If the voting rights held by a natural person or legal entity in an issuer whose home country is the Federal Republic of Germany reach, exceed or fall below certain thresholds, that natural person or legal entity must notify both the issuer and BaFin of that fact without undue delay, and at the latest within four trading days (section 33 (1) of the WpHG).

Thresholds

Under section 33 (1) of the WpHG, the relevant thresholds are 3 per cent, 5 per cent, 10 per cent, 15 per cent, 20 per cent, 25 per cent, 30 per cent, 50 per cent and 75 per cent.

The thresholds relate to voting rights, and not to shares, for instance, in issuers whose home country is the Federal Republic of Germany. Typically, holdings of voting rights correspond to the interests held in the capital of a company, as each share confers the same voting right (section 12 (1) of the Stock Corporation Act (Aktiengesetz – AktG). However, companies may also issue preferred shares, which do not confer voting rights, unless, under certain circumstances (sections 140 (2) and section 141 (4) of the AktG), the voting right attached to these shares may revive, with the result that the preferred shares must then be treated in the same way as ordinary shares with voting rights. If a person holds directly voting rights and further voting rights are attributed to that person under section 34 of the WpHG (see. I.2.5), only the total number of voting rights held directly and indirectly is decisive for the question of whether a threshold has been triggered. For example, if the direct holding of voting rights exceeds a threshold, but the total positions of voting rights held (total number of voting rights attached to shares held directly plus attributed voting rights) does not exceed a threshold, this does not result in a requirement to file a further notification.

Nor does a change from voting rights held directly to voting rights held indirectly trigger any notification obligation. The same applies in the opposite case.

Calculating holdings of voting rights

The holding of voting rights is calculated as the ratio of the number of own (treasury) shares (numerator) to the total number of voting rights issued by the issuer (denominator).

For the number of voting rights attributed to the party subject to the notification obligation (numerator), it is irrelevant whether or not the voting rights can be exercised (abstract perspective). For this reason, the party subject to the notification obligation must include voting rights that cannot be exercised, for example because of section 44 of the WpHG.

Total number of issuer’s voting rights

Under section 12 (3) of the WpAV, the party subject to the notification obligation must base the calculation of the holding of voting rights on the most recent publication under section 41 of the WpHG. Under section 41 (1) of the WpHG, the issuer must publish the change in the total number of voting rights without undue delay, and at the latest within two trading days, including stating the specific date when the change happened, so that the party subject to the notification obligation is able to use the new total number of voting rights. An exception applies when new shares out of a contingent capital increase are issued under section 41 (2) of the WpHG. In this case, the issuer may publish the change in the total number of voting rights only at the end of the calendar month without stating the date of the relevant changes.¹ Under section 12 (3) of the WpAV, the most recent publication under section 41 of the WpHG may thus serve as a basis for the total number of voting rights. However, where the party subject to the notification obligation knows that the total number most recently published is not correct, the actual share capital recognised in accordance with stock corporation law must be used as the basis for calculating the holding of voting rights. The same applies if the party subject to the notification obligation should have been aware of this. It is always possible and legally permissible for the party subject to the notification obligation to take the correct, actual number of voting rights as a basis.

Issuer’s own (treasury) shares

The following special arrangements apply to treasury shares of the issuer for which the issuer may not exercise any voting rights (section 71b of the AktG): the treasury shares must be included in the total number of issued voting rights (denominator). The total number of voting rights is only reduced when treasury shares are redeemed and the capital is reduced.

If the issuer itself or its subsidiary or a third party acting for the account of the issuer acquires treasury shares, no notification obligation under section 33 (1) of the WpHG arises. Instead, for such cases the WpHG stipulates a disclosure requirement under section 40 (1) sentence 2 of the WpHG.

Additionally, treasury shares are disregarded for the parent undertaking’s holdings of voting rights (i.e. when attributing voting rights under section 34 (1) sentence 1 no 1 of the WpHG).²

Threshold triggered due to acquisition or disposal; “own” in the sense used in section 33 (3) of the WpHG

Legal situation until 26 November 2015

Before the TRL-ÄndRL-UmsG took effect on 26 November 2015, the transfer of legal title (Verfügungsgeschäft) was decisive for identifying when the threshold was triggered in the case of acquisitions and disposals. In this legal perspective, an acquisition only happened when legal ownership was acquired, which was generally deemed to be the date when the securities were credited to the securities account. Conversely, a disposal only happened when the seller had lost legal ownership of the shares, which was generally the case when the shares were removed from the seller’s securities account. Since in the vast majority of cases shares were not temporarily acquired by credit institutions involved, the dates when the shares were credited and removed were in principle identical.

The term “own” in the sense used in section 33 (3) of the WpHG

Due to the addition of section 33 (3) of the WpHG the trade date is now generally decisive for identifying when a threshold is triggered, provided that the terms of the transaction provides for an unconditional claim to be satisfied without delay or a corresponding unconditional obligation to transfer shares to which voting rights are attached. As a consequence, at the date on which the transaction is entered into (trade date), a notification obligation arises either initially under section 38 of the WpHG (as before) or already under section 33 of the WpHG (new), depending on the terms of the transaction. The legislator’s intention in changing the law was to align it with a consistent Europe-wide understanding of the timing of acquisitions and disposals of shares to which voting rights are attached. In addition, section 33 (3) of the WpHG serves to simplify notification practice and to cut the time available for any insider trading.³

As a result, in principle all – exchange and OTC – acquisition and disposal transactions that must be settled immediately within the commonly accepted periods in the market in question are covered by section 33 (3) of the WpHG. In these cases, triggering thresholds in the course of share acquisitions or disposals thus no longer depends on closing of the acquisition or disposal, because the change in ownership has already been initiated and is imminent. In practice, the notification will not therefore be published before the transaction has closed because of the deadlines applicable to filing and publishing notifications.

When applying section 33 (3) of the WpHG in practice, it may be difficult to determine initially whether there is an instrument or a case covered by section 33 (3) of the WpHG because it may not be clear to what extent satisfaction of the claim is (still) conditional or will be delayed. Phrases such as “Title passes after payment of the purchase price at the latest...after conclusion of contract” or “Delivery within...after conclusion of contract” do not, in principle, preclude the applicability of the conditions described in section 33 (3) of the WpHG. What is decisive in such cases, however, are the terms of the transaction with regard to delivery. Depending on whether the parties assume that delivery will be effected immediately or with delay (for which the agreed delivery period may be an indication), there will either be first an instrument or a case covered by section 33 (3) of the WpHG. In the past, the question whether a notification obligation under section 33 (3) of the WpHG is triggered, arose especially in the following cases:

• Acquisition agreements subject to a condition precedent

  If, in the first instance, there is an instrument under section 38 of the WpHG (for example a contingent purchase agreement for voting shares), and if shares with voting rights attached are subsequently acquired when the instrument is exercised, the question of whether a threshold is triggered under section 33 of the WpHG depends on whether or not fulfilling the final condition gives rise to a claim for delivery of the shares that must be satisfied immediately. If once the final condition has been fulfilled and the reciprocal contractual obligations must be met immediately without further delay, the buyer and seller are subject to a notification obligation under section 33 (1) in conjunction with subsection (3) of the WpHG.

In practice, however, agreements on the acquisition of shares often provide for certain conditions precedent for closing of the transaction, inter alia, an agreement on a specific time for the closing after the last of the conditions precedent has been fulfilled. Such an agreed delay is made, for instance, by an agreement on the timing for closing: purchase agreements for larger blocks of shares contains often a provision that the transaction will close at a specified time after the final condition precedent has been fulfilled. In such cases, there is no claim for transfer of the shares to be satisfied immediately; rather, there is an instrument until the transaction has closed.

For settlement of takeover bids, BaFin’s administrative practice allows the buyer (= bidder) and the sellers (= shareholders accepting the offer) of the shares to rely on the date of transfer of legal title for the date on which the threshold is triggered, as it can be difficult in practice to identify the date on which a claim arises by the bidder for transfer of the shares, which may have to be satisfied immediately, and a single date on which the threshold is triggered leads to greater market transparency in such cases.

• Retention of title

  An agreement on retention of title does not preclude application of section 33 (3) of the WpHG because in this case, too, there is in principle an unconditional claim for transfer that must be satisfied without delay.

• Delay in closing the transaction

  If closing of the transaction is delayed unintentionally, this does not change per se the assessment of an unconditional claim for transfer without delay or of a corresponding obligation. However, in case of a further delay, it may be necessary to correct or withdraw a voting rights notification under section 33 (1) of the WpHG and to issue a voting rights notification under section 38 of the WpHG as of the date of the trade. In such cases, the parties are encouraged to contact BaFin in order to clarify the question of a correction to or withdrawal of the notification for this specific case.

• Distinction from section 34 (1) sentence 1 no. 5 of the WpHG

  If the conditions described in section 33 (3) of the WpHG apply, this rules out simultaneous attribution under section 34 (1) sentence 1 no. 5 of the WpHG.

Threshold triggered “by other means”

Thresholds may also be triggered by other means, for instance by capital increases or capital reductions, restructuring of the share capital, universal succession in the case of inheritance or revival of voting rights attached to preferred shares. Thresholds may also be triggered by other means without any acquisitions or disposals by the person subject to the notification obligation if attributions under section 34 of the WpHG apply or do no longer apply (e.g. in the case of grant/revocation of proxies, aggregation/disaggregation of subsidiaries, etc.).

Measures for raising and reducing capital

In practice, measures for raising and reducing share capital trigger questions about notification obligations from several points of view: not only does the question arise of who is subject to the notification obligation (existing shareholders, new shareholders, initial subscribers, secondary subscribers, etc.), but also the question of what the relevant date on which the threshold is triggered and when the period for filing a notification starts running (sections 33 (1) sentences 3 and 5, (41) of the WpHG). Moreover, securities lending transactions with existing shareholders, which can also trigger notification obligations, often play a role in the context of capital increases.

To date, the following typical scenarios have emerged in practice:

Capital increases against contributions, authorised capital, capital increases from capital reserves and revenue reserves, and capital reductions

Capital increases against contributions, capital increases from capital reserves and revenue reserves, and capital reductions are only effective once their implementation has been registered with the commercial register. The registration in these cases is constitutive. Only then do the voting rights arise (sections 189 and 211 of the AktG) or cease to exist (section 224 of the AktG), changing the total number of voting rights. The same applies to authorised capital, since section 203 (1) sentence 1 of the AktG refers to section 189 of the AktG. In other words, rights of membership and voting rights come into existence only when the capital increase is registered with the commercial register; certification of the share is not relevant. The voting rights vest directly with the initial subscriber of the shares, i.e. they do not vest in the issuer first.

Non-consideration of voting rights when new shares are issued with the participation of an underwriter

If the capital increase is supported by a credit institution or a banking syndicate as the underwriter, it normally subscribes for all new shares from the capital increase as the initial subscriber. From the date of entry in the commercial register, the exemption pursuant to section 36 (3) no. 1 of the WpHG, under which the voting rights attached to new shares subscribed for the purpose of clearing and settlement are disregarded until the end of the third trading day after initial subscription, generally applies to the underwriter.

For details regarding exemptions due to non-consideration of voting rights, please refer to the further explanations on section 36 of the WpHG (I.2.6).

Notification obligations applying to investors (new and existing shareholders) when new shares are issued

It may be difficult for investors who acquire shares as secondary subscribers to identify whether an unconditional claim arises against the underwriter at the time when the new shares are effectively issued for delivery of shares to be satisfied immediately (see section 33 (3) of the WpHG). In view of this, BaFin allows investors to make reference to the date when the new shares are credited to their securities accounts (which is when they acquire the legal title of the new shares) as the date on which the threshold is triggered. In this context, BaFin considers that there is no notification obligation under section 38 (1) of the WpHG for the investors in the period between registration of the implementation of the capital increase and crediting of the shares to the securities account.

With regard to the potential dilution following a capital increase, the previous legal situation remains unchanged to the existing shareholders: the dilutive effect already arises once the implementation of the capital increase is registered. However, if existing shareholders have already exercised their (indirect) pre-emptive rights, upon such registration BaFin considers the voting rights out of the new shares as notifiable voting rights of the respective shareholder (either under section 34 (1) sentence 1 no. 2 of the WpHG or already under section 33 (3) of the WpHG), regardless of whether the shares have already been credited to the securities account of the shareholder in question.

Contingent capital increase

In the case of a contingent capital increase, the share capital is increased when the new shares are issued (section 200 of the AktG). The subsequent entry in the commercial register (section 201 of the AktG) merely has declaratory effect. Thus, the share capital and the total number of voting rights change with each additional issuance of shares. The new shares are issued once the issuer and the beneficiary have entered into an issuance agreement and the shares are delivered to the beneficiary. Delivery normally happens when the shares are credited to the securities account.

When new shares are issued under section 41 (2) of the WpHG, the issuer is required to publish the changed total number of voting rights only at the end of a month, so the date on which the holding fell below the threshold is normally not known to the party subject to the notification obligation. In such cases, BaFin does not object if the last day of the month in which the new shares were issued is used in the notification as the date on which the holding fell below the threshold, provided that special circumstances do not support use of the actual date in the specific case. Under section 33 (1) sentence 5 of the WpHG, the time limit for the notification generally only starts running with publication in such cases.

Capital reduction

In the event of a capital reduction resulting from the redemption of shares (sections 237 et seq. of the AktG), the share capital is reduced when the resolution is registered with the commercial register or, if this is followed by the redemption of the shares, when the shares are redeemed (section 238 sentence 1 of the AktG). If redemption is decisive, the management board must take action to eliminate the shares (section 238 sentence 3 of the AktG). Thresholds may be exceeded because of the reduction in the total number of voting rights.

Notification obligations for transformations

Mergers under sections 2 et seq. of the Transformation Act (Umwandlungsgesetz – UmwG)

In the case of merger transactions, the shareholders of the transferring issuer receive a defined number of shares of the transferee issuer in exchange for their shares. The transferring issuer ceases to exist when the merger becomes effective upon registration of the merger in the commercial register. At this time, the shareholders of the transferring issuer become shareholders of the transferee issuer. As a general principle, notification obligations for the shareholders of the transferring issuer under sections 33 et seq. of the WpHG only arise at this time. It may happen that the holdings of the shareholders of the transferee issuer are diluted, in which case they are subject to corresponding notification obligations at the date when the merger is entered in the register. Before a merger becomes effective, BaFin considers that the shareholders of the transferring issuer are not subject to notification obligations under section 38 of the WpHG, since the provisions of transformation law ensure adequate transparency.

Change in legal form under sections 190 et seq. of the UmwG

In the event of a conversion under sections 190 et seq. of the UmwG, the legal entity is merely transformed into a new legal form but remains the same entity.

Due to the legal entity’s continued existence, the legal responsibility for the voting rights does not change. For this reason, no thresholds are triggered and no notification obligations arise. Since the legal entity does not change if its company name is changed, this alone cannot result in holdings of voting rights exceeding, falling below or reaching a threshold, too. Consequently, no notification obligation applies in such cases as well.

Notification obligation in the case of several thresholds being triggered within one day, and in the event of exceeding and falling below a threshold on the same day

If holdings of voting rights exceed or fall below thresholds several times within the same day, it is sufficient to file one voting rights notification at the end of the day.

If holdings of voting rights first exceed and then fall below, or first fall below and then exceed, the same thresholds within one day, BaFin permits netting the voting rights so that no notification is required (provided that the voting rights are not exercised on that day).

If the threshold is exceeded on one day and the holdings of voting rights do not fall below the threshold until the next day (or later), two notifications must be filed.

The netting of long and short positions (such as call and put options) is not permitted in the case of instruments.

Depositary receipts

Section 33 (1) sentence 2 of the WpHG provides that, for certificates representing shares (such as depositary receipts), only the certificate holder and not the issuer of the certificate (depositary bank) is deemed to be the shareholder and is thus deemed to be subject to the original notification obligation under section 33 (1) of the WpHG.

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