GERMANY Law and Practice Contributed by: Gregor von Bonin, Natascha Doll, Andreas Ruthemeyer, Stefan Schröder and Mirko Masek, Freshfields
9. Duties of Directors 9.1 Principal Directors’ Duties
familiar component of deal governance, under Ger- man corporate law the legal framework and govern- ance culture are somewhat different. This is mainly due to the two-tier board structure, with the executive management board being separate from the supervi- sory board. The formation of special or ad hoc com- mittees in the context of business combinations is possible, but it is not routine and usually reserved for specific situations, especially when conflicts of inter- est arise. 9.3 Role of the Board Under German law, both the management board and supervisory board have distinct and complementary responsibilities. Their conduct in the context of a pub- lic takeover is governed primarily by the AktG and the WpÜG. In a friendly transaction, the management board is expected to take an active role in evaluating and negotiating the offer. It considers whether the proposal aligns with the company’s strategic objectives, wheth- er the price offered is adequate, and what implications the transaction may have for stakeholders. The man- agement board, together with the supervisory board, must issue a reasoned statement under Section 27 of the WpÜG (see 9.1 Principal Directors’ Duties ). In the case of a hostile or unsolicited offer, the boards may express their opposition and present counterargu- ments, but their actions to frustrate the offer are very limited (see 9.1 Principal Directors’ Duties ). While this means that German law places the ultimate decision in the hands of shareholders, in practice “hostile” ten- der offers without support of the boards are rather the exception than the norm. Shareholder litigation is much less common in Germa- ny than in jurisdictions like the United States. German law does not provide for routine “merger objection” suits or expansive class action mechanisms. However, this does not mean boards and buyers operate free of risk. Shareholders may still challenge transactions in several ways, in particular in the context of squeeze- outs, domination and profit transfer agreements, etc (see 4.8 Squeeze-Out Mechanisms ).
In any German M&A transaction, directors on both the management and supervisory boards are bound by statutory and fiduciary duties stemming from the AktG/GmbHG and, for listed companies, the WpÜG. These duties of care, compliance, and loyalty require directors to act with the diligence of a prudent busi- nessperson by informing themselves thoroughly, obtaining expert advice, and basing decisions on sound reasoning. While their primary duty is to the company’s best interest, which indirectly serves shareholders, there is a growing emphasis on consid- ering other stakeholders like employees and creditors. The practical application of these duties differs sig- nificantly between private and public transactions. In private M&A, directors of the target have limited impact, as shareholders predominantly negotiate and direct the transaction. Conversely, in public business combinations regu- lated by the WpÜG and overseen by BaFin, directors of both the bidder and target have a more active role, with heightened duties of transparency, neutrality, and procedural fairness. The target company’s boards must issue a reasoned statement (Section 27 WpÜG) assessing the offer’s price, the bidder’s strategic intentions, and its implica- tions for employees, operations, and business loca- tions, concluding with a recommendation to accept or reject. Once an offer is announced, the target’s board is bound by a duty of neutrality (Section 33 WpÜG) and may not take frustrating actions without the supervi- sory board’s approval for legitimate corporate inter- ests. This rule emphasises shareholder decision- making but allows for justified exceptions, provided all shareholders are treated equally. The board must also consult with works councils to consider employ- ee interests. 9.2 Special or Ad Hoc Committees Compared with jurisdictions like the United States or the United Kingdom, where special committees are a
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