In cases where upstream or cross-stream securities are granted by a German limited liability company (”GmbH“), the German capital maintenance rules need to be considered. Under these rules assets that are required for the maintenance of GmbH’s registered share capital may not be paid out to the shareholders. This payout prohibition concerns not only payments, but also granting of securities in favour of loans granted to the shareholders. The managing directors of a GmbH are personally liable for payouts made in violation of these rules.

It is standard market practice in Germany to include so called limitation language in the relevant security agreements or loan agreements in order to reduce such liability risks for the managing directors. Such limitation language is a contractual limitation on enforcement which prohibits the lender from enforcing the up- and cross-stream securities if this would result in a breach of the capital maintenance rules.

Decision of the German Federal Court of Justice (“BGH”)

For a long time it was a matter of controversy which date was relevant for a forbidden payout to the shareholder, that being the granting or enforcement of securities.

In March 2017 BGH ruled that:

  • the capital maintenance rules are violated if at the time when security is granted, according to a forecast by the managing director:
    • the shareholder will probably not be able to repay the secured loan; and
    • this would result in the GmbH’s net assets falling below its registered share capital; and
  • neither future deterotiation of the financial situation of the shareholder nor enforcement of securities is relevant for a forbidden payout.


In view of this decision, limitation language is at first glance no longer required, because the date at which the collateral is enforced is no longer relevant for forbidden payouts.


  • there is a risk that the court will come to the conclusion that the forecast made by the managing director at the time when the security was granted was wrong, and
  • moreover, as this decision relates to a security in rem (land-charge), it is still not entirely clear whether this decision is also applicable for personal securities (e.g. guarantees).

Therefore, it is recommended that limitation language is still included in the relevant security or loan agreement.