Change in the grant recipient’s legal form: Goodbye funding?

The following brief overview is intended to provide an introduction to this practically relevant topic.

Change of name – grant notice remains effective, no adjustment necessary

In the case of a (mere) change of name, only the company’s name changes, not its legal form. The (authorized and obligated) addressee of the approval notice under funding law does not change as a result; the effectiveness of the notice and its provisions in relation to the funding recipient is not called into question.

It is possible to adapt the grant notice to the new name by means of an amendment notice; however, this is not legally required and is therefore generally not expedient for reasons of administrative efficiency.

The same applies to the handling of a grant relationship within a group structure. The Berlin Administrative Court (decision of December 17, 2009, 20 A 26/04) states the following in this regard:

“Insofar as the defendant handled the grant relationships established with the plaintiff in detail directly with P. AG group companies or within the scope of consortium relationships, this does not change the legal subjects of the grant relationships any more than the contributions, mergers, conversions of companies within the group or the transfer of grant funds to consortia in which group companies of the plaintiff were involved.”

Conversion – case-by-case assessment required

In the event of a conversion, the legal or corporate form of the grant recipient changes. This raises the question of whether the approval notice continues to have legal validity or whether it is void due to the fact that the original addressee no longer exists and is therefore legally invalid. The decisive factor is therefore whether the approval notice is also valid as an administrative act in relation to a legal successor who has not been notified of it within the meaning of Art. 43 (1) VwVfG (German Administrative Procedures Act), i.e., whether the legal situation specifically created by such act has been transferred to the legal successor.

This question is not regulated in administrative procedural law. Thus, substantive law is the relevant law, which has to decide whether the previous legal situation also applies to a legal successor. This is generally assumed under two conditions: The administrative act in question must have a content that allows for a succession, and the succession must be provided for by law.

Approval notices under subsidy law allow for succession 

Grant notices do not impose any highly personal obligations on the addressee that cannot be transferred to a legal successor. However, they also do not constitute administrative acts “in rem” that can be transferred to a legal successor regardless of the person, as is the case with a building permit by virtue of an express provision in building regulations law. 

Succession provided for by law 

In the limited case law available, grant approval notices in favor of construction measures are not understood as administrative acts “in rem” in the above sense because they are not related to the land on which the subsidized project is to be realized, but are linked to the person of the grant recipient.

Case law therefore rejects – as far as can be seen – a singular succession to the position of grant recipient (see Düsseldorf administrative court, decision of March 18, 2013, 20 K 7520/12, marginal note 36 with reference to the Federal Administrative Court, decision of August 26,1999, 3 C 17/98; Hanover administrative court, decision of July 16, 2008, 11 A 3779/07, marginal note 47). This skepticism appears justified simply in view of the grant recipient’s personal obligation to manage the project properly and the requirements regarding its economic capacity (cf. no. 1.2 of the administrative regulations on Art. 44 BHO (German Federal Budget Code)).

In contrast, it is generally recognized in case law that a universal successor can take the place of a favorable administrative act’s addressee; since a universal successor fully assumes the rights and obligations of its legal predecessor, this also generally applies to legal relationships established by administrative acts (Düsseldorf administrative court, decision of March 18, 2013, 20 K 7520/12, marginal note 26).

In detail, however, there is reluctance in the literature and case law regarding the transfer of succession under civil law to legal relationships under public law, particularly in the case of administrative acts with a personal reference, such as a grant notice. A detailed examination of the specific individual case of the numerous forms of universal succession, for example, under the German Transformation Act, is therefore indispensable.

Subsidy relevance – notification to granting authority required

Against this background, a change in the grant recipient’s legal form is likely to be regarded as a subsidy-relevant fact that must be notified to the granting authority in accordance with the usual funding conditions.

Transfer of the grant to third parties as an “extended grant” possible

For the sake of completeness, we wish to address a further case of practical relevance, namely the (mere) transfer of the awarded grant by the grant recipient to a third party. 

Generally, such a (de facto) forwarding does not change the person of the grant recipient who remains the addressee of any notices that may become necessary; the grant recipient cannot make the third party the beneficiary of the grant notice and thus the notice’s recipient by means of an act under civil law. The Regensburg administrative court (Regensburg administrative court, decision of August 9, 2018 - 5 K 16.1211, marginal note 39; also, Hanover administrative court, decision of July 16, 2008, 11 A 3779/07, marginal note 49) formulates this as follows:

“The subsidy notice as a whole cannot be transferred to a third party by means of the subsidy recipient’s declaration under private law. Rather, this requires an amendment notice from the subsidy authority regarding the change of addressee: the subsidy provider will generally not be indifferent as to whether the direct beneficiary receives the subsidy or whether it must pay the subsidy to an unknown third party, as in such case it will generally not be ensured that the subsidy is used for the intended purpose.”

Case law makes an exception to this rule in the case of a so-called extended grant, which is characterized by the explicit inclusion of an ultimate third-party beneficiary (already) in the approval notice. The Federal Administrative Court (decision of August 26, 1999, 3 C 17.98, NVwZ-RR 2000, 196) links this “double” addressee to two requirements:

“However, a favorable administrative act can already involve a third party in addition to the actual addressee in such a way that this third party is (also) to be regarded as a beneficiary. This is certainly the case if the direct recipient of the grant is obliged by the notice to pass the grant on to a third party and if the grant is made dependent a priori on the third party submitting to the notice’s conditions.”

Practical recommendations: How companies should act

1. (Mere) changes of a grant recipient’s name should be communicated to the granting authority. No further action is usually required; any notices must continue to be addressed to the (previous) recipient of the notice.
2. Transferring the awarded grant to a third party does not make the third party the approval notice’s beneficiary; the addressee of the notice remains unchanged.
3. In the case of conversions with a change in the grant recipient’s legal form, notices, in particular a revocation of the grant notice, must continue to be addressed to the notice’s previous recipient as actus contrarius, unless a universal succession has occurred (for examples of the fundamental admissibility of a revocation in these cases, see Bayreuth administrative court, decision of May 19, 2010, B 4 K 08.480, marginal note 49; Hanover administrative court, decision of July 16, 2008, 11 A 3779/07, marginal note 45).
4. In the case of universal succession under civil law, it must be examined in each specific case whether the legal successor has also entered into the existing legal grant relationship under public law.
5. In the joint interest of the granting authority and the grant recipient in continuing the funding procedure in a legally secure manner and in the necessary clarity with regard to the obligor, it is generally advisable to revoke the grant notice with effect for the future and to issue a new grant notice which allows to regulate, above all, the new grant recipient’s (still outstanding) obligations with the necessary certainty. This only seems to be dispensable if, in a specific individual case, there are no doubts regarding the contact persons and the (further) fulfillment of the obligations under grant law, particularly from the perspective of the granting authority, even after the conversion.

Many thanks to Dr. Peter Czermak for his valuable support in writing this article.