Abuse of your Web Shop?

What to do if your online shop is attacked by criminals: an IT lawyer’s view.

In times of digitalization it is extremely attractive to offer your products online – this has several advantages. No sales room is needed, the offers are available around the clock and there are no annoying sales talks. Sounds good at first? Of course, it is! As long as there are no problems with the web shop…

A real life example of how an online shop can be hacked

Here’s what happened to one of our clients, who runs an online shop in Germany. The client was faced with complaints by angry customers who wanted to know where the ordered goods were which they had ordered through an online shop weeks and months ago. Completely surprised by this, our client had no record of such orders.

What had happened?

Fraudsters have picked our client’s online whop to completely rebuild his web shop in every detail. In other words: They cloned his online shop. The product descriptions, the product pictures and an extremely appealing layout were adopted. Even the imprint was taken over to give the impression that the company of our client operates the website here.

After the order process had been completed, the website – which of course had a completely different domain – displayed a summary of the order and immediately asked the customers to pay. Since the order entry seemed fully legitimate, many customers also promptly paid. It was not even surprising that the payments should be made via bank transfer and the IBAN did not start with DE (for Germany). In reality, of course, the money went to a bank account somewhere in the Baltic States, which had nothing to do with our client.

The customers, which had fallen for this online fraud, which had nothing to do with our client, were still mad at our client. Obviously, our client could not ignore this web shop identity theft.

But what is to be done in concrete terms in the event of such abuse?

First of all, a so-called Whois query should be carried out to find out who is behind the corresponding page. However, it is important to know that the information can be manipulated very easily in the context of a Whois query. What is not so easily manipulated is the registrar’s entry. Based on this information we were able to find out that the website is hosted in the USA.

Okay, but then how does this information help me?

With the information, i.e. who the registrar is, it is very easy to contact the website provider. Here we could quickly submit a so-called DMCA takedown request, so that the website is taken off the net.

Is such a DMCA takedown request enough to take a website off the net?

Usually, yes. This registrar was (to put it mildly) a particularly lazy registrar. This required the involvement of the U.S. registrar regulatory agency (ICANN).

What does ICANN do? 

It is ICANN’s job to address these issues. After we filed the complaint, that is, the registrar did not move, we received a commitment within 96 hours that the problem would be addressed. With this trick, it is quite easy to get even the laziest registrar to deal with the problem.

Within four days after we contacted ICANN, the website was already offline.

Do I have to pay attention to anything in such a procedure? 

Yes, there are many things to consider. For example, it should be clear how to write a DMCA takedown request. Also, it is to know what happens if the registrar is located in a country other than the USA (this is already much more complicated in Russia) and much more.

In such cases, it is strongly recommended to consult a lawyer experienced in IT law if you need or want to remove the website from the Internet quickly.

Especially in case of problems with a foreign registrar it is hardly possible to get the situation under control quickly without a lawyer – with appropriate experience.

German IT & Online Lawyer Stephan Hendel

If you have any questions about IT law, data protection, online commerce or other internet related legal issues, do not hesitate to contact German lawyer and IT law expert Stephan Hendel.

Having a Canadian family background, Stephan is fluent in English and is well aware of the different business mentalities of Anglo-American as well as German entrepreneurs. Our German and international clients appreciate Stephan’s pragmatic hands on approach.

Within the Cross-Channel-Lawyer network, Stephan is the expert for all legal matters surrounding IT, cyber law, data protection issues and compliance with German law.

For more on German business and corporate law see these posts:

British Solicitors: better brace for a cliff-edge Brexit

“Brexit not the end of the world”

Theresa May recently stated that a no-deal Brexit ‘wouldn’t be the end of the world’. How reassuring! If you are an English or Scottish solicitor who specialises in international law, such a rock hard Brexit may, however, well be the end of your career as an internation lawyer.

Because in case of an ever more likely no-deal scenario, English solicitors will no longer be able to provide legal services in the European Union. This will probably even be true for English solicitors who are based in Europe and currently work here as Registered European Lawyers. A “cliff-edge Brexit” would void these solicitors’ professional qualifications which are currently recognised in the EU.

Brexit implications for Britain’s legal sector

Already in March 2017 (!), The Law Society has warned of the consequences of a hard Brexit as being “devastating for the UK legal sector. Back then, a no-deal Brexit was not even conceived as a very realistic scenario. Instead, Brexiteers made statements like these: “The free trade agreement that we will have to do with the European Union should be one of the easiest in human history.

A no-deal Brexit became much more likely since, which even the “Leave” friendly Sun does acknowledge: https://www.thesun.co.uk/news/6820080/brexit-news-no-deal-what-does-it-mean-uk-theresa-may. But even if some kind of a last minute deal is reached, it’s focus will not be on the services sector, because in Theresa May’s “soft-Brexit Chequers deal” services, which cover 80 per cent of Britain’s economy, are largely skirted over. The cabinet agreed to retain “regulatory flexibility” and accept less EU market access as a result.

Thus, if you are a solicitor with business interests abroad, you might want to plan ahead. Our firm specialises in Anglo-German legal issues and we currently assist a number of English solicitor firms to safeguard their German business. If you are a British law firm with clients in Germany and wish to protect your German business interests, we will be happy to advise and assist.The options range from securing an existing German law firm as a partner firm to creating a cross-border legal entity.

More on Brexit and its implications for UK law firms here.

The law firm Graf & Partners was established in 2003 and has many years of experience with British-German and US-German legal matters.The Anglo-German litigation lawyer team of GP Chambers is well equipped to advise and represent clients from the UK and other English speaking countries. If you wish us to advise or represent you in a German or cross border case, or if you need an expert report on German law, please call +49 941 463 7070 in order to contact German lawyer Bernhard Schmeilzl, LL.M. (Leicester), managing partner and head of the litigation department. Bernhard is also frequently asked by British and US Courts and Tribunals or by legal counsels to provide expert reports and legal opinions on German law.

Director’s Duties and Liabilities under German Law

What are the Duties of Directors of German Companies (GmbH) and Corporations (Aktiengesellschaft)?

Obviously, pretty much all over the world, company directors and CEO’s have a general duty to be loyal, diligent and conscientious in managing the affairs of their company. This is also the case under German law. Directors and CEOs have to bear in mind what is best for the business and act accordingly. In this regard, German courts do apply an objective standard that does not, as a rule, depend on the specific knowledge, education, experience and abilities of the individual director. In other words: If someone takes on the job of a company director, he or she must be up to the requirements. In practice this means, that – depending on the size of the company – the director must hire and supervise qualified staff or outside consultants.

According to German case law, a company director has wide-ranging discretionary powers with regard to how to manage the company. This includes the power to take entrepreneurial decisions, even daring ones (entrepreneurial risk). Always provided, however, that the director carefully assesses the related risks before making such decisions. Under German law, actions (or inactivity) outside the limits of reasonable entrepreneurial conduct or violation of specific director’s duties may result in personal liability of the company director. The major difference between the director of a German Gesellschaft mit beschränkter Haftung (GmbH) and the CEO of a German Aktiengesellschaft is that the GmbH director must always obey the instructions of the shareholders. A vote of the shareholders (Gesellschafterbeschluss) is binding on the company director. In contrast, a CEO (Vorstand) of a German Aktiengesellschaft has much more leeway. The CEO (or the board of executors) manages the corporation as they themselves deem is best:

Section German 76  para. 1 German Stock Corporation Act states: 
Management of the stock corporation: The management board is to manage the affairs of the company on its own responsibility.

 

For example, directors (CEO’s) have an obligation under the German Stock Corporation Act (Aktiengesetz) to protect the company from financial penalties, losses and other financial harm. In their function as trustees of the company’s assets, company directors owe strict fiduciary duties. The Stock Corporation Act also provides for a number of specific duties, including those relating to the maintenance of registered share capital, bookkeeping, and the organization of the company. Finally, directors are also subject to numerous reporting requirements (including a duty to keep the securities market informed and updated) as well as strict confidentiality obligations.

Directors’ Liabilities under German Law

As a rule, only the company is liable towards outside parties, not the individual director or CEO. In other words: Third parties can rarely sue a company director directly for damages or compensation. The company is responsible for the (illegal or damaging) actions or omissions of their dirctors and CEOs. As a consequence, if a director causes financial damage by deliberately or negligently breaching their duty, the company can (and in most cases must) take internal recourse (Regress) against the director / CEO. A simple majority at the annual general meeting can force the company to seek internal recourse against a director. In such recourse proceedings (Regressanspruch), the director must prove that he or she has obeserved the relevant standard of care (Sorgfalt eines ordentlichen Geschäftsführers). The company only needs to demonstrate that it has suffered damages as a result of the actions of the director.

In exceptional circumstances, creditors of the company may bring a direct claim against a director. German statutory law permits bringing direct actions against a director where:

  • a company is unable to satisfy a claim arising from a violation of a duty by a director;
  • a company becomes insolvent and a director delayed the initiation of insolvency proceedings causing damage to the creditor; or
  • he is liable under tort law for a serious breach of duty or for a violation of legal provisions that protect certain individuals of groups of people, such as criminal provisions concerning fraudulent or false representation of the company’s affairs.

In German courts, successful direct claims have been brought against directors based on tort law where, for example, directors have deliberately published incorrect inside information. German court decisions of the last 10 to 15 years show a tendency by the courts to expand the scope of direct tort liability of directors.

For more on German business and corporate law see these posts:

More information on litigation and legal fees in Germany is available in these posts:

Google Analytics vs. GDPR – is that even possible?

We are currently receiving many inquiries from uncertain clients regarding the new General Data Protection Regulation (GDPR). During an initial analysis of the homepage, it immediately becomes apparent that most clients use an analysis tool – mostly Google Analytics or Matomo (formerly Piwik). Such tools are useful and indispensable for good online marketing.

But now the question arises: to what extent can these tools still be used to be compliant with the GDPR?

Admittedly, we believe that the GDPR and in particular the German implementation of this has gone far beyond the target. This creates enormous uncertainty in most companies and regular business operations are hardly possible without fear of violating any GDPR standard. But back to the actual topic: Is the tracking of user data of a website still permissible from the point of view of the basic data protection regulation?

Basically no! At least not without a few special adjustments. This is also confirmed by the position of the Conference of Independent Data Protection Authorities of the Federal Government. The statement of the German authorities can be found here:

https://www.ldi.nrw.de/mainmenu_Datenschutz/submenu_Technik/Inhalt/TechnikundOrganisation/Inhalt/Zur-Anwendbarkeit-des-TMG-fuer-nicht-oeffentliche-Stellen-ab-dem-25_-Mai-2018/Positionsbestimmung-TMG.pdf

But now to the real thing: How did I implement Google Analytics in compliance with the law? This requires a look at the provisions in accordance with Art. 6 para. 1 lit. f GDPR. You should therefore follow these steps:

  1. sign a Data Processing Agreement (DPA) with Google. You can find this contract here: 

     http://static.googleusercontent.com/media/www.google.de/de/de/analytics/terms/de.pdf

  2. accept the addendum for data processing with Google. You may have wondered what the “Data Processing Supplement” option in your Google Analytics account settings is for. This is appropriate here for GDPR. Once you enable this feature, your site visitors’ interests will be protected. It is also important that you enter the following information manually:
    1. The person responsible (i.e. the legal person responsible for data processing),
    2. A contact (i.e. a person/contact to whom the communications relating to the data processing conditions can be sent,
    3. a data protection officer (if to be appointed),
    4. an EEA Representative (but this is only important for companies that are not in the European Union).

3.  install an easy way for your website users to opt-out.

You can use the following two Java scripts:

first, implement the JavaScript alert:

<a onclick=”alert(‘Google Analytics has been disabled);” href=”javascript:gaOptout()”>deactivate Google Analytics</a>

For the upper code to work, the following code must be installed globally on the website:

<img src=”data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBR AA7″ data-wp- preserve=”%3Cscript%20type%3D%22text%2Fjavascript%22%3E%0A%2F%2F%20Set%20to%20th e%20same%20value%20as%20the%20web%20property%20used%20on%20the%20site%0Avar%2 0gaProperty%20%3D%20’UA-XXXX- Y’%3B%0A%0A%2F%2F%20Disable%20tracking%20if%20the%20opt- out%20cookie%20exists.%0Avar%20disableStr%20%3D%20’ga-disable- ‘%20%2B%20gaProperty%3B%0Aif%20(document.cookie.indexOf(disableStr%20%2B%20’%3Dtrue ‘)%20%3E%20- 1)%20%7B%0A%20%20window%5BdisableStr%5D%20%3D%20true%3B%0A%7D%0A%0A%2F%2F %20Opt- out%20function%0Afunction%20gaOptout()%20%7B%0A%20%20document.cookie%20%3D%20di sableStr%20%2B%20’%3Dtrue%3B%20expires%3DThu%2C%2031%20Dec%202099%2023%3A59% 3A59%20UTC%3B%20path%3D%2F’%3B%0A%20%20window%5BdisableStr%5D%20%3D%20true %3B%0A%7D%0A%3C%2Fscript%3E” data-mce-resize=”false” data-mce-placeholder=”1″ class=”mce-object” width=”20″ height=”20″ alt=”&lt;script&gt;” title=”&lt;script&gt;” />

  1. implement IP anonymization – this will nullify the last two blocks of the IP (e.g. 108.138.0.0) so that it is no longer possible to identify the respective website visitor;
  2. integrate a data protection declaration in accordance with the law within the meaning of Art. 12, 13 GDPR;
  3. don’t activate the user ID.

We hope that with this short explanation we could take away the horror of the GDPR in relation to Google Analytics (as well as further analysis tools).

If you have any questions about GDPR, do not hesitate to contact German lawyer Stephan Hendel who specialises in data protection and IT law. Having a Canadian family background, Stephan is fluent in English and is well aware of the different business mentalities of Anglo-American as well as German entrepreneurs. Our German and international clients appreciate Stephan’s pragmatic hands on approach.

Within the Cross-Channel-Lawyer network, Stephan is the expert for all legal matters surrounding IT, cyber law, data protection issues and compliance with German law.

For more on German business and corporate law see these posts:

Data Protection and German Businesses: New GDPR 2018 will cause a Flood of Lawsuits

Company Managers and British Parent Companies of German Subsidiaries better take this issue very seriously, because the German version of the GDPR is much stricter than the GDPR rules as applied in the UK.

So if you are running a business in Germany, you should ensure that your German company is in full compliance. For instance in accounting and human resources. Because the German business mentality is to torture competitors with costly cease and desist letters (more here).

Germans are Data Protection Extremists

When it comes to data protection in a company, it is often overlooked that sensitive personal data is also processed in areas that do not immediately spring to mind, like accounting for instance. While other legal regulations in accounting prescribe processing or long-term storage, this is usually not the case in controlling.

With regard to the requirements of the EU Data Protection Regulation (GDPR), in particular with regard to all data processing in accounting and controlling should be checked and, if necessary, adjusted. An adaptation could be achieved, for example, by pseudonymization (removal of all directly identifiable features) or anonymization (removal of all personal data).

These are presented as examples in this article:

(1) Data protection for personal data

The data protection regulations apply when personal data is processed. This means (according to Art. 4 para. 1 GDPR) all information relating to an identified or identifiable natural person (…). In accounting, such data is regularly found in Accounts Payable and Accounts Receivable. If the accounting department also takes over the data management of the employees and carries out payroll accounting, “special categories of personal data” are even processed.

(2) Sensitive data due to processing or quantity

However, even if no data of employees is processed in accounting or controlling, personal data may still be available there, which can have an impact on those affected if they are viewed by unauthorized persons. This is obvious, for example, for notes on (negative) payment behavior (creditworthiness index).

Sometimes the context (the accompanying circumstances) of the processing is also sufficient, even if no financial or health data is stored for it. As very descriptive examples these would be e.g. the debtor evaluation of a specialist with the special field for cosmetic operations or in addition, the customer file of an erotic dispatch.

(3) Risks in practice

In accounting it is often the case that personal data is exported, e.g. for various evaluations from the hopefully well secured accounting programs. Often these “Excel files” are then sent by e-mail without further protection. Even if this alone often violates data protection regulations, it also increases the risk that third parties can view the data. In the case of e-mails, for example, an inadvertently wrong recipient is sufficient.

(4) Pseudonymization: identification via detours possible

Apart from a secure form of transmission, pseudonymisation offers a further advantage.

possibility of reducing the risk of data misuse for those affected. For this purpose, all personal data are essentially removed – with the exception of one value – that enable a person to be clearly identified. The remaining data may not directly identify the person concerned. Only by consulting another file or another document may the person be identifiable.

(5) Conclusion

Pseudonymisation and anonymisation offer two suitable ways of reducing data protection risks. Particularly with regard to evaluations, it is worth checking to pseudonymize short-term evaluations, for which detailed checks may still be necessary, and then to summarize and further process this data anonymously after a specified time interval.

If you have any questions about GDPR, do not hesitate to contact German lawyer Stephan Hendel who specialises in data protection and IT law. Having a Canadian family background, Stephan is fluent in English and is well aware of the different business mentalities of Anglo-American as well as German entrepreneurs. Our German and international clients appreciate Stephan’s pragmatic hands on approach.

Within the Cross-Channel-Lawyer network, Stephan is the expert for all legal matters surrounding IT, cyber law, data protection issues and compliance with German law.

For more on German business and corporate law see these posts:

Harsh “Unfair Competition” Rules in Germany

The German Habit of sending out Cease and Desist Letters to Competitors

When you start trading in Germany you may be in for unpleasant surprises. The first letter your German subsidiary receives may likely be a formal cease and desist notice sent by your competitor’s lawyers. Why? Because under German unfair competition laws, every business has the right to formally demand competitors to fully comply with any and all German laws. And there are many such laws and regulations, some of which a British entrepreneur or even a British lawyer would never expect to exist.

Thus, everyone who considers starting business activities in Germany should read the German Act Against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb, UWG). Read it, shake your head, then read it again.

Some examples:

  • Every website and all stationary (letters, emails etc) must quote the complete business details including full business address, commercial register number, name(s) of director(s) and more. For details see section 5 UWG on incomplete information about a business trading in Germany.
  • Your website must have a so called “Impressum” which contains all relevant company information. Pursuant to section 5 Telemediengesetz the customer must be able to find the entire information about the offering company “easily” and “quickly”.
  • Websites must comply with German consumer protection laws and data protection laws; sounds harmless but the requirements are so complex that even most German companies are in breach of some aspects of these regulations.
  • Advertising material must specify its publisher.
  • All information on websites and advertising material must be truthful. You think that is understood and no problem? Well, here is an example for a typical mistake: We often represent British businesses which establish a German subsidiary and then make advertising statements like “25 years of experience” because the British parent company has been doing business for 25 years and they think they are allowed to make such statements for the entire group. They are not! Two weeks later, the German subisiary (a newly formed GmbH) is being served a number of cease and desist letters by German lawyers demanding to stop making this false and misleading statement, because the German subsidiary (which has made that statement in their ads) does not have 25 years of experience.
  • Another classic mistake is making an incorrect or incomplete price quotation on a website or on any advertisement material. Any mentioning of a price must clearly specify the final amount, the German VAT and any information about delivery costs. If not, this constitutes an infringement of section 1 II Preisangabenverordnung (PAngV) and in turn an infringement of the competition regulations (sections 3 and 3a UWG). Again you may think: How hard can this be? Well, take a look for yourself. It tells you a lot about German law that the regulation about how prices for goods and services must be presented is 8 pages long, see here.

Why are German Competitors (and their Lawyers) so aggressive?

These cease and desist letters (Aufforderung zur Abgabe einer strafbewehrten Unterlassungserklärung) are more than a mere nuisance because it is a peculiarity under German law that the recipient of such a lawyer’s letter must bear the competitor’s lawyers legal fees. Without any prior warning! The first letter you receive already triggers costs for you. Depending on the concrete breach these costs range from a few hundred to a few thousand Euros. And if you are unlucky, you will receive cease and desist letters from various german competitors with regard to the same breach.

Thus, German business lawyers are very interested in representing German businesses in that field, because with each such cease and desist letter they stand a good chance of earning a few thousand Euros. Their clients, your German competitors, are also keen of sending out such cease and desist letters, because it makes life difficult and expensive for new competing businesses, Ideally, this is a way for an established German business to prevent the market entry by a new company.

Do not ignore Cease and Desist Letters!

We note that British clients doing business in Germany tend to ignore such letters from competitor’s lawyers. This is a big and costly mistake, because if you to not acknowledge the breach and make a formal promise to the competitor to remedy the breach, then the competitor has the right to immediately sue your company. The competitor will apply to a German court by way of an Unterlassungsklage (action for an injunction). In most cases, the claimant will apply for an accelerated proceeding and ask for a preliminary injunction (einstweilige Unterlassungsverfügung), which – in obvious cases or if the British defendant does not properly respond – is usually granted by the German courts.

Then it becomes really dangerous, because if your company continues the breach (e.g. the website still infringes German laws or regulations) then very harsh penalties kick in. Depending on the size of your business (turnover in Germany), the number and duration of the breaches and other factors, the German court may order your company to pay a penalty (Ordnungsgeld) of up to 250,000 Euro.

Thus, in case you have been served an Unterlassungsaufforderung (cease and desist letter), you should immediately remedy the breach, then contact a German business lawyer and discuss what your options are. In most cases, if you have actually been in breach of German laws or regulations, you will have to (teeth-grindingly) acknowledge this breach (by sending them an Unterlassungserklärung) and to pay the opponent’s legal fees. In most cases, however, there is a chance to negogiate about the other side’s legal fees.

Such a formal acknowledgement (strafbewehrte Unterlassungserklärung) prevents the competitor from suing you. However, such an acknowledgment letter is only valid if it contains a promise to pay a contractual fine (Vertragsstrafeversprechen) in case you breach the same regulation again. Without such a promise to pay a fine the acknowledgement letter is worthless and you still rund the risk of being sued.

We certainly hope that we have not killed your desire to start trading in Germany. However, when you take up business activities in Germany, you should expect to be closely monitored by your German competitors. Thus, do not give them a chance to torture you with costly cease and desist letters.

By the way: It is not just competitors who may be observing you. German consumer protection groups (Verbraucherschutzorganisationen) also have the right to send out cease and desist notices.

For more on German business and corporate law see these posts:

More information on litigation and legal fees in Germany is available in these posts:

Experts on German-British and German-American Legal Matters

Since 2003, the German business and corporate law firm Graf Partners LLP specialises in British-German and US-German legal cases. Our German business and corporate lawyers are native speaker level fluent in English, have many years of practical experience with clients from Britiain and the USA and are part of a well established network of law, tax and accounting firms.

Managing partner Bernhard Schmeilzl was admitted as German Rechtsanwalt (attorney at law) to the Munich Bar in 2001 and specialises in international cases ever since, with a focus on German-American and German-English commercial, corporate and also probate cases. In addition to obtaining his German legal exams with distinction, he also graduated from the English University of Leicester where he obtained his Master of Laws degree in EU Commercial Law in 2003.

In 2014, Graf Partners LLP has set up the international litigation department GP Chambers which focuses on providing professional litigation services to British and US-American clients, both on a commercial and a private client level. The Graf Partners litigation lawyers regularly appear before German law Courts throughout the country and provide specialist legal advice, support and advocacy services in all commercial and civil law matters, ranging from contract disputes, corporate litigation and employment, to damage claims, divorces and contentious probate. If you wish us to advise or represent you in a German or cross border case, or if you need an expert report on German law, please call +49 941 463 7070.

 

Forensic Accountant for Business Litigation in Germany

You need to understand German company accounts?

In order to win a business or corporate law suit, understanding the numbers is often equally important as knowing the legal aspects of the case. The same is true if you plan to acquire a German business. Thus, the German-British litigation lawyers as well as the M&A experts at Graf & Partners (www.grafegal.com) regularly team up with German forensic accountant Hermann Werle.

Hermann obtained his degree in business administration from Regensburg UAS in 1982. Throughout his 25 year career he then worked as inhouse accountant, head of controlling, CFO and company director / CEO for renowned German and international companies and was involved in a number of mergers including Mallinckrodt, Sherwood Davis & Geck and U.S.-Surgical. Thus, Hermann gained a wealth of professional experience in various industrial sectors. While his core competence is finance, he also has practical experience in HR, IT, purchasing, warehousing and distribution.

In 2014, Hermann set up his own financial consultancy firm and provides professional advice to German and international firms, often in collaboration with the German and British litigation lawyers of Graf & Partners. His main focus is on the areas:

  • forensic accounting in cross-border litigation cases and
  • German-British and German-American merger & acquisition deals (financial due diligence)

We have worked with Hermann Werle on dozens of business litigation cases as well as international mergers. Our German as well as our international clients have always been extremely impressed by his skills, in particular his ability to break down and explain the most complex situations to non-accountants, i.e. to litigation lawyers and judges.

More information on litigation and legal fees in Germany is available in these posts:

For more on German business and corporate law see these posts:

– – –

Experts on German-British and German-American Legal Matters

Since 2003, the German business and corporate law firm Graf Partners LLP specialises in British-German and US-German legal cases. Our German business and corporate lawyers are native speaker level fluent in English, have many years of practical experience with clients from Britiain and the USA and are part of a well established network of law, tax and accounting firms.

Managing partner Bernhard Schmeilzl was admitted as German Rechtsanwalt (attorney at law) to the Munich Bar in 2001 and specialises in international cases ever since, with a focus on German-American and German-English commercial, corporate and also probate cases. In addition to obtaining his German legal exams with distinction, he also graduated from the English University of Leicester where he obtained his Master of Laws degree in EU Commercial Law in 2003.

In 2014, Graf Partners LLP has set up the international litigation department GP Chambers which focuses on providing professional litigation services to British and US-American clients, both on a commercial and a private client level. The Graf Partners litigation lawyers regularly appear before German law Courts throughout the country and provide specialist legal advice, support and advocacy services in all commercial and civil law matters, ranging from contract disputes, corporate litigation and employment, to damage claims, divorces and contentious probate. If you wish us to advise or represent you in a German or cross border case, or if you need an expert report on German law, please call +49 941 463 7070.

Careful with M&A Asset Deals in Germany

Pitfalls of German Contract Law (Part 3):  Many Asset Deal Purchase Agreements must be in Notarial Form to be Valid in Germany

German Law requires certain transactions to be recorded before a Civil Law Notary in order for these agreements to be valid and enforceable. The list ranges from pre-nuptial and marriage agreements, to any real estate related transaction, to the formation of German companies and stock corporations.

One aspect is, however, sometimes overlooked even by German corporate lawyers. Namely, the fact that even assets deals may have to be recorded before a German notary if the selling party in this M&A asset deal transfers its entire business operation (Geschäftsbetrieb) or a defined branch of its business, i.e. an entire sector of the business operation (Teilgeschäftsbetrieb).

The relevant statute is sec. 311 b para. 3 German Civil Code which states:

Section 311b BGB:

Contracts on plots of land, assets and an estate

(1) A contract by which one party agrees to transfer or acquire ownership of a plot of land must be recorded by a notary. A contract not entered into in this form becomes valid with all its contents if a declaration of conveyance and registration in the Land Register are effected.

(2) A contract by which one party agrees to transfer his future property or a fraction of his future property or to charge it with a usufruct is void.

(3) A contract by which one party agrees to transfer his present property or a fraction of his present property or to charge it with a usufruct must be recorded by a notary.

 

If, therefore a German company (GmbH) or corporation (AG) sells its assets and the agreement contains – which is often the case – a so called “catch all assets clause”, then the entire agreement must be recorded by a German Civil Law Notary, even if the assets do not consist of real estate (plots of land etc).

The statute does, however, usually not apply if the seller is a sole trader oder a partnership, i.e. a German Gesellschaft bürgerlichen Recht (GBR), a German Offene Handelsgesellschaft (OHG) or a German Kommanditgesellsachaft (KG), but the details are tricky.

If this formal requirement of German law is not observed in a German M&A assed deal, the entire agreement is null and void (nichtig) which may be found out even many years later. In which case, obviously, all hell breaks loose. This aspect should therefore not be taken lightly.

If the parties wish to avoid the involvement of a German Notary in the transaction, they can either do without a catch all clause or they can agree on English or US law to apply to the asset deal which may, however, create other legal problems. Please note that if the deal includes the transfer of German real property (immoveables in Germany), then the involvement of a German notary is necessary no matter what. The same is true if the shares of a German Limited Liability Company are to be sold and transferred.

For more on German business and corporate law see these posts:

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Experts on German-British and German-American Legal Matters

Since 2003, the German business and corporate law firm Graf Partners LLP specialises in British-German and US-German legal cases. Our German business and corporate lawyers are native speaker level fluent in English, have many years of practical experience with clients from Britiain and the USA and are part of a well established network of law, tax and accounting firms.

Managing partner Bernhard Schmeilzl was admitted as German Rechtsanwalt (attorney at law) to the Munich Bar in 2001 and specialises in international cases ever since, with a focus on German-American and German-English commercial, corporate and also probate cases. In addition to obtaining his German legal exams with distinction, he also graduated from the English University of Leicester where he obtained his Master of Laws degree in EU Commercial Law in 2003.

In 2014, Graf Partners LLP has set up the international litigation department GP Chambers which focuses on providing professional litigation services to British and US-American clients, both on a commercial and a private client level. The Graf Partners litigation lawyers regularly appear before German law Courts throughout the country and provide specialist legal advice, support and advocacy services in all commercial and civil law matters, ranging from contract disputes, corporate litigation and employment, to damage claims, divorces and contentious probate. If you wish us to advise or represent you in a German or cross border case, or if you need an expert report on German law, please call +49 941 463 7070.

Checklist for forming a UK Limited Company

If you do business on an international level, you should carefully choose the ideal company form to use. Should, for instance, your business depend upon attracting German customers and/or suppliers, the best choice may not be an English limited liability company, because such a company does not have the best reputation in Germany. In this case, you might want to opt for a German GmbH (for details on how to establish a German limited liability company see here). Vice versa, if you are a German entrepreneur doing business in the UK, you might want to consider establishing an English limited liability company. Here is a brief checklist on what to consider when establishing such an English company.

A company is registered by filing the necessary documents and paying the required fee at Companies House. The company is brought into existence when the Registrar of Companies (Registrar) issues the certificate of incorporation.

The prospective owners of the company can either:

  • register a new company with documents that are specifically tailored to their requirements (a tailor-made company); or
  • buy a company that has already been incorporated but has not yet traded (a shelf company).

To form a private company limited by shares, form IN01 (Application to register a company) must be completed and filed with the Registrar of Companies. In order to complete the registration process, could you please answer the following questions:

  • What is the proposed company name?
  • Country of registered office and intended address of the company’s registered office? If you do not intend to have an actual office, please let us know as we can recommend a service agency who can do this on your behalf.
  • How do you want the company to be governed? There are standard articles of association, however, for example, if you would like the shareholders to have more say than the directors, please let us know as the articles will have to be amended/drafted to reflect this.
  • Details of first directors and secretary (if any) including title, full name and former names, date of birth, country or state of residence, nationality, occupation, service and residential addresses.
  • Are any service contracts to be entered into with the directors? Are there any other contracts or arrangements with any director or person connected with a director?
  • What is the share capital? I.e. how many shares and at what price do you want the shares to be? We would always suggest using 1GBP per 1 share.
  • Statement of initial significant control. From 30 June 2016, newly incorporated companies must file a statement of initial significant control at Companies House as part of the application for registration (sections 9(4)(d) and 12A, CA 2006). This statement must identify any subscriber who qualifies as a registrable person with significant control (PSC) (or registrable relevant legal entity) and that information must be used to populate the company’s PSC register. The details must be submitted on Form IN01. If there are no persons with significant control, a statement to this effect must be made on Form IN01.
  • If there is more than one shareholder, do you want to have a shareholder’s agreement?

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The law firm Graf & Partners was established in 2003 and has many years of experience with British-German and US-German legal matters.The Anglo-German litigation lawyer team of GP Chambers is well equipped to advise and represent clients from the UK, the USA and other English speaking countries. If you wish us to advise or represent you in a German or cross border case, or if you need an expert report on German law, please call +49 941 463 7070 in order to contact German lawyer Bernhard Schmeilzl, LL.M. (Leicester), managing partner and head of the litigation department. Bernhard is also frequently asked by British and US Courts and Tribunals or by legal counsels to provide expert reports and legal opinions on German law.

Pitfalls of German Law (Part 2)

Be careful when suing a German Kommanditgesellschaft (KG), an Offene Handelsgesellschaft (OHG) or a Gesellschaft bürgerlichen Rechts (GBR)

The single most common mistake foreign claimants and their non-German litigation lawyers make when taking a German business to court is that they only sue the partnership itself and not the personally liable partners (persönlich haftende Gesellschafter).

To avoid any misunderstanding: This post deals with German partnerships (Personengesellschaften) as debtors, not with German limited liability companies (GmbH) or German corporations (Aktiengesellschaft). If the debtor is a German company, then – normally – only the company itself can be sued, not the company’s shareholders. There may be special circumstances when a director of even a shareholder may be personally liable for a company debt (piercing the company veil, in German: Durchgriffshaftung), but this is the exception to the rule.

The situation is entirely different with German partnerships, which come in four different shapes and forms:

  • Kommanditgesellschaft (KG), mostly in the form of a GmbH & Co KG
  • Offene Handelsgesellschaft (OHG)
  • Gesellschaft bürgerlichen Rechts (GbR), also called BGB-Gesellschaft
  • Partnerschaftsgesellschaft (PartG)

What these German partnerships have in common is that there is at least one partner who is liable for all business debts with his entire personal property (Privatvermögen). The relevant statute is section 128 German Commercial Code (§ 128 Handelsgesetzbuch). With regard to the OHG and the GbR all partners are fully liable. With regard to the Kommanditgesellschaft (KG) there are two kinds of partners: fully liable partners (Komplementäre) and limited partners (Kommanditisten), who are only liable up to the amount they have invested.

Now, if you (or your client) have a claim against such a German KG, OHG, GbR or PartG, the biggest mistake you can make is to sue only the partnership itself. This is because with a court order against the partnership you can only enforce your claim against the partnership, i.e. the business assets of said partnership. In many cases, however, it is likely that there are no longer any business assets to go after as the partnership is doing poorly or has even folded.

In these circumstances, you will naturally want to go after the personally liable partners of the partnership. And, you can. But only if you have listed them as joint and several co-debtors (Gesamtschuldner) in your lawsuit against the partnership.

If you (or your litigation lawyer) have not done this, then the court order cannot be enforced against the partners. You will have to start a new lawsuit all over again. In some cases, you may of course face limitation problems by then (German limitation periods are explained here).

Thus, whether you sue the German partnership in Germany or abroad, you must ensure that you do not only list the partnership itself as a defendant but also every personally liable partner which you may want to enforce the court order against at a later stage. Psychologically, this puts much more presure on the defendants and thus increases the chances of payment or a favourable settlement agreement. By the way: the lawsuit costs are not increased by co-suing the partners. So there is no reason whatsoever not to include them in your court claim.

See here for other “Pitfalls of German Law“.

More information on litigation and legal fees in Germany is available in these posts:

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The law firm Graf & Partners was established in 2003 and has many years of experience with British-German and US-German legal matters.The Anglo-German litigation lawyer team of GP Chambers is well equipped to advise and represent clients from the UK, the USA and other English speaking countries. If you wish us to advise or represent you in a German or cross border case, or if you need an expert report on German law, please call +49 941 463 7070 in order to contact German lawyer Bernhard Schmeilzl, LL.M. (Leicester), managing partner and head of the litigation department. Bernhard is also frequently asked by British and US Courts and Tribunals or by legal counsels to provide expert reports and legal opinions on German law.