Overview
On April 12, 2023, the German Federal Ministry of Finance and the German Federal Ministry of Justice published a draft bill on the financing of future-proof investments (Future Financing Act – Zukunftsfinanzierungsgesetz – “ZuFinG-E”). The draft aims to strengthen the performance of the German capital market and enhance the attractiveness of Germany as a financial center in the European financial area by proposing a large number of amendments to corporate, financial market and tax law.
In the following, we provide an initial overview of the proposals under stock corporation law and the capital market law topics of the ZuFinG-E that are relevant for stock companies.
FURTHER INFORMATION
I. Introduction of electronic shares
As already set out in the coalition agreement of the government and announced in a key issues paper on the German Future Financing Act, the scope of the Electronic Securities Act (Gesetz über elektronische Wertpapiere – “eWpG“) is to be extended to include electronic shares. To date, only bearer bonds and investment fund share certificates could be issued electronically under the eWpG. As a result of the proposed amendments to the eWpG and the German Stock Corporations Act (Aktiengesetz – “AktG“), this will also be possible for shares in the future.
Stock companies will then have the choice of issuing their shares as conventionally certified shares or as electronic shares. In this context, registered shares shall in the future be able to be issued in both forms of electronic securities under the eWpG, i.e., as central register securities and as crypto securities (Sec. 10 (6) AktG-E).
Bearer shares, on the other hand, should only be able to be issued electronically as central register securities (Sec. 10 (1) sentence 1 no. 2 AktG-E), as the legislator fears a large number of corporate law and money laundering issues for bearer shares in the absence of a central register.
II. Introduction of dual-class shares
By removing the previous ban on multiple voting rights in Sec. 12 (2) AktG, dual class shares are expected to make the procurement of equity via the capital market more attractive in the future.
In particular, start-ups and growth companies are to be made less reluctant to go public by securing influence and control over the strategic direction of the company.
The modalities of the multiple voting rights are to be regulated by the introduction of a new Sec. 134 (2) AktG-E which, among other things, provides for the limitation of the multiple voting rights to a maximum of ten times the voting rights pursuant to Sec. 134 (1) sentence 1 AktG and for the expiry of the multiple voting rights after a maximum of ten years after the listing of the Company (“sunset clause”). However, provided there is a qualified majority of the capital, an extension of a further ten years is to be possible under the articles of association (Sec. 134 (2) sentence 5, 6 AktG-E).
III. Facilitation of capital increases
In addition, it is intended to make it easier to raise equity capital by simplifying capital increases under corporate law.
For this purpose, the draft provides for an increase in the limit for the simplified exclusion of subscription rights from the previous 10 percent of the share capital to 20 percent (Sec. 186 (3) sentence 4 AktG-E).
Furthermore, the limits on conditional capital are to be increased in the case of mergers and for subscription rights of employees and members of the management:
- In the future, conditional capital shall be possible for mergers up to a limit of 60 percent of the capital shares instead of the previous 50 percent (Sec. 192 (3) sentence 1 AktG-E).
- The limit for subscription rights of employees and members of management is to be increased from 10 percent to 20 percent (Sec. 192 (3) sentence 1 no. 2 AktG-E).
Moreover, the draft proposes that disputes concerning the appropriateness of the amount of the issue price for capital measures pursuant to Sec. 255 AktG should no longer be admissible in the context of a contestation procedure in the future and should instead be decided in appraisal proceedings (Sec. 255 (2) to (6) AktG-E). This is justified by the desire of market participants to be able to register and make capital increases effective as soon as possible after the resolution has been passed.
The draft also supplements the new provision on the issue price with a paragraph on determining the value of listed companies, whereby the value – assuming a continuous and functioning price mechanism – will in future be explicitly determined by the average stock exchange price (Sec. 255 (4) AktG-E).
IV. Introduction of SPACs
In order to facilitate companies’ access to the capital market, a new Segment 4a-E of the Stock Exchange Act (Börsengesetz – “BörsG“) is to introduce the Special Purpose Acquisition Company (“SPAC“) as a special legal form of stock companies in the future. The SPAC refers to a shell company without its own operative business, which is founded in order to raise capital by means of an IPO and thereby to take over a – prior to the IPO undetermined – non-listed company and thus indirectly to bring it to the stock exchange. Against this background, the draft proposes the term Börsenmantelaktiengesellschaft (Exchange Shell Stock Corporation – “BMAG“) as the future legal form designation.
In the new Segment 4a BörsG-E, the draft bill then provides for numerous special regulations for the new legal form, which are to take precedence over stock corporation law pursuant to Sec. 44 (7) BörsG-E. These include, for example, the mandatory requirement to enable virtual Annual General Meetings by way of a provision in the articles of association (Sec. 44 (4) no. 3 BörsG-E) and the mandatory dissolution of the company if no target transaction takes place within a period specified in the articles of association (Sec. 47b (1) BörsG-E).
V. Alignment of the Record Date
The proposal to align the definition of the record date in Sec. 123 (4) sentence 2 AktG with the Implementing Regulation (EU) 2018/1212 is also welcome for the practice of Annual General Meetings. Although there has not been any material difference in the deadline due to the different wording, the proposed link to the “close of business on the 22nd day” (instead of the “start of the 21st day”) before the Annual General Meeting eliminates the risk of misunderstanding and complications in the information to be provided in accordance with EU regulations as part of the convening notice.
VI. Facilitation of IPOs
Finally, the draft provides for some easing measures in IPOs:
- In order to strengthen the competitiveness of the capital market, the minimum amount for the expected market liquidity is to be reduced from EUR 1.25 million to EUR 1 million (Sec. 2 (1) of the German Stock Exchange Admission Regulation (Börsenzulassungsverordnung – “BörsZulV“).
- In addition, in order to reduce admission costs for issuers, stock exchanges shall in future be able to provide in the Exchange Rules that admission to certain segments may also be applied for by the issuer alone (Sec. 32 (2a) BörsG-E).
VII. Outlook
The draft bill for the ZuFinG is now in the process of interdepartmental coordination and is expected to come into force as early as 2024 once the legislative process has been completed. We look forward to keeping you informed about the developments of the ZuFinG!
