Experience with the SE in Germany

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Experience with the SE in Germany

• Dr. Jochem Reichert
• September 20, 2007

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I.1. Statistic data on SEs in Europe

• 88 SEs were established by July 22, 2007
  (including shelf companies)
• 85 are still in existence
• 39 of the SEs were established in Germany (gt 40
  )

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I.1. Statistic data on SEs in Germany

• Number of shelf-companies in
• Germany
• 11 of the 39 German SEs were established as shelf
  companies
• 2 have since been activated

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I.3. Statistics on governance of SEs in Germany

• Governance of German SEs
• 11 of the 39 German SEs were established as
  one-tier SEs
• 3 of those are shelf companies

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I.4. German market data

• Diverse picture of company size and industries
• A large number of SEs were established by smaller
  enterprises
• Famous German SE formations
• Allianz
• Fresenius
• BASF
• Porsche

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II. Motives for establishing SEs for German
companies

• Motives for the formation of SEs for German
  companies
• Facilitation of Cross-Border-Mergers
• The European Image
• More flexibility in Co-Determination for big
  companies
• Avoidance/Freezing of Co-Determination in
  Medium-Sized Enterprises
• More flexibility in Governance the choice of the
  one-tier model
• Uniform structure for Company Groups

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II.1. Motives for establishing SEs for German
companies

• 1. Facilitating cross-border mergers and easy
  transfer of seat
• Facilitating cross-border mergers
• Historical motive Enabling or facilitating a
  legally certain cross-border merger (Ex Allianz)
  
• Today The transposition of the cross-border
  directive equally assures legal certainty in
  cross-border mergers
• Easy transfer of the registered office to another
  Member State
• German corporate law and conflict-of-law rules do
  not allow a transfer of registered office
  (dissolution and liquidation necessary) for
  corporations

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II.2. Motives for establishing SEs for German
companies

• 2. The European Image of the SE
• The new corporation is perceived as modern and
  European (not national)
• Importance of this motive is uncertain
• Perception as a Merger of Equals and not as a
  takeover
• Greater acceptance amongst employees and clients
• Might reduce national concerns when companies
  with strategic role/long tradition merge and
  register in a foreign Member State

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II.3. Motives for establishing SEs for German
companies

• 3. Flexibility in co-determination for large
  companies
• a. The German co-determination Co-determination
  through employee representation in the
  supervisory board. The number of
  representatives is determined as follows

500 no. of employees lt 2000
2000 employees
Co-Determination Act
One-Third-Participation Act
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II.b. Motives for establishing SEs for German
companies

• b. Co-determination in German SEs
• SE directive on employee involvement transposed
  into the German SE Employee Involvement Act
  (SEBG)
• More flexibility in employee involvement
• Procedure Step 1 Formation of a special
  negotiating body 50 representatives of founders
  companies, 50 employeesStep 2 If the
  negotiations fail Application of catch-up
  provisions ? generally strictest regime of
  employee participation (German)

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II.3. Motives for establishing SEs for German
companies

• c. Evaluation of the benefits for large
  companies
• Level of representation (percentage of
  representatives)due to German catch-up
  provisions nothing won, nothing lost
• Possibility to find solutions tailored to
  specifics of the company
• Extension of co-determination to representatives
  from Europe (no national blockade)
• Reduction of the size of the supervisory
  board(ex Allianz, Fresenius, BASF)

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II.4. Motives for establishing SEs for German
companies

• 4. Avoidance and Freezing of Co-Determination for
  Medium-Sized Enterprises

German Co-Determination Law
Freezing at Third-Participation
Var. 2
Var. 1
Avoidance of co-determination
Var. 1 Establishing an SE before reaching 500
employeesVar. 2 Establishing an SE before
reaching 2000 employees
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II.5. Motives for establishing SEs for German
companies

• 5. Appeal of the One-Tier System
• The SE opens an option between a one-tier and
  two-tier model of management
• a. The two-tier model
• Governance split up between a Managing Board and
  a Supervisory Board
• Largely regulated by German Stock Corporations
  Act, but additional possibilities for structuring
  the governance.
• Determination of majority requirements in statutes

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II.5. Motives for establishing SEs for German
companies

• b. The one-tier model

Managing Director(s)- day-to-day business-
unrestricted representative authority
externally- personal and material dependence of
administrative organ- can be member(s) of the
administrative organ (? CEO/PDG)
Managing Director(s)
Administrative Organ
Administrative Organ- management of the
company- long-term strategy
Management
General Meeting
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II.5. Motives for establishing SEs for German
companies

• c. Advantages of the one-tier model
• For small companies and groups with many
  subsidiariespossibility of a tight management
  structure
• capital of 3 Mio. 1 member in the
  administrative organ, 1 managing director
• For family companies
• Vest a head of family with extended powers of a
  CEO/PDG
• Flexible options for retiring from active
  management

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II.6. Motives for establishing SEs for German
companies

• 6. Uniform Structures for Company Groups
• Introduction of uniform structures in various
  different countries
• Economic importance not clear
• Estimation of savings in consultancy fees
• But doubtful Still considerable differences
  between the different national SEs

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III. Conclusion

• Problems in Applying the Law
• Complicated new procedures and structures always
  raise legal questions
• Important questions that are not resolved yet
• Is the size of the supervisory board a subject
  matter of the negotiations regarding employee
  involvement?
• Employee involvement when establishing and
  activating shelf-companies
• It is possible to work in practice with the legal
  regime of the SE. The large SE formations have
  been implemented as planned without any
  considerable potential for problems.

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Thank you for your attention

• Experiences with the SE in Germany
• Dr. Jochem Reichert