German SMEs also under pressure

German SMEs in the UK are also feeling the heat. One such firm is manufacturer of pre-fabricated bathrooms for the luxury UK market, Deba Badsysteme. The firm, one of the 3.3m small to medium-sized, often family-run, companies which make up the backbone of the German economy, generates 70% of its turnover in the UK, mainly in London, since it entered the UK market eight years ago. Based in Salzwedel, Saxony-Anhalt, it now has an annual turnover of €25m and employs around 180 staff in Germany and 50 in Poland. CEO Dietrich von Gruben has said he is ‘anxious’ about what Brexit will mean for business and admitted that his firm is also looking at the possibility of doing more business in other EU markets to compensate.

Understandably, some companies are looking to relocate some, or all, of their UK-based business elsewhere. Indeed, a report from the British Chamber of Commerce last year found that one in five businesses say that in a ‘no deal’ scenario, they would move part or all their business to the EU27. Germany, as the powerhouse of Europe, is often their first choice. In fact, Frankfurt’s economic development organisation, Frankfurt Rhein Main, has been operating a Brexit business pitch to try and lure UK companies.

In December, as a response to Brexit, the German Bundestag and Bundesrat passed the ‘Fourth Act to Amend the Transformation Act’, which will make it possible for companies in UK legal form that maintain their registered office in Germany to perform a cross-border merger into a commercial partnership under German law in the future. Options include not only a conversion into a German GmbH but also into a German UG & Co. KG, which enjoys the advantage of only minimal minimum capital having to be raised. There are estimated to be between 8,000 and 10,000 companies domiciled in Germany as UK limited companies alone, all of whom could benefit from the Act. (ssk)