Vol 5 (2008) - Issue 1

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The Reform of the German GmbH Law: New Opportunities and New Hazards for Non-German Companies and their Creditors

Introduction
On 25 May 2007, the German Government presented its Draft Act on Modernisation of the German Law on Limited Liability Companies – GmbH – (‘MoMiG’, ‘Draft Act’), which is expected to become effective in the first half of 2008.2 The Draft Act particularly intends to increase the attractiveness of the German GmbH and to overcome competitive disadvantages it suffers in comparison to foreign legal forms, in particular to the Limited Liability Company of England & Wales (the ‘English Ltd’). The regulations will also partially apply to non-German companies. This article will outline the Draft Act’s essential alterations and will point out that the Draft Act involves both opportunities and new hazards for non-German companies, their shareholders, directors and creditors.

Limited duty for non-German companies to file for insolvency in Germany
The Draft Act extends the existing duty to file a petition for the opening of insolvency proceedings if the company is overindebted or illiquid. While currently this duty only applies to directors of companies incorporated under German law, under the Draft Act, any kind of corporation and partnership will be affected, as long as they do not have an individual as a general partner.In principle, the Draft Act now also provides a duty for non-German companies, their directors and – vicariously – their shareholders, to file for insolvency not later than three weeks from the occurrence of overindebtedness or illiquidity. But, contrary to the view of several publications, the Draft Act does not provide such duty for non-German companies which do not possess assets in the territory of Germany.

In fact, one has to distinguish between non-German companies, whose centre of main interest (‘COMI’) is located outside Germany but within the territory of the European Union, primarily the territory of the Council Regulation (EC) No 1346/2000 on insolvency proceedings (hereinafter ‘EIR’; EIR excluding Denmark), and companies established outside the European Union. This consideration is important as EU companies are only affected by the Draft Act if they possess an establishment within the territory of Germany. By the wording of the Draft Act, the duty for non-EU companies to file for insolvency is already imposed if they have assets in Germany, since the German international insolvency law (for non-EU companies) provides for commencement of secondary proceedings in Germany only if the company has assets – as opposed to an establishment – in Germany.

In this respect, however, the wording conflicts with the legislative history and reasoning. According to this, non-German companies shall only be subject to such duty if the COMI is located in Germany and German insolvency law is applicable. Hence, during the legislative procedure, a clarification of the wording is due. Non-German companies with neither an establishment nor assets within Germany are not affected in any circumstances. This notion ostensibly conflicts with both the wording and the legislative history.