The German Federal High Court of Justice (BGH) has ruled that if a company less than one year before the initiation of insolvency proceedings over the company’s assets repays a loan which had been granted to it by an indirect shareholder and which had later been assigned by such indirect shareholder to a third party, the repayment will be subject to appeal under section 135(1) no. 2 of the German Insolvency Code (InsO) both as against the indirect shareholder as well as the third party.

In the case at hand, insolvency proceedings were initiated as regards the assets of a limited partnership (GmbH & Co. KG). A stock corporation (AG) was the sole shareholder in a limited liability company (GmbH) which in turn was both a limited partner (Kommanditist) in the limited partnership as well as the sole shareholder of the limited partnership’s general partner (Komplementär). The stock corporation granted the limited partnership a loan. Less than a year before the initiation of insolvency proceedings over the assets of the limited partnership, the stock corporation assigned the loan to an unrelated third party (assignee). After the due date, the limited partnership repaid the loan to the assignee. The insolvency administrator filed an appeal against the repayment both as against the stock corporation as well as the third party.

Contrary to the decision of the first instance, the Higher Regional Court of Stuttgart agreed that a claim against the assignee could be made, but held that no claim was possible as against the stock corporation. On appeal, the BGH has now decided that a challenge of the repayment of the loan could be brought against both the assignee as well as the assigning (indirect) shareholder of the insolvent limited partnership. As a consequence, both were held to be liable as joint and several debtors. It did not matter that the stock corporation was not a direct shareholder of the limited partnership. In the opinion of the BGH, an indirect shareholder can be equivalent to a shareholder due to its participation in the direct shareholders of the limited partnership.

German Federal High Court of Justice, decision dated 21 February 2013 (IX ZR 32/12)

Dr Daniel Komo, LL.M. (Bristol)