I. Background

The decision of the BGH clarifies questions relevant to consulting practice in conversion transactions. The following remarks therefore examine this system of retroactive effect and its applications in conversion law constellations.
Pursuant to § 17 para. 2 UmwG, a closing balance sheet must be attached to the application for a conversion measure. According to § 17 para. 2 sentence 4 UmwG, the reporting date of the closing balance sheet may not be more than eight months prior to the application for registration. The purpose of the deadline specified in § 17 para. 2 sentence 4 UmwG is to ensure that the balance sheet is up to date in connection with such a merger.
By allowing the use of a balance sheet whose reporting date may be up to eight months in the past, the UmwG permits retroactive effect in this case. This effect only applies to the economic allocation. The legal ownership of the transferred assets and the acquisition of the new shares by the transferors only take effect upon entry of the conversion in the commercial register.
This must be distinguished from the term “merger date” as legally defined in § 5 para. 1 no. 6 UmwG. This is the date from which the merger shall be taken into economic effect. The reporting date of the closing balance sheet immediately precedes this merger date (according to the prevailing, but not unanimous, opinion in German jurisdiction).
This retroactive effect does not only apply to the merger by absorption that took place in the underlying case for the decision of the BGH. The legal system of the UmwG refers to this provision for other conversions. These include, among others, mergers by formation of a new company (§ 36 para. 1 sentence 1 UmwG), all types of demergers (§ 125 para. 1 UmwG) and cases of asset transfers (references in §§ 176 et seq. UmwG), which are likely to play a minor role in practice.
If the financial year corresponds to the calendar year, the annual financial statements with a reporting date of 31 December can be used as the closing balance sheet within the meaning of the Transformation Act. In this case, the application must be submitted by 31 August of the following year. In addition to the advantage of being able to use the annual financial statements as the closing balance sheet and thus saving the additional effort of preparing another closing balance sheet, this approach also has tax implications: The tax transfer date corresponds to the date of the closing balance sheet on which the conversion measure is based (§ 2 para. 1 German Transformation Tax Act (Umwandlungssteuergesetz, UmwStG)). This means that a retroactive effect of no more than eight months can also be achieved for tax purposes. This “interlocking” is also evident from the fact that § 1 UmwStG links the opening of the scope of application to the rules of the UmwG.
However, in specific cases of tax retroactivity, the decisive factor is the circumstances in which this link applies. This applies, on the one hand, to the cases standardized in §§ 3–19 UmwStG. In this regard, the law refers to the term “tax transfer date” or “tax closing balance sheet” as defined in § 2 para. 1 UmwStG, the date of which is already determined by the tax transfer date. This applies in particular to mergers and divisions of corporations. Spin-offs under transformation law do not fall into this category, as they constitute a taxable contribution under §§ 20 et seq. UmwStG.
§ 20 para. 5, 6 and § 24 para. 4 UmwStG apply to the merger and demerger of partnerships as well as cases of spin-offs. This also covers transactions that do not constitute transformations within the meaning of the UmwG under civil law. This provision also provides for retroactive effect of up to eight months. It is important that this only applies in cases where tax options have been exercised accordingly.
It should also be noted that in the case of a share exchange pursuant to § 21 UmwStG, there is no possibility of retroactive effect. There is no provision corresponding to § 20 para. 5, 6 UmwStG for this case.
Special case: Change of legal form
For changes in legal form, which are additionally regulated in the UmwG, a special provision applies in § 199 UmwG and no reference is made to § 17 para. 2 UmwG. The reason for this lies in the nature of the change of legal form, whereby a legal entity is given a different legal form, § 190 para. 1 UmwG. A transfer of assets that would require disclosure in the balance sheet does not take place.
§ 9 sentence 3 UmwStG contains a supplementary retroactive provision for cases of a change of legal form from a corporation to a partnership. A retroactive period of eight months is stipulated as well. The provision is the tax law supplement to § 199 UmwG mentioned above. Since there is no retroactive effect in this constellation, § 2 UmwStG does not apply either. A separate special provision was therefore necessary to ensure consistency.
Finally, § 25 sentence 3 UmwStG refers to the provisions on the preparation of a closing balance sheet in § 9 UmwStG in the event of a change of legal form from a partnership to a corporation. The retroactive effect of up to eight months applies in the same way.

II. Facts and decision of the BGH

The BGH decision mentioned at the beginning was based on a case in which a German GmbH (limited liability company) registered a merger with the commercial register and attached a closing balance sheet within the meaning of § 17 para. 2 sentence 1 UmwG. The reporting date of which was already one year prior to the date of registration.
The registry court rejected this application because the closing date of the closing balance sheet was more than eight months prior to the application (§ 17 para. 2 sentence 4 UmwG). The GmbH failed to respond to the subsequent request from the registry court, which was accompanied by a deadline of one month. As a result, the application for registration was rejected. The balance sheet meeting the requirements of § 17 para. 2 sentence 4 UmwG was not submitted until more than two months after the application to the commercial register. The date of preparation of the subsequently submitted balance sheet was after the date of the application to the commercial register.
The BGH ruled that it is generally possible to submit a final balance sheet after filing for entry in the commercial register. However, this must be done “promptly.” A period of more than two months is no longer considered prompt.

III. Considerations of the BGH

The court’s considerations on this decision are made in a “three-step” process.

1. The BGH first justified its decision by stating that the final balance sheet did not have to be available on the day of submission to the commercial register. From a constitutional point of view, the applicant should be given the opportunity to correct any errors or omissions in the application for registration. The subsequent submission is therefore permitted for documents that are not a fundamental part of the application. Conversely, if constitutive parts of the application were missing, the application would not be considered valid. The closing balance sheet is not such an essential part of the application. A subsequent submission is therefore possible.

2. This raises the question for the court as to whether the subsequently submitted balance sheet must already have been prepared at the time of the commercial register application. Both opinions are represented in the literature. After comprehensive consideration, the BGH agrees with the view that the balance sheet does not have to be prepared within the specified eight-months period. This does not follow from the wording of § 17 para. 2 sentence 1, 4 UmwG, which merely provides the obligation to submit the documents and the provision on the cut-off date. The legislative materials also did not address this issue. Ultimately, in the view of the BGH, the purposes pursued support this view. The purpose of the registration requirement, which is to inform creditors, is not impaired if the closing balance sheet is not prepared until after the actual application has been filed. From a creditor’s point of view, it is irrelevant whether a possible delay in registration is due to a reason lying with the registry court or to a late closing balance sheet. The only decisive factor is that the information is provided in a timely manner in connection with the application to the registry court.

3. This leads to the final question addressed by the BGH, which concerned the length of the deadline for submitting the closing balance sheet. Without further explanation, the BGH refers to a period of one month, meaning that the additional documents were submitted too late in the decided case and the appeal had to be dismissed as unfounded.

IV. Relevance in practice

The above analysis of the possibilities for retroactive effect from both a conversion and tax law perspective leads to a number of conclusions and recommendations for practice.
When drafting contract documents, it is important to distinguish between the effective date of the conversion (conversion or merger date) and the effective date of the closing balance sheet. The latter immediately precedes the conversion date. The specific form of the conversion determines whether an obligation to submit a corresponding application must be included.
The resolution cited at the beginning clarifies some detailed questions in connection with the required closing balance sheet. This can be submitted within a reasonable period of time, whereby it is also irrelevant whether it had already been prepared at the time of registration. Particularly in time-critical conversion constellations, which will regularly occur at the end of August of a calendar year, the client can “give him- or herself a little breathing space” at this point, although it can be assumed that this subsequent submission period should not exceed one month.