The German Federal Cartel Office has changed its practice regarding belated notifications of mergers. It will no longer give clearance decisions or initiate clearance proceedings for belated notifications. Instead, dissolution proceedings will be initiated, creating legal uncertainty as regards to any legal transactions pertaining to the merger in question.
Pursuant to German merger control law, the German Federal Cartel Office ("FCO") must be informed of mergers and acquisitions exceeding certain turnover thresholds. Furthermore, such mergers cannot be effected prior to FCO clearance of the transaction. Any violation of this prohibition can result in fines and legal transactions violating this prohibition are of no effect under German law.
Until recently, some decision-making divisions of the FCO accepted belated notifications of mergers which had already been put into effect by parties who had not obtained a clearance decision from the FCO. The legal transactions pertaining to such mergers had widely been considered as valid and enforceable, despite the fact that they had been carried out prior to clearance.
The FCO has now declared that it is changing its treatment of belated notifications. Pursuant to a press announcement dated 13 May 2008, the FCO will no longer give clearance decisions or initiate clearance proceedings for belatedly notified transactions. Instead, the FCO will initiate dissolution proceedings based on a substantive test deciding the fate of such mergers. These proceedings will either result in the dissolution of the merger or a termination of proceedings, where the merger is held to be valid as it does not violate the prohibition conditions under the substantive test.
According to the FCO, the reason for these changes are certain amendments to the procedural rules regarding the dissolution of pre-enacted mergers, enacted by the 7th amendment to the German Act Against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen) dated 1 July 2005. Prior to these amendments, a formal decision prohibiting the merger was required before dissolution proceedings could be established. This requirement has been abolished by the amendments. The FCO is now of the opinion that the initiation of clearance proceedings in such cases, even after receiving a belated "notification" by the parties to the merger, is dispensable.
However, in its press announcement, the FCO does not address the potential impact of this new treatment on the validity and enforceability of legal transactions implementing the merger, leading to legal uncertainty. Without the initiation of formal clearance proceedings, it remains unclear if and under which conditions legal transactions pertaining to belatedly notified mergers can be remedied. The statutory law does not explicitly provide for such remedies. Although it can be argued that the termination of dissolution proceedings has the same remedial effect as a clearance decision, there remains a considerable degree of legal uncertainty under the FCO's new approach. In light of this uncertainty and the broad nature of the German law concept of merger notification obligation, it becomes increasingly important to examine this concept thoroughly.