422 12 Acquisition of Shares in a Privately-owned Company for Cash
will be loaded with debt after refinancing, the most important task of the target’s
management is to keep the firm alive. The worst-case scenario is that: the target
becomes insolvent after refinancing; the earlier distributions will be held illegal;
and the earlier distributions must be returned under insolvency laws.
Where the target’s board members or executives act as buyers or co-buyers, the
independency of corporate decision-making will typically be governed by particu-
lar rules.^50
It is legally problematic for the acquirer to make any promises about future
payments to the target’s board and executives unless the acquisition already has
been completed or the target has given its consent. Such payments can be unethi-
cal for obvious reasons. Depending on the governing law, even the target’s board
may be prohibited from promising any additional benefits to the firm’s own board
members or executives.
In the famous Mannesmann case, the regional court of Düsseldorf ruled in 2004 that man-
ager bonuses, promised by the supervisory board of Mannesmann to Mannesmann execu-
tives in the context of the takeover of Mannesmann by Vodafone, were unreasonable and
therefore illegal under the Aktiengesetz.^51 They were unreasonable, because they had been
granted retrospectively and did not relate to pre-set performance targets.
Community law. The employees of the particating companies may have rights un-
der Community law in the context of acquisitions. Those rights consist of collec-
tive rights and individual rights.
Individual rights of the employees of a transferred undertaking. Directive
77/187/EEC is intended to safeguard the rights of workers in the event of a change
of employer by making it possible for them to continue to work for the new em-
ployer on the same conditions as those agreed with the transferor.
The purpose of the Directive is to ensure, as far as possible, that the contract of
employment or employment relationship continues unchanged with the transferee,
in order to prevent the workers concerned from being placed in a less favourable
position solely as a result of the transfer.^52
The Directive achieves this by providing that the “transferor’s rights and obli-
gations arising from a contract of employment or from an employment relation-
ship existing on the date of a transfer ... shall, by reason of such transfer, be trans-
ferred to the transferee. Member States may provide that, after the date of transfer
... and in addition to the transferee, the transferor shall continue to be liable in re-
spect of obligations which arose from a contract of employment or an employment
relationship.”^53
The Directive applies to the transfer of an undertaking, business or part of a
business to another employer as a result of a legal transfer or merger. According to
the case-law of the ECJ, the Directive applies where there is a change in the legal
(^50) See, for example, § 112 AktG: “Vorstandsmitgliedern gegenüber vertritt der Aufsichts-
rat die Gesellschaft gerichtlich und außergerichtlich.”
(^51) § 87(1) AktG.
(^52) For example, Case C-478/03 Celtec [2005] ECR I-4389, paragraph 26.
(^53) Article 3(1) of Directive 77/187/EEC.