Capital markets regulation: “A list of items to be remembered”

​In a nutshell:

In respect of capital markets regulation, renewable energy investors often find themselves confronted with the following crucial questions:

 

• Do the “new” regulations affect my business?

• What structure would be optimal for my new product idea?

• What does “operating company carrying on business outside the financial sector” mean?

• What additional regulatory requirements should I meet?

• Where are the pitfalls?

• What opportunities open up for me?

We have prepared the following “list of items to be remembered” in order to give you an overview of important regulatory principles that could be of relevance to the implementation of your renewable energy projects. For more information, please see also our articles published in the  April and October 2015 issue of E|nEws.

​“Limited partnership models” according to the German Capital Investment Act [Kapitalanlagegesetzbuch]  (KAGB) or the German Investment Act [Vermögensanlagengesetz] (VermAnlG).

Also after the amendments to the regulatory law, projects may still be implemented as “limited partnership models”.  This means that investors’ funds can be pooled in a limited partnership that carries out an (investment) project, that is by way of participation in such a limited partnership where investors become limited partners or participate indirectly through a trustee.  Also in these cases, one of the fundamental questions to be answered under the current regulatory law is whether a given project is subject to the provisions of KAGB or VermAnlG. This differentiation is vital, amongst others because, in practice, a given project will have very different conceptual structures and, in effect, also very different cost structures depending on what regulatory regime is followed. So, a “limited partnership model” according to VermAnlG involves no capital investment management company [Kapitalverwaltungsgesellschaft] (KVG) and no depositary – unlike a standard model based on KAGB.

Differentiation between the scope of KAGB and VermAnlG

In order to determine whether a specific project falls within the ambit of KAGB, it is in particular necessary to check whether the project can be qualified as a so-called “operating company carrying on business outside the financial sector” or not. The term “operating company carrying on business outside the financial sector” (included in § 1 (1) sentence 1 KAGB, not VermAnlG) provides for a statutory exception where enterprises that do business in real economy or in the manufacturing and service sectors may be exempted from the requirements imposed by KAGB. If, for example, a thorough examination of the project-specific circumstances shows that a company is the company operating a renewable energy power plant,  KAGB might not be applicable in effect. The second step will then be to determine how the concept could be implemented according to VermAnlG (instead of KAGB).

Changes in VermAnlG introduced by the German Act on Protection of Small Investors [Kleinanlegerschutzgesetz]

Moreover, it should be noted that the provisions of VermAnlG – which had already been in force prior to the enactment of KAGB – were significantly amended by the Act on the Protection of Small Investors, which became effective last year.

Thus, the amended VermAnlG now includes amongst others provisions on the following aspects involving a notable difference from the products known under the “old regime”:

Asset investments are now subject to a minimum duration requirement and a termination notice; likewise, reporting and disclosure duties as well as the obligation to supplement a prospectus have changed or have been extended. New regulations have also been introduced in the area of advertising asset investments.

As regards prospectuses, emphasised should be Article 13a of the Regulation on Prospectuses that Advertise Asset Investments – [Vermögensanlagen-Verkaufsprospektverordnung] (VermVerkProspV): it reads that the impact of net assets, financial position and results of operations as well as business prospects on the issuer’s ability to meet its obligations towards the investors to pay them interest and the repurchase price should be exhaustively described in a special section clearly visible to the user of the prospectus.

Last but not least, in respect of products outside the scope of the “classic limited partnership models” it should be noted that after the amendments were introduced by the German Act on the Protection of Small Investors, profit participating loans and subordinated loans are now also classified as asset investments. This basically means that the obligation to publish a BaFin-approved prospectus also applies  to such products.

KAGB “light”

Also in this article, we point out, again, that an investor should not forget that a given project could be successfully structured as a product according to KAGB regulation. For example, the project could be based on one of the KAGB exceptions where a project may have a structure comparable to the former “private placements” (for more information on this topic please see the April 2015 issue).

Conclusion

Offerors should keep abreast of the regulatory changes in order to enable the best possible continuation of existing projects under the “new regime” and the optimum implementation of new projects. Apart from purely legal or concept-related issues, also other possible issues such as on-going tax consulting, audit services or administrative aspects should be kept in mind. For further information please visit our service webpages.

We will be happy to assist you!