Over the past few days, the Federal Ministry of Finance has prepared the draft bill of a law to establish an economic stabilisation fund (the "Stabilisation Fund"). The draft bill is currently being coordinated between governmental departments; it is scheduled to be adopted by the Cabinet of the Federal Government on 23 March 2020 and passed by Parliament this week. The aim of the Act is to stabilise the real economy. To this end, the instruments for financial market stabilisation are now to be made available to support affected companies in the real economy.

Below we summarize the most important key data of the draft bill presented to us. Details may still change in the course of the further legislative procedure. 

• Responsibility: The draft bill envisages a combined responsibility of the Federal Ministry of Finance (BMF) and the Federal Ministry of Economics and Energy (BMWi), with the possibility of delegating tasks to the Kreditanstalt für Wiederaufbau (KfW) and the Finanzagentur des Bundes. The Federal Ministry of Economics and Energy (BMWi) will in principle be responsible for negotiating and receiving applications for stabilisation measures. 
• Eligible companies in the real economy must have exceeded two of the following three criteria in two consecutive financial years before 1 January 2020; note that these thresholds are still marked as provisional in the draft bill: 
  • Balance sheet total in excess of 43 million euros
  • Sales revenue in excess of 50 million euros 
  • More than 249 average annual number of employees
• Companies must ensure a sound and prudent business policy. In particular, they should contribute to the stabilisation of production chains and to securing jobs. The companies must not have access to other forms of financing and must not already be in financial difficulty on 31 December 2019.
• There is no legal entitlement to stabilisation measures through the Stabilisation Fund. The decision to grant such measures is at the discretion of the BMF. 
• The following instruments for stabilisation measures by the Stabilisation Fund are available to beneficiary companies: 
  • Guarantees by the Stabilisation Fund of newly issued debt instruments and newly incurred liabilities; the term of the guarantees and the liabilities to be backed may not exceed vss. 60 months; 
  • Acquisition of shares, silent participations (stille Beteiligungen) or other equity instruments by the Stabilisation Fund
  • Subscription of subordinated debt, hybrid bonds, profit participation rights (Genussrechte) or convertible bonds by the Stabilisation Fund
• Further details on the legal and economic conditions of the stabilisation instruments will be promulgated in a separate legal regulation.
• Companies receiving support measures must meet certain obligations and conditions. These relate, among other things, to the use of the funds received from the Stabilisation Fund, the remuneration of their executive bodies, the distribution of dividends, the drawing of other funding lines and measures to avoid distortions of competition. Details are regulated in a separate legal regulation. 
• The legal form of the beneficiary company is not relevant for the granting of stabilisation measures. Special exemptions and facilitations are provided for enterprises in the legal form of a joint stock company (Aktiengesellschaft). These include:
  • Shares may be issued to the Stabilisation Fund with profit-distribution preference or liquidity preference. 
  • Exclusion of subscription rights in favour of the Stabilisation Fund is to be significantly facilitated. 
  • Advance payments on deposits by the Stabilisation Fund are possible. 
  • Lower voting majority requirements apply for resolutions of the general meeting and the creation of authorised capital. 
  • Shareholders may be held liable for damages if they delay or attempt to thwart stabilisation measures for their own benefit. 
  • The facilitations for stabilisation measures apply accordingly if the new shares are also or exclusively subscribed by third parties. 
  • Simplified issues of profit participation rights, bonds with qualified subordination and silent participations to the Stabilisation Fund are provided for. Shareholders do not have subscription rights in the case of a silent participation of the Stabilisation Fund with conversion rights. 
  • Far-reaching exceptions from German public takeover law provisions are granted for the acquisition of equity interests by the Stabilisation Fund (no mandatory offer, no acting in concert, different minimum price requirements). 
  • Compliance with the provisions for a stock exchange listing is only required when shares subscribed by the Stabilisation Fund are transferred to third parties. 
• The draft bill contains a comprehensive exemption of the stabilization fund from the antitrust and merger control provisions of the German Cartel Act. The applicability of the antitrust and merger control provisions of EU law remains unaffected. 
• The implementation of stabilisation measures by the Stabilisation Fund must be in line with the state aid requirements of EU law. To this extent, these measures must, as expected, be notified to the European Commission. We expect that the Federal Government will provide a framework notification of the planned measures and, if necessary, notify significant individual measures separately. 
• The draft bill also provides for tax benefits for the Stabilisation Fund. In particular, the loss of corporate and trade tax loss carry-forwards is not to apply to the acquisition of equity interests by the stabilisation fund.

Our expertise 

The stabilisation instruments provided for under the WStFG are almost identical to the instruments which were available to the Special Financial Market Stabilisation Fund (SoFFin) during the financial crisis. During the financial crisis, Hogan Lovells was instrumental in advising SoFFin on the following important stabilisation measures, among others:

• Advising the Federal Ministry of Finance on the granting of silent participations in the amount of EUR 16.4 billion and a capital increase of EUR 1.8 billion to strengthen the core capital of Commerzbank AG by SoFFin (2008/2009) 
• Advising SoFFin on the granting of a guarantee in the amount of EUR 6.7 billion to the Association of German Banks for refinancing the compensation of Lehman depositors (2009) 
• Advising a deposit-taking bank on the preparation of an application for a guarantee facility from SoFFin (2009)
• Advising SoFFin on the issue of a conditional mandatory exchangeable bond (CoMEN) by Commerzbank AG (EUR 5.7 bn) 
• Advising SoFFin on Commerzbank's liability management transactions in which (hybrid) bonds were exchanged for new Commerzbank shares (debt-equity swap) (EUR 965 mn) (2011)
• Advising Erste Abwicklungsanstalt, FMS Wertmanagement and the German Federal Financial Market Stabilisation Agency on the large-volume asset hive-offs of WestLB Group and Hypo Real Estate Group in 2010 and 2012

The know-how we gained in these projects during the financial crisis is fully available to you today in the context of the WStFG.

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