20.5 Debt 573sistance.^84 In addition, the management board would breach its general duty of care and be-
come liable for any damage sustained by the company thereby.^85
On the other hand, the target company and the acquirer, as its new parent, could con-
clude a control agreement (Beherrschungs- und Gewinnabführungsvertrag) to mitigate the
effect of such constraints.^86
As the rules applicable to GmbHs are more flexible than those applicable to AGs, one of
the alternatives could be the conversion (Umwandlung) of the AG into a GmbH or a GmbH
& Co. KG.^87
Example: GmbH. In this case, the transaction would be constrained by legal capital rules
and restrictions that apply to transactions that can endanger the existence of the company
(Existenzvernichtung).^88
Under German legal capital rules, a GmbH must have a stated amount of capital
(Stammkapital) that resembles share capital. A GmbH may not distribute assets to share-
holders to the extent that the assets are necessary for the maintenance of the stated capital.^89
Whereas the granting of security or the provision of collateral will not yet reduce the com-
pany’s assets, actual payments will.^90
Where such a transaction for the benefit of the parent company puts the existence of the
GmbH at risk, the parent company may become liable to the GmbH’s creditors according to
the doctrine of lifting the veil (Durchgriff), and the board members of the participating
companies may become personally liable.^91
Undertakings by the acquirer. On the other hand, while the target company must
comply with company law restrictions which apply to its own actions, companies
on the side of the acquirer can – in their dealings with the lenders – agree on their
own obligations.
For example, companies on the side of the acquirer can agree on a bridge loan
facility and all loan facilities that will become necessary in the context of refinanc-
ing and the restructuring of the target after the completion of the acquisition. They
can even guarantee that the target will accept its refinancing and restructuring ob-
ligations during a certain period of time after the closing of the acquisition agree-
ment. Whether they fulfil their contractual obligations to the lenders will then
partly depend on the contents of company law constraints that apply to the actions
of the target.
Typically, companies on the side of the acquirer agree with lenders on restruc-
turing through the merger of the acquisition vehicle and the target company. In
this case, the existence of minority shareholders would increase legal risk, as mi-
nority shareholders can have the power to block the merger and/or appraisal rights
(section 10.4.2).
(^84) § 71a AktG.
(^85) § 93 AktG.
(^86) Diem A, op cit, § 6 number 14.
(^87) Ibid, § 6 number 14.
(^88) Ibid, § 3 number 3. See also § 44 numbers 1 and 85.
(^89) § 30(1) GmbHG: “Das zur Erhaltung des Stammkapitals erforderliche Vermögen der
Gesellschaft darf an die Gesellschafter nicht ausgezahlt werden.”
(^90) Diem A, op cit, § 6 number 12. See also § 44 number 2.
(^91) Ibid, § 6 number 13. See also § 44 number 85.