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Krause Hartmut
Dr Hartmut Krause

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Frankfurt am Main

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27 March 2020

Establishment of an Economy Stabilisation Fund – State guarantees and equity capital of up to EUR 500 billion available

Today the Bundesrat (the second chamber of the German parliament) approved the Economy Stabilisation Fund Act which had been adopted by the Bundestag (the first chamber of the German parliament) on 25 March 2020 (Wirtschaftsstabilisierungsfondsgesetz; WStFG). It is to be expected that the Act will take effect very shortly.

The WStFG aims at mitigating the economic effects of the corona pandemic for businesses in the real economy, i.e. businesses outside the financial sector. A business wishing to benefit from stabilisation measures must have exceeded at least two of the following three thresholds in two consecutive financial years preceding 1 January 2020: (i) a balance sheet total of more than EUR 43 million, (ii) revenues of more than EUR 50 million, and (iii) an annual average of more than 249 employees (thresholds of the SME definition under EU law). In individual cases, however, smaller businesses that do not reach these thresholds can also benefit from stabilisation measures, provided that they are important for critical infrastructure. A further exception will be available for start-ups under certain conditions.

The stabilization measures introduced by the new Economy Stabilisation Fund (Wirtschaftsstabilisierungsfonds; WSF or the Fund) include guarantees in the amount of up to EUR 400 billion in aggregate and a term of up to 60 months for debt instruments and liabilities issued or created as soon as the WStFG has taken effect.

In addition, the WSF may acquire shares, silent partnership interests or other equity components in struggling enterprises in order to strengthen their capital base and subscribe for profit participation rights (Genussrechte) and notes – provided such recapitalzation serves an important interest of the Federal Republic and the intended purpose cannot be achieved better and more economically by any other measure. To this end, a total of EUR 100 billion will be made available to the WSF.

Stabilisation measures will be available until 31 December 2021. For recapitalisation measures, no time limit is envisaged.

The support to be provided by the WSF is available in addition to the EUR 100 billion of liquidity support that is to be provided via Kreditanstalt für Wiederaufbau. It is linked to certain conditions and requirements that may vary depending on the type of stabilisation measure and the enterprise seeking support. The individual conditions (which may include, for example, the use of the funds received, the remuneration of directors and officers or dividend distributions) will be determined by way of legal regulation.

The Act provides for various exemptions from otherwise applicable requirements under corporate and capital markets law in order to facilitate the implementation of recapitalisation measures. In the case of stock corporations, the majority requirements for capital measures and the exclusion of shareholders' pre-emptive rights are significantly lowered (setting aside any provisions to the contrary in the company's articles of association) and the option is introduced to issue shares at a price below the stock exchange price (but not below par value). In addition, the limitations concerning the amount of authorised capital and contingent capital are revoked in order to give enterprises greater leeway. Resolutions of the general meeting must be entered in the commercial register without undue delay, unless they are obviously void. Actions for avoidance or applications filed for injunction orders do not prevent registration. If and as long as social contacts are required to be minimised by binding official orders due to a pandemic, registration will be deemed effected seven days after filing, unless the registry has previously raised objections against the lawfulness or completeness of the documentation. Furthermore, shareholders that file abusive actions to avoid such resolutions are threatened by the sharp weapon of liability for damages payable to the company. Similar facilitations will be in place for the recapitalisation of companies and partnerships organised in other legal forms.

Securities acquisition and takeover offers made by the Federal Government or the Fund also benefit from a number of facilitations. The minimum acceptance period is only two weeks, and the minimum consideration must only be equal to the lower of (i) the weighted average stock exchange price during the two-week period prior to the date the intention to submit the offer was announced or became publicly known and (ii) the weighted average stock exchange price during the period from 1 to 27 March 2020. If the Federal Government or the Fund obtains or exceeds 30% of the voting rights, the German Federal Financial Supervisory Authority (BaFin) must release the government or the Fund from the obligation to submit a mandatory offer. If shareholders and the Federal Government or the Fund act in concert with respect to stabilisation measures, this will not result in an attribution of the respective voting rights. A financing confirmation will not be required. Additional facilitations apply with respect to procedures and documentation.

The relevant minimum threshold for a squeeze-out of minority shareholders is 90% of the share capital. Shareholders of a limited liability company (GmbH) may now also be excluded from the company against compensation.

Legal acts performed in connection with stabilisation measures cannot be contested by actions of avoidance. Shareholder loans granted by the Federal Government or the Fund are not subordinated in insolvency. A successor in title which assumes the rights and obligations in relation to the privileged claim will also benefit from these privileges.

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