Germany: M&A COVID-19 Wire VI

1. State Aid

We keep our overview "COVID-19 - State aid for affected companies" always up-to-date for you. You can find our update from 28/04/2020 here: https://www.pplaw.com/en/article/covid-19-recht-und-steuern/covid-19-state-aid-affected-companies-overview-0.

2. "Corona-Amendment" to the Foreign Trade Ordinance

• On 28 April 2020, the Federal Ministry of Economics and Energy ("BMWi") published a draft amendment to the Foreign Trade Ordinance ("AWV"). In particular, this so-called "Corona-Amendment" provides for an extension of the notification obligations to investments in the health care sector and defines (exemplary) criteria for a prohibition of investments.
• In view of the current situation, the Corona Amendment provides for changes that were initially planned to be introduced as part of a major amendment to the AWV. This further AWV amendment, which among other things adapts the AWV to the planned amendments to the Foreign Trade Act (cf. our Client Information on this subject), is to be presented by the BMWi shortly.

a. Extension of the Notification Obligation

• The amendment is intended to extend the notification obligation to (direct or indirect) acquisitions of at least 10% of the voting rights in German companies by acquirers from outside the EU or EFTA to target companies that
• • Develop, manufacture, place on the market or hold a marketing authorisation for medicinal products which are essential for the provision of health care to the population. This also includes manufacturing facilities or technologies for their development or production;
  • Develop, manufacture or distribute medical devices intended for the diagnosis, prevention, monitoring, prediction, prognosis, treatment or alleviation of life-threatening and highly contagious infectious diseases or supply input products or components for their development or manufacture. This also includes manufacturing facilities or technologies for their development or production as well as for the development or production of input products for or components of these products;
  • Develop, manufacture or distribute in vitro diagnostic medical devices which are intended to provide information on physiological or pathological processes or conditions or to determine or monitor therapeutic measures in connection with life-threatening and highly contagious infectious diseases, or to supply input products or components for their development or manufacture. This also includes manufacturing facilities or technologies for their development or production as well as for the development or production of input products or components of these products;
  • Develop, manufacture personal protective equipment (within the meaning of Regulation (EU) 2016/425, i.e. equipment designed and manufactured to be worn or held by a person as protection against one or more risks to their health or safety) or supply input products or components for their development or manufacture. This also includes manufacturing facilities or technologies for their development or manufacture and for the development or manufacture of input products or components of such products;
  • Extract or further process critical raw materials or their ores (as defined in Annex 1 of the Communication of the European Commission of 13 September 2017 (COM(2017) 490));
  • Provide digital radio services to authorities and organisations with security responsibilities.
• The BMWi must be informed immediately of the conclusion of an acquisition agreement. The planned amendment to the Foreign Trade Act also provides for the introduction of a prohibition of implementing transactions subject to notification requirements. The legal transaction effecting the acquisition shall then only become (retroactively) effective after clearance by the BMWi.
• Although these amendments to the AWV are in response to the COVID-19 pandemic, they are not subject to a time limit.

b. Definition of Prohibition Criteria

• When determining whether an acquisition is likely to endanger public order or public security, it shall be taken particular account of whether
• • the acquirer is directly or indirectly controlled by the government (including other governmental bodies or armed forces of a third country), in particular by virtue of its ownership structure or due to the contribution of not insignificant financial resources;
  • the acquirer has already been involved in activities which have had an adverse effect on the public order or security of the Federal Republic of Germany or another Member State of the European Union; or
  • there is a considerable risk that the acquirer or persons acting on behalf of the acquirer were or are involved in activities which would constitute certain criminal offences or administrative offences in Germany (including money laundering, fraud, bribery or corruption, breach of foreign trade regulations, etc.).
• This specification is to apply to both the cross-sector and sector-specific investment control. The same applies to the clarification that asset deals are also covered.
• The planned amendment to the Foreign Trade Act provides for a lowering of the prohibition criteria. An anticipated impairment of public order or security is then to be sufficient.

3. Update on Export Restriction for Medical Protection Equipment

• With the entry into force of the Implementing Regulation (EU) 2020/402 on 16 March 2020, there is an EU-wide restriction on the export of medical protective equipment to third countries. The validity of the regulation was limited to six weeks.
• On April 26, 2020, a successor regulation to the export restrictions on medical protective equipment came into force with Implementing Regulation (EU) 2020/568 of April 23, 2020. This new regulation applies for a period of 30 days.
• Gloves and face shields are now no longer covered by the export restrictions. The export of further medical protective equipment (protective spectacles and visors, mouth-nose-protection equipment, protective garments) to third countries under the directly applicable European Implementing Regulation is still subject to authorization in written or electronic form by the competent authorities of the Member State where the exporter has its seat. In Germany, the application for the export approval can be submitted via the ELAN-K2 export portal of the Federal Office of Economics and Export Control.
• Deliveries of medical protective equipment within the customs territory of the EU (and other European countries, e.g. Iceland, Norway, Switzerland) are not restricted by the new regulation. However, the Federal Government reserves its right to evaluate the situation on a regular basis, both with regard to further developments in the internal market and with regard to the necessary EU-wide uniform approach to the approval of exports to third countries on the basis of the European Implementing Regulation (EU) 2020/402.
• The Federal Office of Economics and Export Control has established a telephone hotline (06196 908-1444) in connection with the supply of protective equipment. Written questions can be sent to the e-mail address: schutzausruestung@bafa.bund.de. Further information on the ELAN-K2 export portal is provided here.

4. Labour Law

• On 23 April 2020, the German Bundestag passed the so-called Work-of-Tomorrow Law to support vocational and professional education and training in the context of structural economic changes. The law is intended to accompany the development towards a low-emission and digital economy and, according to the German Federal Ministry of Labour and Social Affairs, an important component in quickly finding the way back to growth and employment after the COVID-19 pandemic.
• In addition, the law provides further practicable solutions for the COVID-19 crisis, e.g. works councils and other corporate co-determination bodies, as well as conciliation boards, can hold meetings and pass resolutions by video and telephone conference and works meetings can be organised audio visually until the end of the year. For further information please refer to this link.

5. COVID-19 Pandemic and Restrictions of the Retail Trade

• In the course of the COVID-19 pandemic, the Federal Government and the federal states have adopted many initial restrictions and contact bans. With the decrease in the number of infections, there are first relaxations in the individual federal states. In the first summary proceedings, the courts justified the encroachment on basic rights caused by the restrictions with the high level of protection of public health.
• Now, more and more (prominent) companies are also resisting the restrictive measures because they see their existence endangered. The so-called 800 m2 rule came into force on 20 April 2020. According to this rule, the operation of retail outlets whose sales area is not limited to 800 m2 is generally prohibited. Some individual companies have taken legal action against this in summary proceedings. An initial evaluation shows that the courts in the various federal states are making inconsistent decisions.
• For example, a sole proprietorship in Hamburg took action against the restriction and was successful in the first instance with the Administrative Court of Hamburg. According to the decision of 21 April 2020, the restriction violates the fundamental right of freedom of occupation enshrined in Article 12 par. 1 s. 1 German Constitution and the principle of equality in Article 3 par. German Constitution. The background to this are the infection protection orders to be complied with, which could also be implemented in large-scale retail stores. A particular attraction for the public was not exclusively or at least not to a particular extent due to the large-area retail trade. In response to the complaint of the City of Hamburg, however, the Higher Administrative Court of Hamburg issued an interim injunction on 22 April 2020, according to which the store may only be operated up to a maximum sales area of 800 m2. A final decision is expected this week.
• In its ruling of 27 April 2020, the Bavarian Higher Administrative Court also assessed the 800 m2 rule as a violation of the principle of equality in Article 3 par. 1 German Constitution. However, the challenged provision was not overruled by way of exception due to the prevailing pandemic emergency and the short period of validity of the restrictions up to and including 3 May 2020.
• The Higher Administrative Courts in Berlin-Brandenburg, Lower Saxony, North Rhine-Westphalia, Saarland and Saxony-Anhalt, on the other hand, assume that the above mentioned sales space restrictions are lawful.
• The decisions show that the restrictions are assessed inconsistently and are therefore associated with a certain uncertainty for companies. It remains to be seen when the next relaxation will take place and when the different interpretations resulting from the court decisions will be eliminated.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.