The German Federal Court has recently examined the treatment of shareholder loans and how these creditor claims are classified in the event of a company’s insolvency (decision by the German Federal Court of Justice (BGH) dated 13 October 2016 (file no. IX ZR 184/14)).
- The Claimant was the insolvency administrator of a German stock company (AG)
- The AG was a shareholder of a German limited liability company (GmbH)
- The Defendant was the insolvency administrator of GmbH.
Insolvency proceedings relating to the estate of the AG were opened in 2006.
The Claimant claimed for the return of shareholder loans (amounting in total to EUR 80,000) which had been advanced to the GmbH by the AG through a former majority shareholder of the GmbH in 2005.
In 2009, insolvency proceedings commenced in relation to GmbH’s estate and the following year, the Claimant filed a claim of EUR 80,000 plus accrued interest to the GmbH’s insolvency table.
With his lawsuit, the Claimant challenged the classification of the loans as ‘lower-ranking’ pursuant to sec.39 para.1 no.5 of the German Insolvency Act. This classification renders the satisfaction of the claim unlikely.
For the Claimant to succeed, the German Federal Court of Justice (BGH) needed to categorise the loans as ‘gratuitous benefits’. The Claimant’s case was rejected.
Unlike the pre-2008 position, before German insolvency law was modernised, the BGH today generally does not consider shareholder loans as ‘gratuitous benefits’. The BGH held that a shareholder making a loan to the company generally receives a reciprocal benefit – a right to redemption which is only devalued (in practical terms) upon the opening of insolvency proceedings. The benefit therefore cannot be regarded as ‘gratuitous’ because it is valuable prior to the opening of insolvency proceedings.
The decision reinforces the fact that German courts will not categorise shareholder loans as ‘gratuitous benefits’.