was intended to provide a framework in which groups are managed on a sound basis whilst ensuring that interests affected by Page 37 of 42

38 group operations are adequately protected. Particular reference was made to the possibility to transfer assets while protecting the interests of different parties. Under the 9th Directive project, the legal recognition of the 'group' went hand in hand with specific steps to protect minority shareholders and creditors. It must be noted that a banking group would be a contract freely entered into. As contemplated in 1984 under the 9th Directive on company law, if a banking group does not wish to submit to a group regime, it will have to respect the economic interests of the subsidiary. Proposal: For this proposal, please consider that the idea of group company has been adopted by an EU instrument,. The managers of the subsidiaries will be obliged to follow instructions even if the subsidiaries will thereby incur financial losses. These managers must therefore not be held liable vis-à-vis their own companies. This power of management is accompanied by the right to use the financial resources of the subsidiary, since the economic advantage of the group can be maximized only where there is a complete intergartion ofthe two entities. Once the agreement is concluded, transfers of assets are allowed between the members of the group. Possible consequences or conditions: - The constitution of the group is submitted to the supervisory authorities. - In case of insolvency, there is a possibility for creditors to file their claims with any of the companies of the group - In case of Insolvency, the creditors of the transferor will be reimbursed before creditors of the transferor up to the amount of transfers that occurred and the possibility for creditors to file their claims to any of the companies concerned by the transfer Page 38 of 42

39 Questions i) Please provide a summary of the national measures that should be revised in order to reach this result. Only sec. 15 German Banking Act would have to be revised; besides new special rules for banking law would permute the proposal. This new rules would have to regulate the foundation of a group and the right of transfer of assets. The differences to proposal no. 2 could be - dependent on the regulations - marginal. Furthermore the rules would have to regulate the rights in insolvency, particularly the right to file claims with any of the companies of the group. ii) In order to determine the feasibility of this solution, please explain precisely whether those modifications would entail frictions or even a disruption of your legal system or entail substantial modifications but no major frictions with established legal principles or merely minor changes. How should this group and the power of management be structured? What about the proceeding of constitution? The reimbursement of creditors of the transferor before the creditors of the transferor doesn t make sense. What do you mean? The effects will depend on the unknown conditions. In German Law it is possible to contract a control agreement according with sec. 291 Companies Act. Based on this agreement a transfer at arm s length is possible yet. Page 39 of 42