Germany: §186 AktG, the Bezugsrechtsausschluss and the par-value floor on every conversion

Germany permits the instrument but not in the form it takes elsewhere. Section 193(2) no. 3 of the Aktiengesetz lets a conditional-capital resolution state the basis on which the conversion price is computed, so a VWAP formula is lawful. Section 9(1) then floors every single conversion at the par amount of a share, which for a fallen small cap is where the structure stops.

Key takeaways

• The par floor bites at every conversion, not once. Section 9(1) AktG: „Für einen geringeren Betrag als den Nennbetrag oder den auf die einzelne Stückaktie entfallenden anteiligen Betrag des Grundkapitals dürfen Aktien nicht ausgegeben werden.“ A refixing price that falls through that amount cannot be satisfied at all.
• A formula is expressly allowed. Section 193(2) no. 3 requires the conditional-capital resolution to state „der Ausgabebetrag oder die Grundlagen, nach denen dieser Betrag errechnet wird“ — the issue price, or the basis on which it is calculated.
• The simplified route fails by construction. Section 186(3) sentence 4 permits exclusion of subscription rights only where the cash increase does not exceed 20% of share capital and the issue price is not materially below the exchange price. A discounted drawdown fails the second limb by definition.
• Conditional capital is capped twice. Section 192(3): 60% of the share capital in aggregate, and half of it where the conditional capital is resolved for conversion and subscription rights on convertible bonds.
• One change genuinely helps. Section 255 no longer allows the resolution to be challenged because the value attributable to a share is unreasonably low. Subsection (4) substitutes a cash compensation claim.

Where a German deal stops: the anteiliger Betrag

Most markets in this directory constrain the structure with a discount cap, a vote or a dilution ceiling. Germany constrains it with arithmetic that has nothing to do with the market. Section 9(1) AktG forbids issuing a share for less than its Nennbetrag, or for a no-par Stückaktie less than the anteiliger Betrag des Grundkapitals attributable to it: share capital divided by shares in issue, commonly one euro.

A conversion price that refixes downward follows the market wherever it goes. In Germany it can follow it only as far as that figure. Once the market price sits at or under the pro-rata amount, the instrument does not convert at a worse price; it cannot convert at all. The fix is a Kapitalherabsetzung or a reverse split before signing — its own resolution, its own registration, its own delay, and the first item on the timetable rather than a condition precedent. The same problem produces the deferred-share reorganisations on the United Kingdom page.

The instrument itself is lawful

Nothing prohibits a formula. Section 193(2) no. 3 requires the resolution creating bedingtes Kapital to state the Ausgabebetrag or the basis on which that amount is calculated, and for conditional capital resolved under section 192(2) no. 1 it is enough that the resolution fixes the minimum issue price or the basis for setting it. A discount to a trailing VWAP is such a basis. The German objection is never to the pricing mechanic; it is to what the mechanic runs into.

Why the simplified twenty per cent route cannot carry a drawdown

The fast German route is the vereinfachter Bezugsrechtsausschluss under section 186(3) sentence 4: subscription rights may be excluded where the cash increase does not exceed 20% of the share capital and the issue price is not materially below the exchange price. Both limbs, not either. A facility whose economics depend on a discount fails the price limb the moment it draws, so it needs a specific exclusion instead — a three-quarters majority under section 186(3) sentence 2 and the board report required by section 186(4) sentence 2.

The two capital ceilings are frequently confused. Section 202 governs how much genehmigtes Kapital may exist: half the share capital, for at most five years. Section 192(3) governs how much bedingtes Kapital may exist to service conversions, and that is the ceiling on the instrument itself. An issuer can hold plenty of the first and too little of the second, which is why a German convertible debt financing is sized against conditional capital at the worst conversion price.

The change that helps: rescission risk became a money claim

The Zukunftsfinanzierungsgesetz did more for this structure than the move from 10% to 20%. Section 255 as revised no longer allows a capital-increase resolution to be challenged on the ground that the value of the contribution attributable to a share is unreasonably low. An excluded shareholder instead has a claim for cash compensation under subsection (4), and subsection (5) makes the Börsenkurs the reference for a listed company, excluding the claim where the issue price does not fall materially below it. That turns a deal-unwinding risk into a quantifiable one.

Admission, the prospectus threshold and dealing

There is no German holding period. Shares created out of conditional capital on exercise of the conversion right are admitted and trade with the existing line at once, so what replaces a resale analysis is a prospectus analysis: whether the new shares fall inside the exemption for a fungible class below 30% of those already admitted over 12 months, and whether its conditions are met. German issuers with a US shareholder base should still read Rule 144 and restricted securities, since a US purchaser buying under a US exemption holds restricted securities whatever German law says. For the facility side, see equity facilities.

What a Frankfurt board needs on the table

1. Share capital divided by shares in issue

   The pro-rata amount per share against the current price, and whether a capital reduction or reverse split has to happen first.

2. Conditional capital position

   How much bedingtes Kapital exists to service a convertible, how much is already committed, and where it sits against the section 192(3) ceilings.

3. The exclusion wording

   Whether the authorisation permits a specific exclusion of subscription rights or only the simplified one, since only the first can carry a discount.

Send the share capital, the conditional capital and the authorisation wording and we will tell you whether the arithmetic works before anyone drafts.

• All markets
• France
• Belgium
• Netherlands
• All instruments

Primary sources

• Aktiengesetz — Section 9, Ausgabebetrag der Aktien
• Aktiengesetz — Section 186, Bezugsrecht
• Aktiengesetz — Section 192, bedingtes Kapital
• Aktiengesetz — Section 193, Erfordernisse des Beschlusses
• Aktiengesetz — Section 221, convertible bonds
• Aktiengesetz — Section 255

Financing Frankfurt-listed issuers: frequently asked questions

Is a moving conversion price lawful in Germany?

In form, yes. Section 193(2) number 3 of the Aktiengesetz requires the conditional-capital resolution to state the issue price or the basis on which that amount is calculated, and a VWAP formula is such a basis. What constrains it is not the formula but section 9(1), which prohibits issuing shares for less than the amount of share capital attributable to each share.

What is the German par floor in practice?

For a no-par Stueckaktie it is the share capital divided by the number of shares, commonly one euro. A company trading below that figure cannot lawfully issue at the market price, so it reduces its share capital or reverse-splits first. That corporate action has its own resolution and its own timetable, and it comes before any financing.

Can a German issuer use the simplified 20% exclusion for a discounted placing?

Not a discounted one. Section 186(3) sentence 4 permits the exclusion of subscription rights only where the cash capital increase does not exceed 20% of the share capital and the issue price is not materially below the stock exchange price. Both limbs must be satisfied, and a drawdown priced at a discount fails the second by construction.

How much conditional capital can a German issuer hold?

Section 192(3) of the Aktiengesetz caps the nominal amount of conditional capital at 60% of the share capital in aggregate, and at half of the share capital where it is resolved for the grant of conversion or subscription rights on convertible bonds. That second figure is the dilution ceiling on the whole instrument.

Has the rescission risk on a German capital increase changed?

Yes. Section 255 no longer permits a challenge on the ground that the value of the contribution attributable to a share is unreasonably low. An excluded shareholder may instead claim cash compensation, and for a listed company the exchange price is the reference value, with the claim excluded where the issue price does not fall materially below it.