GERMANY TRENDS AND DEVELOPMENTS Contributed by: Carsten Loll, Otto von Gruben, Torsten Volkholz, Frank Grell and Sebastian von Hornung, Latham & Watkins
Conclusion While the current state of Germany’s real estate market provides attractive investment opportu - nities, investors must proceed with caution. Pay - ing close attention to any potential insolvency law-related risks is crucial, especially when the selling company seems to be facing financial trouble. A key solution to reducing such risks in this market is through due diligence, including a scrutiny of the selling entity’s financial situation, and selecting the most favourable deal structure.
The underlying idea behind the agreement is the following: no claw-back and liability risks exist if an insolvency filing is avoided due to the solvent liquidation. As a result, a liquidation agreement could create a more secure foundation for the transaction with regard to insolvency law-related risks. The investor should also assess whether remain - ing third-party claims (which are not part of the agreement, if any) are so marginal that the inves - tor is generally willing to pay them off, if neces - sary, to avoid a filing for insolvency. That said, even if a liquidation agreement is concluded, the financial situation of the selling entity must be carefully assessed because the purchase price might be insufficient to avoid an insolvency. As a result, even if the investor enters into a liquidation agreement with the selling enti - ty, the second line of defence against potential claw-back risks should be that the solvent liq - uidation was highly likely according to a third- party expert. In general, the liquidation process for a German corporation includes the following steps: • the majority of third-party creditors are paid off as of closing; • some payments such as public fees – eg, taxes, may follow; • after settlement of all third-party claims, the shareholders of the relevant corporation pass a resolution on the dissolution of the entity; • following the full pay-off of creditors and the relevant resolution by shareholders, a one- year waiting period applies to a German stock company or limited liability company; and • after the lapse of such waiting period, the entity can be deleted from the relevant public register and the liquidation is fully completed.
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