How (Not) to Administer a Liability Rule—The German Appraisal Procedure for Corporate Restructurings

Festschrift für Klaus J. Hopt zum 80. Geburtstag am 24. August 2020 (Festschrift for Klaus J. Hopt on his 80th Birthday on 24 August 2020), Stefan Grundmann, Hanno Merkt and Peter O. Mülbert (eds.), De Gruyter (Berlin), pp. 211–222.

15 Pages Posted: 6 Jan 2021

See all articles by Andreas Engert

Andreas Engert

Freie Universität Berlin, Department of Law; European Corporate Governance Institute (ECGI)

Date Written: November 2, 2020

Abstract

Mergers, squeeze-outs, and other corporate restructurings serve to transfer control or to save costs by streamlining the corporate structure. However, they also offer an opportunity for controllers to expropriate investors. Corporate law needs to provide safeguards to ensure that the minority shareholders receive fair compensation when they are forced to surrender their shares. This essay in honor of Professor Klaus J. Hopt provides a short overview of the German “Spruchverfahren” (appraisal procedure) that offers shareholders a remedy against receiving insufficient value in corporate restructurings. It then highlights a major flaw in the German appraisal procedure: challenging the transaction has an option value for the minority because the court can only increase, never reduce compensation. As a result, the controller has an incentive to offer less than fair consideration in the original restructuring terms. The limited empirical evidence appears to support this view. The essay concludes with possible avenues for reform.

Keywords: Mergers and acquisitions, M&A, restructuring, securities valuation, appraisal, minority shareholders, shareholder litigation, Germany

JEL Classification: G34, G38, K22, K40

Suggested Citation

Engert, Andreas, How (Not) to Administer a Liability Rule—The German Appraisal Procedure for Corporate Restructurings (November 2, 2020). Festschrift für Klaus J. Hopt zum 80. Geburtstag am 24. August 2020 (Festschrift for Klaus J. Hopt on his 80th Birthday on 24 August 2020), Stefan Grundmann, Hanno Merkt and Peter O. Mülbert (eds.), De Gruyter (Berlin), pp. 211–222. , Available at SSRN: https://ssrn.com/abstract=3723763

Andreas Engert (Contact Author)

Freie Universität Berlin, Department of Law ( email )

Boltzmannstr. 3
Berlin, 14195
Germany

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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