Even if some people in professional circles thought it was just "hype" several years ago, the topic of "compliance" has established itself as an obligation in various areas of the company. The implementation of individual measures such as internal investigations, an internal control system (ICS), a whistleblowing hotline with an associated external ombudsman and, last but not least, the seemingly mundane gift guidelines in the company are now standard and are expected as a matter of course by all interested parties and partners who are connected to the company internally or externally.

The Corporate Sanctions Act in the area of M&A transactions

The draft of the Corporate Sanctions Act (E-VerSanG), which has been under discussion for years and is now in the legislative process, presents companies with further and in some cases completely new challenges in this area. Interestingly, these are seen in the various publications primarily in the "classic" areas of compliance. One particular aspect has so far been largely ignored: M&A transactions from a compliance perspective.

This is surprising, as the considerable risks cannot be denied.

Acquirers can sometimes take on considerable liability risks. In case of doubt, this not only makes the individual deal uneconomical - it can also cause considerable damage to the acquiring company. In this context, it is worth recalling the decision of the European Court of Justice (Case T-419/14) on the imputability of infringements by companies, according to which a private equity investor was jointly and severally liable for an antitrust infringement committed by a company in the portfolio - even though the shareholding was well below 50 per cent.

Compliance-relevant issues in the context of an M&A transaction

Similar to the implementation of the GDPR, the Association Sanctions Act leads to a considerable tightening of the catalogue of sanctions. In future, up to 5% of the average annual turnover can be imposed as a sanction for negligent association offences and up to 10% for intentional association offences. The reference figure for calculating the average annual turnover is the global turnover of the last three financial years of all natural persons and associations operating as an economic unit (Section 9 (2) sentence 2 VerSanG-E). According to the explanatory memorandum, the decisive point in time that leads to this assessment is that of the conviction. This is intended to prevent "the economic performance of the association from being distorted upwards or downwards by any special effects".

The following therefore applies: If one (or more) M&A transaction(s) is/are carried out in the period between the commission of an association offence and its sanctioning, the association sanctions can be imposed on the universal successor in accordance with Section 6 VerSanG-E.

The resulting considerable risks that a group must take in the context of an M&A transaction are obvious. The acquirer must take clear precautions to protect itself from potential "ticking time bombs".

The need for risk-orientated compliance due diligence

The fact that companies have been granted a period of two years to implement the new requirements of the VerSanG can only be reassuring at first glance. Not only because the task is complex and two years (just think of the implementation of the GDPR requirements) is rather short for this. Rather, it will become apparent that the investigating authorities and courts will adopt the legislator's assessment and orientate themselves towards it at an early stage. As the law is expected to come into force at the end of the year, it is already important to plan for an intensive and risk-oriented examination of criminal law risks through compliance due diligence for future M&A transactions.

TAXGATE can assist you in carrying out compliance due diligence audits with proven experts as part of your M&A transaction.