tion (distribution of assets, compensation of losses, establishing free reserves) and has to be filed with the Commercial Register to become effective.

The ordinary capital increase is effectuated by a reduction of the registered share capital of theAG. In the case of anAG having issued par value stocks, the par value of the existing stocks is reduced.Where the par value is already set at the legal minimum of EUR 1.00, a consolidation or redemption of stocks is necessary.

For the protection of creditors, payments to the stockholders resulting from an ordinary capital reduction may only be made after six months. During this period, creditors who cannot demand immediate consideration of their claims must be given security payments.104

2.3.4.2  Simplified Capital Reduction

A simplified procedure, i.e. one without the aforementioned creditor protection mechanisms, is available if the capital reduction only serves to compensate for a decrease in the value of the AG, offset other losses, or allocate resources to the company’s reserves.105 Distribution of the free capital obtained in the process may only be used for these purposes; in particular, any distribution to the shareholders is prohibited.

As the primary purpose of this procedure is to restore financial soundness of the company during a crisis, it is only permissible after the AG has appropriated its profits and reversed its reserves to cover the losses. As a means of creditor protection, the distribution of dividends is limited for a period of two years after the simplified capital reduction has been conducted.106

2.3.4.3  Capital Reduction by Way of Redemption of Stocks

A capital reduction by redemption of stocks takes place either after the company has bought back its own stocks or by way of compulsory redemption of stocks.107 In the latter case, stockholders are required to hand over their stocks to the company, whereupon the stocks are cancelled.Acapital reduction by compulsory redemption is permissible only if it is provided for in the articles of association.108

2.3.5  Capital Preservation

One of the core principles of German stock corporation law is the principle of capital preservation: the registered stock capital, as stipulated by the articles of association, has to be paid in and may not be repaid to the stockholders. This key concept is expressed in numerous forms in theAktG.

104  See Sec. 225AktG.

105  See Secs. 229 et seq. AktG. 106  See Sec. 233AktG.

107  See Secs. 237 et seq. AktG.

108  See Sec. 237 para. 1 sentence 2AktG.