Shareholder loans with qualified subordination

A seller, who sells a company along with shareholder loans against that company, might be liable for a period of four years in cases where the buyer collects interest or repayments on the acquired loan from the company, the company then becomes insolvent and the insolvency manager successfully rescinds these payments. This is suggested by a still little known judgment of March 2015.

Judgment of the Federal Supreme Court of Justice (BGH) on qualified subordination

With judgment of 05 March 2015, the Ninth Civil Chamber of the BGH (IX ZR 133/14) decided that

  • a qualified subordination cannot be repealed if the company is factually insolvent and
  • repayment of or interest payments on loans that are made subject to qualified subordination can be reclaimed for lack of legal basis and be rescind as non-remunerated performance.

The ruling was based on the following case

The creditor of a loan subject to qualified subordination had collected interest on it at the time of the borrower’s objective factual insolvency. Insolvency proceedings were later opened with respect to the borrower’s assets. The insolvency administrator claimed repayment of the interest paid by the borrower to the creditor. Creditor and borrower were neither affiliated, nor associated companies.

The Higher Regional Court (OLG) Düsseldorf rejected the insolvency administrator’s claim, while the BGH fully granted the entitlement.

The BGH rests the legitimacy of the claim, on the one hand, on Section 812 para. 1 sentence 1 Alternative 1 of the German Civil Code (Bürgerliches Gesetzbuch – BGB). In accordance with the BGH’s understanding, a claim with qualified subordination may not be repaid as long as the debtor of the claim is in a state of insolvency. If the claim is nevertheless repaid, this constitutes a case of unjust enrichment (“Ungerechtfertigte Bereicherung”) that leads to an entitlement for reimbursement as per Section 812 para. 1 sentence 1 Alternative 1 BGB. Beyond that, the BGH states that an existing qualified subordination, as a genuine contract in favour of a third party, can only be repealed if either all creditors of the debtor approve it, or if the qualified subordination is repealed when the debtor is no (longer) in a state of insolvency (“enforcement suspension”).

The BGH, however, also explains that a claim arising from Section 812 para. 1 sentence 1 Alternative 1 BGB can be opposed by the exclusion of reclaim as stipulated by Section 814 BGB, e.g. if the debtor (as can be generally assumed) is aware of the enforcement suspension with regard to the claim.

Therefore, the BGH also rests the legitimacy of the pecuniary claim on Section 134 para. 1 InsO [German Insolvency Regulations] (defeasibility of donation). Payments made without legal basis are readily qualified by the BGH as donations in the sense of Section 134 para. 1 of the InsO. The reclaim exclusion as per Section 814 BGB does not apply to this claim for repayment under the law on defeasibility.

As a result, it is to be noted that the payment of a claim that is subject to a qualified subordination can be rescind as a donation if the company is objectively in a state of insolvency at the time of payment and if the debtor files for insolvency within four years after the payment. This applies independently of whether intercompany or third party claims are concerned.

TRACC LEGAL’s advice and organisation recommendations

Particularly in cases where shareholder loans are repaid, the possibility to rescind as per Section 134 InsO must be taken into account in addition to the rescission grounds as per Section 135 para. 1 No. 2 InsO, following this BGH ruling, if the shareholder loan is subject to qualified subordination. The rescission period is then extended from one to four years.

The sale of shareholder loans in the context of company transactions is hereby associated with special risks. Situations where shareholder loans vis à vis  the company are sold in addition to the shares of the company, are frequently found in practice.

Due to the judgment of the Ninth Civil Chamber of the BGH, dated 21 Feb. 2013 (IX ZR 32/12) it is to be noted in such cases that the seller of a shareholder loan is jointly and severally liable together with the buyer of the shareholder loan for claims for rescission as per Section 135 InsO if the buyer repays the shareholder loan within one year after acquisition and an insolvency application is filed with respect to the borrower as well within that time period.

Contractual practice already meets this risk in different ways, for instance, by putting the party acquiring the shares and the shareholder loan under the strict obligation to repay the partner loan 12 months after execution of the company transaction at the earliest.

The combination of the BGH ruling discussed here and of the ruling of February 2013 gives rise to serious concerns that the principles of the seller’s joint and several liability with regard to a shareholder loan that is subject to qualified subordination now also apply to the rescission grounds and period as per Section 134 InsO, and thus for four years after execution of the company transaction.

In order to minimise such risks, the following recommendations are suggested:

·       Cancelation of the qualified subordination at the earliest possible date, i.e. as soon as the borrower is objectively no longer in a state of insolvency.

·       Sale of shareholder loans subject to qualified subordination within the framework of company transactions only if other options (e.g. contribution of the shareholder loan into the capital reserve) are not available, for instance due to fiscal implications.

·       Obligation of a buyer of a shareholder loan subject to qualified subordination, not to repay it within 48 months after execution of the company transaction, or only under clearly defined conditions. This obligation is to be secured by collateral (e.g. by a guarantor).

·       Material transfer of the loan receivable subject to qualified subordination at the earliest after expiration of a 48-month period starting from execution of the company transaction.

·       Transfer of the loan receivable subject to qualified subordination to a trustee, who collects the claim or transfers it for collection on part of the buyer later than 48 months after execution of the company transaction at the earliest.


About the author: Rechtsanwalt Dr Thomas Lotz is a partner in the Munich-based law firm TRACC LEGAL. Dr Lotz has supported company transactions for 25 years and provides advice on corporate law issues in the context of restructuring and reorganisation of companies. He is available for personal consultation via +49 (0) 89-95 44 302-89 and by email: