Category: News

bpv Braun Partners successfully represented the Czech Ministry of Finance in an international dispute with the insolvency administrator of Viktoriagruppe, which went bankrupt in 2014.

Last week the Munich Higher Regional Court ruled in the second instance that the insolvency administrator must respect the decisions of Czech tax and customs authorities. This ruling upheld the first-instance ruling from this April.

“I am glad that the German judicial authorities have once again confirmed the legal opinion we and our client have taken in this complex and sensitive case, that a German court cannot rule on pledges established by Czech administrative authorities in the Czech Republic. That would constitute a breach of the immunity and sovereignty of the state,” stated Marc Müller, partner at bpv Braun Partners.

The value of the dispute is around EUR 5 million. Before Viktoriagruppe declared bankruptcy in 2014, the Czech tax and customs authority secured its claims to payment of taxes by placing pledges on the real property the company owned in the Czech Republic. The insolvency administrator called these pledges into question and took the case to the Munich Regional Court seeking to have them declared invalid.

As of this week the bpv Braun Partners´ energy team can add another successful transaction to its track record, having provided legal advice to the German Antaris group on the sale of two photovoltaic power plants with a total installed capacity of 4.2 MW to a German investment group.

Although it began in mid-2018, the exhaustive due diligence on the part of the buyer and subsequent negotiations on the conditions for the sale meant that the transaction only closed this week.

Led by partner and head of the energy team Marc Müller with the assistance of attorney Michal Fógel, the transaction involved advice in energy law, real estate law and M&A.

The parties did not disclose the purchase price on the transaction.

By Florian Neumayr and Kajetan Rozga

The recent addition of a transaction value threshold warrants closer scrutiny of merger filings in Austria, but it need not cause a rush to file every deal that appears to meet its requirements on paper. In this article, Florian Neumayr and Kajetan Rozga talk about how to hit the sweet spot of avoiding a needless filing while being discerning enough not to trigger a costly failure-to-file proceeding. The lessons learned may prove useful not only in navigating Austrian merger control but also in informing the broader debates over whether to implement similar thresholds in other jurisdictions such as the EC.

Download Navigating Austria’s Transaction Value Merger Filing Threshold

In late 2017, Austria (along with Germany) adopted a transaction value merger filing threshold. Some deals in innovation sectors like tech and medical were not getting triggered by the one-size-fits-all classic threshold based on turnover. A threshold based on transaction value was added to screen for competitively significant deals with big price tags despite a Target’s low (or lacking) turnover.

The threshold requires (i) aggregate turnover of € 300 mn worldwide and € 15 mn in Austria; (ii) deal consideration (i.e., value) of € 200 mn; and (iii) “significant domestic activity” by the Target.

But what does all that mean in practice? In this article, we talk about how to spot transactions that require a filing under the threshold—and how to avoid unnecessarily filing ones that do not. We end by providing a more detailed background on the value threshold, including the authorities’ guidance on its application.

Practice points for the value threshold

Since few merger control matters go through a merits proceeding in Austria, there is little “case precedent”—especially so for the relatively new value threshold. And EC precedent—often relied on by the Austrian authorities for market definition—is of no help since the EU does not have such a threshold of its own. So the local practitioner’s perspective can be particularly useful. Below are some practice points from our experience in such “transaction value” deals.

Screen all transactions for the value threshold

Ostensibly, the value threshold was created to capture deals in sectors (such as tech) where turnover may not be a good indicator for the Target’s competitive significance. But since the threshold is sector-agnostic, in practice it also captures deals of a more “traditional” variety. There is simply no shortcut for screening all transactions to make sure a filing is not required by the value threshold. Though it still makes sense to start by screening for the classic threshold, which casts a wider net and is less forgiving (for reasons discussed below).

The “significant domestic activity” requirement can be the key to avoiding a needless filing

The transaction value threshold did not open the merger filing floodgates. Historically close economic ties and closely aligned enforcement priorities with Germany mean that Austrian authorities do not want to be the lone regulators reviewing a transaction value-based filing unless the deal could meaningfully impact a domestic market. So while Austrian authorities are strict in applying the classic turnover threshold, they seem more flexible in applying the value threshold. Their main lever for exercising judgment is the test’s subjective third prong requiring “significant domestic activity”.

The authorities have provided guidance on the third prong (as discussed in detail below) and, in practice, there is a wide range of outcomes—making the third prong fertile ground for advocating against the need for a filing. When the Target has no domestic turnover, it appears that there must be significant other indicators. So, for example, late-stage clinical testing sites and the ability to market in Austria with a Europe-wide license may not pass the test if the Target has no domestic turnover and has testing sites elsewhere. But the presence of even low domestic turnover (if it accurately reflects market realities) seems to swing the balance heavily in favour of finding domestic activities, such that few other indicators are required.

Counsel familiar with how the activities prong is applied in practice may help avoid some filings.

The “effects doctrine” will not prevent a filing

The “significant domestic activities” required by the value threshold should not be confused with the more general “effects doctrine” limiting Austrian jurisdiction to matters that impact a domestic market. While significant domestic activities can be a high bar, the effects doctrine is shown by even tenuous links—any turnover in Austria (or a broader market encompassing it) can render the doctrine inapplicable and a filing required. So a Target’s significant domestic activities will, a priori, establish domestic effects. Put another way, a deal otherwise reportable by the value threshold cannot avoid notification by relying on the effects doctrine. (This is in contrast to the classic turnover threshold, which has a more sweeping reach but can—in some cases—be reined in by the effects doctrine.)

Keep close tabs on any fluctuating consideration

An obligation to file can arise right up until the closing of the deal. If the consideration is fixed, the decision to file can be made at signing. But if the consideration can change between signing and closing—for example, if the Acquirer pays with common stock—the consideration value may need to be monitored to ensure an obligation to file does not arise prior to closing. If a deal closes with the threshold triggered but no filing made, the Austrian authorities can initiate costly and distracting failure-to-file proceedings.

In some cases, it might make sense to file in order to get the certainty of knowing that the clock is running on the authorities’ review.  Otherwise, an unexpected last-minute filing (followed by a four-week review period) could spell trouble for the deal. Conversely, if deal consideration drops below the threshold, it might be an option to withdraw a notification. All of these eventualities should be monitored post-signing, and some may even need to be accounted for in deal negotiations.

Consider protective measures in close calls

When filing is a close call—and the transaction is far enough along to otherwise require it—the authorities will accept a “precautionary notification”. Such a notification puts the onus on the authorities to decide whether a filing is required, and if it is not, the notification can be withdrawn. Of course, this approach comes with the risk that the authorities—with a completed notification in hand—err on the side of caution. So if avoiding a filing is important, but doing so without the regulators’ knowledge is too risky, another option is to reach out to the authorities before filing. Whereas under the classic threshold (and the exacting general “effects doctrine”) the authorities are apt to request that a filing be made, under the transaction value threshold the authorities (for the reasons discussed above) are more open to making the judgment call that a filing is not required. So with a fair understanding of the facts and a few calls, local counsel can possibly avoid a filing.

Assess Austria separately from Germany

Even though they have similar thresholds and published joint guidelines (as discussed below), there are important differences between Austria and Germany. For example, the value of consideration required in Germany (€ 400 mn) is double that of Austria (€ 200 mn). In Germany, turnover of less than € 5 mn by the Target (if adequately reflecting its market position and competitive potential) will not establish significant domestic activity; in Austria, no strict threshold exists (though turnover of less than    € 500,000 will “routinely” be deemed insufficient absent other factors demonstrating a nexus to the Austrian market). And whereas a domestic location will not establish a local nexus to Germany, it is presumed to do so in Austria.

Compounded by other differences, it is good practice to screen each jurisdiction separately.

Takeaways from the threshold in practice

Against a backdrop of active enforcement of gun-jumping or failure-to-file cases, the addition of a threshold based on transaction value means that Austria requires close scrutiny when screening jurisdictions for merger filings. Fortunately, with support from effective local counsel, this need not result in a rash of filings.

In comparison to the far-reaching turnover threshold, the transaction value threshold appears to be more restrained in practice. By relying on its qualitative aspects—particularly the requirement that the Target has significant domestic activities—transactions that appear reportable may not have to be. Sometimes, a judgment call can be made without regulators’ input. Other times, it may be better to engage in pre-notification discussions or to submit a precautionary notification. The best path is deal and client-specific. But getting sound advice from local counsel could avoid a filing fee, reduce outside counsel expenses, and avoid unnecessarily burdening the client who, even in “short form” Austrian merger notifications, must provide quite a bit of information.

The mechanics of the value threshold

Under Austria’s transaction value-based threshold, a notification is required if:

• The undertakings achieved a combined aggregate turnover of over € 300 mn worldwide and € 15 mn in Austria;
• the value of the consideration for the transaction exceeds € 200 mn; and
• the Target is active in Austria to a significant extent.

Other than halving the required Austrian turnover (as compared to the classic threshold), the value threshold’s first prong is governed by the well-grounded precedent of the classic one. The third prong resembles a pre-existing “effects doctrine” but it is not applied in the same way (as discussed above). As for the second prong, it is a new concept entirely.

The authorities’ guidance on the threshold

The Austrian authorities (in conjunction with their German counterparts) released a Guidance paper in 2018, summarised below.

“Consideration” is very broadly defined and must account for any closely connected transactions. It includes any payment made (cash or security), asset exchanged (including intangibles like licenses), or interest-bearing liability assumed by the Acquirer. It includes payments for non-competition commitments and future conditional payments (such as an earn-out or other payment conditional on financial performance). In joint ventures, it includes any capital or assets the parents contribute.

The notification must provide the current value of the consideration and explain how it was calculated. Company management (and attached valuation reports) may be required to verify the value of illiquid assets or assumptions made when valuing future or conditional payments (such as discount rates, projected performance, the probability of events, etc.).

With respect to the test’s third prong, domestic activity—which is measured at the time of the filing and does not include future activity—must have a local nexus to Austria, have market orientation, and be significant. A case-by-case analysis is always required, but the Guidance does provide some reference points as follows:

A local nexus exists if Austria is targeted. It is usually satisfied if the Target has customers—or, for a free service, users—in Austria. A domestic physical site is another indicator. Research and development by staff located in Austria, or efforts to obtain regulatory approvals there (such as for as a drug), can also suffice.

The domestic market orientation of the Target’s activities are shown by payments made in Austria or, alternatively, non-monetary remuneration such as users of a digital service providing their data or being shown advertising. Similarly, a service currently offered for free but which later may require payment (or other remuneration) could have market orientation. The same is true of research and development of products or services expected to be marketed in Austria (including later-stage clinical trials of a drug or licenses to develop a medical device).

As to the degree of the significance of the domestic activity, the Guidance is clear that marginal activity in Austria does not trigger a filing requirement. Little is provided in the way of specifics, and the general guidance is that the activity must reflect a “high degree of economic and competitive potential.” Although there is no strict turnover threshold for showing domestic activity, if the Target has domestic turnover,      levels of € 500,000 or less will “routinely” be found to be too low to establish significant domestic effects (assuming there is no other indicator, such as a physical presence).

The Guidance also provides some specific insight into how the activity is to be measured. A physical site in Austria is one way. Turnover that accurately reflects the company’s market position is another. But if the market (or the Target) is not yet mature enough to generate turnover, domestic activity can also be measured using other indicators. In tech, that may be the number of “monthly active users” (e.g., of an app) or “unique visitors” (e.g., to a website). Where research and development is concerned, it may be the number of staff engaged, the number of patents, or the budget. As with the deal consideration, the domestic activity must be identified in the notification (and the parties should be prepared to verify that information upon request from the authorities).

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Florian Neumayr (florian.neumayr@bpv-huegel.com) is Co-Managing Partner of the firm and has nearly two decades of experience in competition work, including merger control and private enforcement.

Kajetan Rozga (kajetan.rozga@bpv-huegel.com) is a Counsel in the Competition & Antitrust practice. Trained in the U.S. with a decade of government and law firm experience in antitrust practice, he represents international clients in various competition matters, including merger control.

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bpv Huegel (https://www.bpv-huegel.com/en/) is a premier full-service law firm representing blue chip clients in headline matters in Austria and Brussels. Its Competition & Antitrust practice is among Austria’s largest and best regarded, having been awarded top-tier positions in the major rankings for a decade running. Its close affiliation with bpv Legal (http://www.bpv-legal.com) offices in the Czech Republic, Slovakia, Hungary, and Romania provides for seamless cross-border service in the CEE.

Download Navigating Austria’s Transaction Value Merger Filing Threshold

We are glad to announce that four of our partners once again have been recognised for their legal expertise as Global Leaders by Who´s Who Legal:

Astrid Ablasser-Neuhuber is mentioned as “Thought Leader” for Competition,

Florian Neumayr as well as “Thought Leader” for Competition and Government Contracts,

Christian F. Schneider is recognised as Global Leader for Competition – State Aid and Energy, and

Gerhard Fussenegger is as well recognised as Global Leader for Competition.

For more information about the research of WWL please go to: https://whoswholegal.com/explore-our-services/our-research

Factual Background

Due to insufficient funds, an administrator in bankruptcy did not see any possibility of asserting a potential claim for rescission in the insolvency of a debtor company so he assigned the claim to a third party in return for payment. In the subsequent rescission proceedings between the third party and the opponent of the rescission, the latter had contested, among other things, the plaintiff’s right to sue because an assignment of a claim for rescission due to bankruptcy would not be permissible. So far this has been the prevailing doctrine as well as supported by two lower instances, which have therefore rejected the complaint. However, the Supreme Court took a different view and considered the assignment admissible in principle. (17 Ob 6/19k)

The facts are simple, but the question of law is complex

The later debtor had sold three properties to the defendant during the relevant period regarding the rescission. The defendant had a close relationship with the debtor (wife of the de facto managing director), the purchase price apparently appeared to the administrator in bankruptcy to be unreasonably low, so that he suspected a claim for rescission on the grounds of intention to discriminate within the familia suspecta (§§ 28 Z3 in conjunction with 32 IO). The debtor’s assets did not contain sufficient funds to allow the insolvency administrator to litigate (the granting of procedural assistance in the event of insolvency is extremely restrictive), so that the administrator – in order to get any money into the assets at all – assigned the claims to a newly founded company with the consent of the creditors’ committee for a small payment of EUR 5,000.00. The insolvency administrator was not allowed to litigate in the insolvency proceedings. This company then asserted the claim of approximately EUR 470,000.00 in its name. The defendant, however, objected (among other things) that the plaintiff lacked active legitimacy since an assignment of a claim for rescission due to bankruptcy would not be permissible.

The defendant was following the legal point of view that was also supported by the prevailing doctrine. In Germany, the Federal Court of Justice had already taken a different view for some time, but the German legal situation is not entirely comparable to that in Austria. The Austrian legal system primarily qualifies the claim for rescission as a claim for the invalidation of an initially valid legal act, whereas in Germany the claim for rescission is characterised as a claim under the law of obligations for restitution.

In the present decision, the Supreme Court contradicted the prevailing doctrine and its two lower instances and permitted the assignment. He did not consider a “highly personal right of the administrator in bankruptcy for third parties” to be a given, nor could he recognise any legal obstacles to an assignment under insolvency law. At first glance, this is astonishing, since according to § 27 IO legal acts can be declared “invalid vis-à-vis the creditors of the insolvency proceedings” by challenging them and according to settled case-law any challenge must also be “capable of satisfaction”. The latter means that the challenge must lead to an increase in the assets involved in the insolvency proceedings, which is not the case due to the assignment price already being included in the assets involved and the lack of participation of the assets involved in the potential success of the proceedings. Nevertheless, the Supreme Court noted in the summary of his decision:

“The assignment (in return for payment) of rescission claims under the IO is in any case effective if, in addition to the claim to the shaping of law (invalidation in terms of § 27 IO), it also includes a claim to benefits based on this shaping of law (§ 39 IO). This shall not apply if such an assignment is made improperly or contrary to the purpose of insolvency. The reasonableness of the assignment price is irrelevant.“

Effects on practice

On the one hand, the present decision enables insolvency administrators, even in the presence of insolvency poverty, to turn claims for rescission in the interest of the creditors into money for the insolvency estate. On the other hand, a potentially lucrative line of business opens up for interested parties. As the present case shows, the ratio between the assignment price and the (possible) rescission claim is considerable, so that it can be lucrative for interested third parties to buy up possible rescission claims “on a grand scale” and to take into account any individual litigation losses. In any case, the Supreme Court did not take offence at the discrepancy between the assignment price (EUR 5,000.00) and the possible claim for rescission (approx. EUR 470,000), but stated that a too low assignment price could only render the assignment ineffective if the assignment was objectively contrary to the purpose of insolvency, which, however, was already denied because of the existing poverty of the assets involved, which had prevented the administrator of the assets from conducting his proceedings in the first place.

bpv Jádi Németh is the winner for Hungary at the Euromoney European Women in Business Law Award 2019. Our law firm has been recognized among the best legal professionals where Euromoney LMG acknowledged our initiatives for innovation. We are honoured to see our lawyers recognized again.

Managing partner, Dr Andrea Jádi Németh, LL.M. (Harvard) commented: “The award is a tremendous achievement of our team and provides external validation of our expertise with focus on innovative legal solutions and business-minded approach. We would like to thank our clients for their trust in our lawyers and legal services.”

bpv Huegel advised AnaCap Financial Partners on the sale of its majority shareholding in heidelpay Group with respect to the Austrian subsidiary, the payment service provider mPAY24 GmbH.

Acquirer is the US investment firm KKR.

Financial details of the transaction were not disclosed.

The team of bpv Huegel already advised AnaCap/heideplay in 2017, on the acquisition of mPAY24 GmbH.

The Transaction is inter alia subject to approval by the German Federal Financial Supervisory Authority and the Commission de Surveillance du Secteur Financier (CSSF). It is expected to close in the first quarter of 2020.

Lead Counsels of the transaction were Herbert Smith Freehills and Proskauer. The bpv Huegel team, led by Daniel Reiter (Corporate/M&A, Regulatory), included Sonja Dürager (Data Protection, IP/IT), Christoph Nauer (Corporate/M&A, Regulatory), Thomas Lettau, Holger Steinborn, Tamara Tomic (all Corporate/M&A) and Paul Pfeifenberger (Employment).

Founded in 2003, heidelpay Group is a leading full-service payment provider that offers a complete range of payment processing services to online and face-to-face merchants. heidelpay facilitates payment acceptance on behalf of merchants across various payment methods for e-commerce, m‑commerce and at the physical point of sale. heidelpay currently serves more than 30,000 retailers and marketplace operators, focusing on SMEs and corporates.

AnaCap is a leading asset manager in the European financial services sector, investing across the vertical through complementary Private Equity and Credit strategies. Since 2005, AnaCap has raised EUR 4.7bn in capital while the team has grown to more than 70 professionals across 6 offices including London, Luxembourg and New Delhi. Through its Private Equity and Credit strategies, AnaCap provides a complementary suite of solutions to sellers and management teams, supported by a deep track record of investing in financial services with over 70 primary investments completed across 15 jurisdictions.

Our managing partner, Dr. Andrea Jádi Németh, Managing Partner at bpv Jádi Németh Attorneys at Law is officially the Chair of the Supervisory Board, which was approved by the AmCham General Assembly.

https://www.amcham.hu/dr-andrea-jadi-nemeth-elected-supervisory-board-chair

Dutch-based property manager MVGM and international real estate services provider JLL have reached an agreement for MVGM to acquire the continental European property management business of Jones Lang LaSalle, creating a top 5 European player and adding more than 11 million m2 to MVGM’s current portfolio of 6.4 million m2 in the Netherlands and Germany.

bpv LEGAL offices were part of a wider team, providing legal advice to MVGM in their home jurisdictions; the advice mainly involved due diligence, reviewing the transaction documentation, assessing the competition aspects of the transactions within CEE region.

The transaction was highly complex due to its international nature – other advisors included not only bpv LEGAL members, but also other advisors such as Heuking Kühn Lüer Wojtek (Germany), Strelia (Belgium and Luxembourg), Wardynski & Partners (Poland) and Cuatrecasas (Spain and Portugal).

The alliance partnership between MVGM and JLL will allow them to develop and service a mutual client base. The deal created a pure-play property manager with a pan-European footprint in eight additional countries with 540 employees in Spain, Portugal, Belgium, Luxembourg, Poland, Czech Republic, Romania, and Slovakia, and expanded teams in the Netherlands and Germany.

The price for the transaction was not yet disclosed.