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I. The Transparency Register – A Recap

The 4th EU-Money-Laundering Directive (2015/849), which entered into force in mid-2015, required national legislators of EU Member States to establish, in each jurisdiction, a register for information on the beneficial owners of companies and other undertakings located in such jurisdictions (“Transparency Register”).  Echoing Justice Louis D. Brandeis’ famous metaphor of publicity as a remedy for social and industrial diseases, the Directive states that information on the beneficial ownership of companies is a key factor for tracing criminals who might otherwise hide their identity behind corporate structures.…
Continue Reading A Hint of Brandeis: Proposed Amendments to the German Transparency Register

In In re Xura, Inc. Stockholder Litigation,[1] decided earlier this week, the Delaware Court of Chancery denied the target CEO’s motion to dismiss claims that he breached his fiduciary duties by “steer[ing]” the company into an allegedly unfair acquisition by a private equity firm that promised to retain him post-acquisition, while knowing that his job was in jeopardy if the target remained independent.  This case is yet another example of why disclosures are so important in the post-Corwin[2] era:  Vice Chancellor Slights rejected the CEO’s argument that the claims against him were extinguished by the stockholder vote approving the transaction, finding that a number of material omissions precluded a finding that the stockholders’ vote was fully informed.  The vote was thus ineffective to invoke the business judgment rule at the pleading stage.…
Continue Reading Claim Against Target CEO Survives Dismissal, While Aiding and Abetting Claim Against Private Equity Buyer is Dismissed

Foreign investors who, for many years, eagerly awaited the ability to establish majority or wholly owned businesses in the United Arab Emirates (“UAE”) outside the free zones can prepare their bait—but cannot go fishing yet.

Following an announcement made by the UAE Council of Ministers earlier this year, the long-awaited Foreign Direct Investment Law was…

German law corporate acquisition agreements and real estate purchase agreements often include broad exclusions of liability.  However, pursuant to Section 444 of the German Civil Code (Bürgerliches Gesetzbuch), a seller is subject to statutory (non-excludable) liability if and to the extent the seller fraudulently concealed a defect of the sold asset.  To that end, it is often decisive whether the seller was required to inform the buyer about the defect in question.…
Continue Reading German Federal Court of Justice on Seller Disclosure Obligations: Extensive Disclosure Required in Environmental Context

On May 8, 2018, partners Benet O’Reilly and Adam Fleisher participated in a panel co-hosted by The Conference Board and Cleary Gottlieb to discuss Private Investment in Public Equity (PIPE) transactions, both for capital formation and strategic purposes.

Moderator Doug Chia, executive director of The Conference Board, Benet and Adam outlined the framework for a…

The general policy of the Delaware Limited Liability Company Act (the “Act”) is “to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.”[1]  Specifically, with respect to duties, the Act provides that to the extent law or equity would impose a fiduciary or other duty on a member or manager of an LLC, that duty may be “restricted or eliminated by provisions in the limited liability company agreement.”[2]  This flexibility makes LLCs an especially attractive vehicle for private equity investors, in particular with respect to allowing management and other minority holders to participate in an investment.

An LLC agreement, however, cannot eliminate the implied covenant of good faith and fair dealing that inheres in all contracts under Delaware law.[3]  As a result, for private equity funds and other controlling investors, a lurking concern has been whether the implied covenant potentially provides a mechanism for a minority investor to undermine or change the terms of an LLC agreement, including through the imposition of otherwise waived fiduciary duty-like obligations.…
Continue Reading The Peril of the Implied Covenant of Good Faith in LLC Agreements

Disclosure of Ultimate Beneficial Ownership in German Companies

Key Takeaways

  • Germany recently introduced new rules on the disclosure of the ultimate beneficial owner(s) of German companies. The rules are based on the 4th EU-Money-Laundering Directive (EU) 2015/849).
  • The rules are not only relevant for German entities and German shareholders, but also for foreign groups or organizations (including private equity groups) that have or intend to acquire holdings in German entities.
  • Recent experience indicates that not all foreign players eying German M&A targets or holding significant interests in German targets are aware of these rules.
  • If your group or organization
    • has or intends to acquire a direct or indirect holding of more than 25% of the capital or the voting rights of a German entity or otherwise controls such entity, and
    • is beneficially owned or controlled by one or more natural persons,

disclosure obligations with respect to the ultimate beneficial owners may apply and should be assessed.…
Continue Reading The German Transparency Register

Investors frequently negotiate for a redemption right to ensure at least some return on preferred stock investments in a “sideways situation”—where the target company is neither a huge success nor an abject failure.  Continuing a consistent theme in recent Delaware jurisprudence, the Delaware Court of Chancery declined to dismiss a complaint alleging directors breached their duty of loyalty in taking steps to satisfy an investor’s redemption request.
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Continue Reading Between Contractual and Fiduciary Duties: ODN Holding and the Rights of Preferred Stockholders