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Company buyer liability in the event of continuation of the enterprise under the same name

Company buyer liability in the event of continuation of the enterprise under the same name

The liability based on the continuation of the company name by the company’s buyer is an often-overlooked particularity. Under German law this can have serious consequences for the purchaser. In a recent decision, the Higher Regional Court (Oberlandesgericht) of Hamm examined the question of whether the replacement of the first name in a company name is sufficient to avoid liability.

The buyer of a company is often interested in maintaining the previous company name. An established company or trade name can be a particularly important argument for the acquisition of a company. However, the buyer must take into account that in the case of continuation of the company name, the legislator provides that the buyer is liable for all liabilities established during operation of the acquired company (§ 25 Handelsgesetzbuch; German Commercial Code). The buyer is liable with all his assets.

According to the jurisprudence, in order to trigger the purchaser’s liability, the name does not even have to be continued in the exact same manner as previously. It is sufficient if the core of the previous and new company name is the same or if the characteristic part of the previous company name is retained. For instance, the German Federal Court of Justice (Bundesgerichtshof) had considered the omission of an entrepreneur’s first name as merely a minor change in the company’s name and affirmed the continuation of the company name, which triggered liability (“Aluminolwerk Karl Schulze” – “Aluminolwerk Schulze & Co.”). According to the Federal Court of Justice, the family name is a defining element of the company name.

The Higher Regional Court of Hamm recently ruled on a case in which the name of the company was changed from “Ralf B.” to “Annika B.” as part of its sale. The court had to examine the legal question of whether exchanging the first name while retaining the surname constitutes a modification of characteristic elements of the company name or whether solely the surname is characteristic.

By ruling of September 18, 2017, the Higher Regional Court ruled to the effect that first names and surnames, both of which are simultaneously used in a company name, are equally characteristic. The court therefore regards the exchange of first names as something qualitatively different from the omission of a first name. According to the Higher Regional Court of Hamm, the change of a first name represents a major alteration to the company name to such an extent that business transactions must be based on a completely different corporate entity. For this reason, the Higher Regional Court refused to accept liability for lack of continuation of the previous company name.

Recommendations

The ruling of the Higher Regional Court of Hamm demonstrates the circumstances under which a company name can be continued with a characteristic surname without giving rise to liability on the part of the purchaser. Nevertheless, caution is still called for in individual cases (even the lower instance had ruled the case differently than the Higher Regional Court of Hamm). In no event is it sufficient to simply leave out the first name.

By Dr. Alexander Wolf

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