In Germany, collective actions for shareholder asset recovery proceed on an “opt-in” basis and are authorized by the Capital Markets Model Case Act (KapMuG). KapMuG was born of necessity when German courts were faced with over 16,000 legal proceedings brought by individual shareholders against Deutsche Telekom.
KapMuG, which came into effect on November 1, 2005, was never intended to be a long-term solution. In practice, however, KapMuG has persisted long beyond its original sunset clause of November 1, 2010. Most recently, on September 18, 2020, the German federal parliament, or Bundestag, extended KapMuG for another three years.
Why this Matters
KapMuG is Germany’s only procedure for asset recovery available to shareholders on a collective basis for: (1) a claim for compensation of damages due to false, misleading or omitted public capital markets information, (2) a claim for compensation of damages for the use of false or misleading public capital markets information or for failure to offer clarification about the false or misleading nature of public capital markets information, or (3) a claim to fulfilment of contract, which is based on an offer under the Securities Acquisition and Takeover Act.
Tellingly, KapMuG’s extension received widespread support from the federal government, democratic party (FDP), The Greens, and The Left (Die Linke). Though not perfect, or as Johannes Fechner put it to the Bundestag on September 18, KapMuG “has proven to be too ineffective, too lengthy, too cumbersome and too complex,” it remains the best prospect for shareholder recovery on a collective basis.
The trend is clear, a robust and effective collective redress procedure is a necessary component to attracting investors and instilling faith in capital markets. Just this year we have already seen two major developments out of Europe: the European Union released its Collective Redress Directive, and shortly thereafter Scotland passed its own legislation permitting opt-in class action style litigation. It will be interesting to see how Germany responds to the challenge of introducing its own comprehensive collective redress regime.
By renewing KapMug, the Bundestag has given the government three more years to create a comprehensive legal basis for collective actions in Germany, and we will be sure to follow its development closely.