German companies have fear of filing

It seems almost unbelievable that a country as conservative and rigidly rule-bound in its accounting principles as Germany should be in trouble with Brussels for being too lax with its financial reporting laws.

But it’s true, and businesses throughout Europe and beyond can pay the price.

The European Commission has been prosecuting Germany for some years now, bringing legal action against the government in the European Court. The EC claims Germany has failed to introduce penalties for companies failing to file their annual accounts. Franz Broichhagen, a senior EC official within the financial reporting and accounting division at the financial services directorate, DG-XV, says the case is still working its way through the machinations of the European Court. “We will not have a condemnation in the short term,” he says sorrowfully.

Hermann Geiger, partner on KPMG’s German desk in London, believes the German government won’t act before a court ruling requires it to do so.

This is bad news. The current EC case against Germany looks unlikely to succeed due to formal, procedural errors. If the case is dismissed, the EC is expected to try again by bringing another case free from formal errors. Meanwhile, time ticks away.

Technically, German company accounts should be available to UK companies wanting to check out a potential trading contact. Both AGs (stock corporations) and GmbHs (limited liability companies) have a legal requirement to file financial statements with their local Commercial Register. Large and quoted companies and groups also have to publish their accounts in the Federal Gazette. Other companies just have to publish details of the Commercial Register with which the documents have been filed. Members of the body representing the company, the managing board, are subject to a fine of up to DM10,000 (#3,500) if the company doesn’t comply.

Unfortunately, the Registration Court, which administers the Commercial Register, will only intervene if a shareholder, a creditor or a works council applies for it to take action. “I have no experience of these fines ever being enforced,” says Geiger.

Unfortunately, this fear of filing afflicts virtually all German companies.

“Quoted companies do publish their financial statements,” says Geiger.

“It is the small companies and closely held or family-owned companies that are less likely to file their statements. About 90% of the German GmbHs do not comply with the disclosure requirements.”

Fear of openness is a cultural problem for these often family-owned businesses and the partnerships that help make up the Mittelstand, the German economy’s backbone. “The Hausbank (main company bank) will certainly receive complete financial statements,” says Geiger. “Whether or not other parties receive information depends on their strength and/or personal relationship with the management. There is a fear that the lack of information could result in a competitive disadvantage.”

If filed corporate data is elusive, what are the alternatives? “Some basic data, such as turnover or employee numbers, might be available through databanks or credit reporting agencies,” says Geiger. “Another possibility is to try asking the company directly.”

Bridget Taxy, managing director of the export insurer Coface LBF, also believes the direct approach can work with German businesses. “If you are a contracting party, and ring up and ask to see their accounts, they often say you can come in and consult them in the office. Or they may give you some figures over the phone,” she says. Clearly, unless you have German contacts on the spot, visiting the company in person is not an ideal answer, and phoned data is not hard evidence. This is one way credit insurers claim to be able to help, offering an opinion on the credit worthiness of any particular company, as well as covering the risk.

Another source of information is the German-British Chamber of Industry & Commerce in London. The chamber can obtain a credit report on German businesses containing a range of data, including date of formation, names of shareholders or partners, staff numbers, bankers, assets and liabilities, real estate, annual sales, manner of meeting obligations and finishing off with a comment on credit worthiness. A normal report can be obtained in 10 working days while a “super-urgent report” takes two.

The message is, don’t be put off by the information smoke screen. The truth is out there. Exporters who want to do business in Germany just have to know where to look.