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German legislature passes bill for nationalisation of financial institutions


03 April 2009

On 3 April the German legislature passed a bill to amend the Financial Markets Stabilisation Act and to provide a legal basis for the nationalisation of financial institutions affected by the global financial crisis.  

The Financial Markets Stabilisation Amendment Act (FMSAA) will come into force after publication, presumably in a matter of days.


Cornerstones of the FMSAA are:

  • The German government is permitted to expropriate assets of shareholders if this is necessary to take over a financial institution adversely affected by the global financial crisis
  • Corporate legal requirements have been simplified to enhance the options for recapitalisation and takeovers of financial institutions
  • Shareholders may be subject to claims for damages if they exercise voting rights or pursue unjustified legal remedies with a view to deferring or preventing recapitalisation measures.

Please find a summary of the key elements below.


Probably the most radical and debated step taken in Germany since the start of the financial crisis are the nationalisation rules contained in the FMSAA, which could lead to the first expropriation driven by global economic factors in Germany since the 1930s.

According to the terms of the FMSAA, the German government is authorised to expropriate the following assets, paying a market value compensation:

  • Shares in banks and financial services providers, certain insurance companies and pension funds, regulated open-ended investment funds (Kapitalanlagegesellschaften) and operators of stock and derivatives exchanges and (subject to further requirements) their parent companies (Financial Institutions)
  • Other rights pertaining to the regulatory capital of Financial Institutions
  • Shares in subsidiary companies of Financial Institutions and other rights pertaining to the regulatory capital of such subsidiaries
  • Receivables or financial instruments held by such Financial Institutions or their subsidiaries and debts owed by such Financial Institutions or their subsidiaries to third parties that are related to the receivables or financial instruments to be expropriated, including debts and receivables originating from derivatives, pension and comparable transactions.

Notwithstanding such authority, expropriation remains the measure of last resort and requires that:

  • the stabilisation of the relevant Financial Institution is required to ensure the stability of the financial markets (i.e. the Financial Institution is of “systematic relevance” to the financial system)
  • there are no other means to provide for a legally safe, sustainable and economically reasonable stabilisation of the Financial Institution; and
  • the German government has taken all reasonable steps but has been unable to acquire the assets to be expropriated by other means.

The expropriation authorisation is valid until 30 June 2009 and the German government has to announce its intention to expropriate in relation to any specific Financial Institutions by this date. Following such an announcement, the German government would have until 31 October 2009 to pass a separate ordinance specifying the details of the relevant expropriation.

The FMSAA also provides for an exit strategy. Once the relevant Financial Institution has been stabilised in a sustainable way, the German government will re-privatise the institution by way of sale of shares, increase of share capital or otherwise. It is envisaged to grant to the expropriated shareholders a pre-emption right. However, all provisions dealing with the exit scenario remain rather vague. Given the dramatic effects of an expropriation, one would have expected a higher level of detail in these provisions.

Although the wording of the FMSAA is non-specific and generally applies to any Financial Institution in corporate distress which is of relevance to the financial system, the act is tailor-made to deal with the takeover of Hypo Real Estate. Against this background and because of the expiry date we believe that the scope of application of the FMSAA will be rather limited.

Insolvency and termination

Exclusion of insolvency law

As far as debt instruments and other receivables have been guaranteed by SoFFin (the special federal fund created under the Financial Markets Stabilisation Act), debtors are excluded from:

  • premature assertion of their claims even in the event of termination;
  • enforcing or setting off claims against the relevant Financial Institution;
  • participating in an insolvency proceeding over the assets of the relevant Financial Institution.

Exclusion of termination clauses

Pursuant to the terms of the FMSAA, the participation of SoFFin in a Financial Institution does not create a reason for good cause to terminate and does not justify automatic termination of agreements with such Financial Institution (e.g. for “change of control”). According to the reasoning for the FMSAA, this rule is a mandatory provision of German law. It is the view of the German legislature that this provision also applies to contracts governed by foreign law.

Corporate Law Measures

Enhancement of recapitalisation

The FMSAA provides for the accelerated ability (one day; to be extended to 21 days from 3 August 2009) to call a general meeting to decide on recapitalisation measures. This rule applies for capital increases to be subscribed by SoFFin as well as for capital increases that can also be subscribed by shareholders and third parties, even if the agenda for such general meeting lists further items to be voted on.

In a departure from the general principle, any such recapitalisation measure has to be approved by simple majority vote only. A two-thirds majority would be required if the subscription rights were excluded unless at least half of the voting capital is present at the general meeting.

Liability of shareholders

Shareholders deferring or preventing the passing of a resolution on a recapitalisation necessary for the survival of a Financial Institution shall be jointly and severally liable for damages to the Financial Institution. Such deferral or prevention can be caused by exercise of voting rights, the unjustified taking of legal remedies or otherwise. It is noteworthy that this liability also applies for recapitalisations not initiated by SoFFin.

Takeover act

The FMSAA does also incorporate amendments to the rules on take-overs.

  • The German government/SoFFin is not obliged to issue a mandatory offer when gaining control over a Financial Institution during the implementation of stabilisation measures.
  • When a takeover offer has been made by the German government in order to stabilise a Financial Institution, a subsequent squeeze-out is already permitted once 90 per cent of the share capital has been acquired.

Entry into force

The FMSAA will enter into force the day after publication in the Federal Law Gazette, presumably in a matter of days.

Further measures

The German government has announced that it will introduce further laws on financial market regulation to improve the ability of regulators to intervene in the markets and has presented a draft bill (Gesetz zur Stärkung der Finanzmarkt- und Versicherungs-aufsicht).


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