Konzernrecht: An Overview of the German Regulation of Corporate Groups and Resulting Liability Issues

Abstract

More than half a century ago German law acted as a pioneer by introducing a comprehensive codification on corporate groups. In several ways this set of rules, known as Konzernrecht, differs significantly from the regulation of groups in other jurisdictions and has, over the course of time, faced a number of challenges. The article introduces the international reader to German Konzernrecht and its liability rules as well as recent contentious issues. A basic knowledge of these rules is relevant not only for lawyers who encounter German subsidiaries in international groups, but some peculiarities of German law should also be taken into account by future European legislation. The article portrays the German law on groups by using the two most relevant constellations as examples: At first, the rules that apply in case a German stock corporation (Aktiengesellschaft – AG) is used as an affiliate are examined. Subsequently the focus shifts to German limited liability companies (Gesellschaft mit beschrankter Haftung – GmbH) as subsidiaries. In the process, particular emphasis is given to the most distinctive feature of German Konzernrecht, the division into contract-based groups and non-contractual de facto groups. It is demonstrated that the legal consequences vary considerably depending on whether the relationship between parent and subsidiary is governed by a contract or not. This is true not only regarding the protection of the subsidiary’s minority shareholders and creditors but also with respect to the management regime. While the rules concerning stock corporations as subsidiaries can be found in statutory law, the situation is almost the opposite regarding subsidiary GmbHs. The article shows how, in the absence of statutory regulations, judicial decisions have shaped the law in this area. The article concludes by highlighting potential areas of conflict between German Konzernrecht and proposed European legislation regarding related party transactions.