Carve-outs in the Mittelstand: Five Key Decisions When Separating a Business Unit
Updated: Oct 23
A carve-out is the separation of a business unit – a division, a plant or a product line – in order to sell it or make it independent. In manufacturing companies this is particularly demanding: machinery, employees, IT, purchasing and premises are usually shared. Production is to continue while the company is legally divided. Five key decisions determine success.
The right structure: In an asset deal, each asset is transferred individually; contracts generally pass only with the consent of the contracting party. Alternatively, the unit is first hived down into a new company (Ausgliederung, § 123 Abs. 3 UmwG), whose shares are then sold. The assets pass "as a whole". The price for this: the companies involved are jointly and severally liable (Gesamtschuldner) for pre-existing liabilities (§ 133 Abs. 1 UmwG). The company to which a liability was not allocated is in principle liable for it for five years, and for pension obligations such as company pensions (Betriebsrenten) for ten years (§ 133 Abs. 3 UmwG). The tax consequences should be planned from the outset.
The employees: If part of a business passes to a new owner, the associated employment relationships transfer automatically (§ 613a Abs. 1 BGB). A dismissal by reason of the transfer is invalid (§ 613a Abs. 4 BGB). The employees must be informed in advance in text form; they may object within one month (§ 613a Abs. 5, 6 BGB). According to the Federal Labour Court (BAG), this period only begins to run if the information was provided properly (judgment of 24.8.2017 – 8 AZR 265/16). Errors in the information can therefore still lead to objections years later. The allocation of employees who work for both units, for example in maintenance or administration, is also delicate. If there is a works council (Betriebsrat), the split of an establishment constitutes an operational change (Betriebsänderung, § 111 S. 3 Nr. 3 BetrVG). Information and consultation as well as negotiations on a reconciliation of interests (Interessenausgleich) and a social plan (Sozialplan) must then be scheduled (§ 112 BetrVG).
Contracts, IP rights, permits: Framework agreements with customers and suppliers often cover both units and must be split. Change-of-control termination rights must be reviewed. For patents, know-how and trademarks, it must be determined who becomes the owner and who receives a licence. Software licences are often not transferable. Official permits for production facilities should be examined early for their transferability.
Separation in instalments: Hardly any unit is viable on its own on the closing date. Transitional services such as IT, payroll or purchasing are governed by a Transitional Services Agreement (TSA); in addition, there are often supply and lease agreements for jointly used facilities and space. Clear service descriptions, prices, terms and an orderly exit are decisive.
Liability traps for the acquirer: Anyone who continues a commercial business under its existing trade name (Firma) is liable for its pre-existing liabilities (§ 25 Abs. 1 HGB); this can only be excluded by registration in the commercial register or notification to the creditors (§ 25 Abs. 2 HGB). Where a separately managed business is taken over as a whole, the acquirer is also liable for business-related taxes (§ 75 AO). The purchase agreement should provide for indemnities in this respect.
Conclusion: A carve-out does not begin with the purchase agreement but with a precise inventory: which employees, machines, contracts and rights really belong to the unit? Anyone who answers this question early and thoroughly avoids disputes after closing and keeps the production lines running.
This article provides a general overview and does not replace legal advice in individual cases.
