On 12 November 2015 the German parliament has passed various amendments to the Stock Corporation Act (Aktiengesetz) known as the "Aktienrechtsnovelle 2016". The majority of the adopted amendments had already been proposed in late 2010. However, the initial proposals aborted, as the legislative process could not be completed during the last parliamentary term. Therefore, the federal government presented a new draft in January 2015.

The amendments are aimed primarily at allowing stock corporations more flexibility to ensure a sound equity base and to enhance their financial resilience and at improving the transparency in relation to the ownership structure of non-listed companies. They provide, in particular, for the following changes:

• The requirements relating to non-voting preference shares will be relaxed. Currently, the exclusion of voting rights requires that the shareholder is entitled to receive the preferred dividend in the following year, if it has not been fully paid (e.g., due to insufficient profits), and that the payment of preferred dividends has priority over the distribution of dividends on ordinary shares. Pursuant to the amended provisions, stock corporations may stipulate in their articles of association that the right to subsequent payment is excluded and that instead of, or alongside, a prioritised payment, holders of preferred shares receive higher than ordinary dividends (sec. 139 sub-sec. 1 Stock Corporation Act, as amended). This is meant to increase the flexibility of stock corporations in relation to their equity structure in general and, as the present corporate law requirements prevent the qualification of preference shares as regulatory core capital, to facilitate compliance with regulatory capital demands by credit institutions.
• The revised Stock Corporation Act expressly provides for the possibility to issue convertible bonds with a conversion right for the issuer ("reversed convertible bonds") and to create conditional capital for this purpose (§ sec. 192 Stock Corporation Act, as amended). Currently, the law provides for a conversion right of the bondholder, only. While in practice there are bond structures with features which are economically close to a conversion right of the issuer, the permissibility to use conditional capital to discharge such bonds has been disputed. Under the amended provisions, the issue of bonds with reciprocal conversion rights of the bondholder and the issuer will also be possible. The rationale for these amendments is, inter alia, to simplify the restructuring of financially distressed companies by way of debt-to-equity swaps. Restructuring measures are further facilitated by stipulating an exception from the general rule that the nominal value of conditional capital must not exceed 50% of the share capital: if the conditional capital is created for the sole purpose of enabling the company to exercise a conversion right to avoid insolvency, the conditional capital may exceed this threshold.
• The possibility of non-listed stock corporations to issue bearer shares will be restricted: companies may only issue bearer shares if the right of the shareholders to individual share certificates is excluded and a global share certificate is deposited with a depository bank within the meaning of the German Act on Deposits of Securities (Depotgesetz) or with another entity qualifying as depository (sec. 10 sub-sec. 1 Stock Corporation Act, as amended). Otherwise, non-listed companies may only issue registered shares. This is supposed to ensure the transparency of the ownership structure also of non-listed companies. In contrast to capital markets law, which provides for strict notification duties and low thresholds, corporate law notification obligations only apply to stakes in excess of 25%. Therefore, the anonymity of bearer shares has been the subject of international criticism. To ensure the grandfathering of existing companies with bearer shares, the new regime will not apply to such companies if their articles of association were notarially recorded prior to the amendments becoming effective.
• Henceforth the number of the members of the supervisory board does not generally need to be divisible by three. This requirement will only continue to apply to companies which need to have a supervisory board under the German One-Third Employee Participation Act (Drittelbeteiligungsgesetz), i.e. companies with more than 500, but not more than 2,000 employees (sec. 95 sentence 3 Stock Corporation Act, as amended).

A due date for the payment of dividends will be newly introduced. Unless a later due date is determined in the articles of association or by resolution of the general assembly, dividends will be payable on the third business day after the date of the general assembly resolving on the dividend (sec. 58 sub-sec. 4 Stock Corporation Act, as amended).

Other than proposed in the governmental draft, no uniform record date for bearer and registered shares will be introduced. Therefore, the present legal situation, according to which only the holders of bearer shares must evidence their ownership position until a certain record date in order to participate in the general assembly, will remain unchanged. This is against the background, that the German parliament seeks for uniform, EU-wide rules on this subject and decided to ask the EU Commission for a legislative proposal.

The German parliament has also refrained from adopting a "relative time limitation for follow-up actions of nullity", pursuant to which a shareholder may only initiate a follow-up action of nullity of a resolution of the general assembly within one month from the publication of the initiation of an action for annulment. The committee on legal affairs of the parliament recommended not follow the respective proposal contained in the governmental draft, but to rather review the legal regime on defective resolutions in its entirety.

The amendments will enter into force on the day following the publication of the amendment act in the Federal Law Gazette (Bundesgesetzblatt), except for the provision regarding the due day for dividend payments which will only become effective on 1 January 2017.

Further information is available in the German language on the web pages of the German Federal Parliament, which also contain the governmental draft and the recommendations of the committee on legal affairs of the parliament. If you have any queries or would like to discuss any of the above topics in more detail, Christine Oppenhoff will be happy to assist.