1 University of Augsburg German and European Company Law - Addendum Prof. Dr. Otmar Thömmes 5 / 6 July 2013

Draft bill on German International Company Law 2008

In January 2008, Germany's Federal Ministry of Justice published a draft bill on a German International Company Law, which provides for the abolition of the legal seat theory. Currently, German law does not provide for specific rules on the issue which legal system shall be applicable to companies, associations and legal entities with cross-border relationships. In practice, German courts have followed the "seat theory" in order to determine the legal system to be applied to legal entities. Accordingly, a legal entity is subject to the legal system where its administrative seat is located. However, the European Court of Justice found the application of the seat theory to be contrary to EU freedom of establishment (Art. 49 TFEU) and the EU freedom to provide services (Art. 56 TFEU), in cases where a corporation, established under foreign law and having its administrative seat in Germany, was not treated like a legal entity. 3 Addendum 1. Draft bill on German International Company Law (I)

The draft bill introduces the following principles: companies, associations and legal entities shall be governed by the law of the state in which they are registered in a public register; especially with regard to the articles of association, and for legal relations and liability purposes; the transformation of companies, associations and legal entities shall be governed by the same law; and a legal entity can be subject to the law of another state and maintain its identity, if the applicable laws allow such a change (cross-border change of legal form). However, no uniform picture has yet emerged in the European Union. A uniform European regulation would be desirable, but the EU-Commission has not taken up this question yet. Germany also has still not adopted the draft bill. 4 Addendum 1. Draft bill on German International Company Law (II)

German Federal Supreme Court – Trabrennbahn

6 German Federal Supreme Court of October 27, BGH, II ZR 158/06 (Trabrennbahn ), DStR 2009, transferred its administrative seat Swiss stock company Trabrennbahn 2. claiming rental payments for the letting of real properties Addendum 2. German Federal Supreme Court (I)

The plaintiff, a stock company incorporated under Swiss law which transferred its administrative seat to Germany, took an action to a German Court, claiming rental payments for the letting of real properties. The defendant invoked the legal seat theory (Sitztheorie), according to which the legal capacity of a foreign company whose residence is transferred from abroad to Germany is not recognized. Based on the legal seat theory, the transfer of residence of a foreign company leads to its dissolution and loss of legal personality, in consequence of which, the foreign entity may not bring legal proceedings to Germany. The plaintiff claimed to be treated like companies which are incorporated under the law of a EU/EEA Member State. The European Court of Justice held in Überseering that a host Member State cannot refuse to recognize the legal capacity of a company validly incorporated in another Member State when that company transfers its actual centre of administration to the host Member State without being reincorporated there. 7 Addendum 2. German Federal Supreme Court (II) - Facts

The Federal Court of Justice annulled the decision of the regional Court and ruled in favour of the defendant. Based on the findings that the plaintiff transferred its administrative seat to Germany, the Court considered the Swiss stock company as dissolved. The Court rejected the argument that a Swiss stock company should be treated like a company incorporated under the law of a EU/EEA Member State, since Switzerland did not the sign the EEA Agreement. The Court emphasized that this fact needs to be respected and may not be undermined by general considerations. The Court noted that the legal seat theory is still applicable to companies incorporated under the law of non EU/EEA Member States which transfer their administrative seat to Germany. 8 Addendum 2. German Federal Supreme Court (III) - Decision