Wirecard: Claims for damages by shareholders as third-party creditors (partial and interlocutory judgment of the Munich Higher Regional Court)

In 2020, E & Y GmbH Wirtschaftsprüfungsgesellschaft refused to issue a positive audit opinion to Wirecard AG for its 2019 annual financial statements because the latter had failed to provide suitable evidence for (alleged) assets in the amount of EUR 1.9 billion, that is, roughly 25 per cent of the company’s then total assets. The public learned about the audit firm’s refusal to issue an audit opinion through an ad-hoc disclosure published on 18 June 2020, following which Wirecard AG suffered heavy share price losses on the stock exchange and, as a result, filed for insolvency on 25 June 2020.

In these insolvency proceedings, claims in the aggregate amount of EUR 15.4 bn have been filed to date for registration in the insolvency administrator’s schedule of claims. Of this sum, around EUR 8.5 bn is attributable to former shareholders of Wirecard AG. The claims filed by the shareholders have not been taken into account so far, as the insolvency administrator takes the view that shareholders are lower-ranking creditors who cannot file claims for registration in the insolvency administrator’s schedule of claims. As part of the presently discussed decision, the Munich Higher Regional Court had to decide on appeal whether the shareholders may file their claims for damages in order for them to be registered in the insolvency administrator’s schedule of claims and can thus hope to receive even a small distribution from the debtor’s estate.

The court of lower instance, the Munich I Regional Court, had held (case no. 29 O 7754/21) that shareholders were not eligible to file their claims. The Regional Court’s legal assessment was based on the consideration that the relevant claims were shareholder claims and that shareholders were generally subject to subordination under Section 39 of the German Insolvency Code.

The Fifth Civil Senate of the Munich Higher Regional Court allowed the claims to be filed for registration in the insolvency administrator’s schedule of claims. The Senate expressed the opinion that the shareholders were insolvency creditors within the meaning of Section 38 of the German Insolvency Code despite their close relationship with the company, arguing that there was neither a separate legal basis on which to classify claims for damages under capital markets law for insolvency purposes nor a legal method that would allow an interpretation to the effect that shareholders were lower-ranking creditors according to Section 39 of the German Insolvency Code.

By way of an introduction, the Senate made reference to a decision of the German Federal Court of Justice from the year 2005 (EM.TV decision, Federal Court of Justice, judgment of 9 May 2005 - II ZR 287/02). In said decision, the Federal Court of Justice stated that a shareholder could, in principle, be like an external creditor in relation to its stock corporation under certain conditions, provided that the shareholder had a claim against the stock corporation under, for example, Sections 826, 31 of the German Civil Code or Section 823 (2) of the German Civil Code in conjunction with Section 400 of the German Stock Corporation Act. Referring to the decision of the Federal Court of Justice of 19 May 2022 (case no. IX ZR 67/21), the Senate then applied this assessment to similar cases in an insolvency setting, pointing out that the fact that the holders of the claims were shareholders did not necessarily mean there was a “comparable shareholder position” and, therefore, did not automatically lead to the subordination of the claim.

The Senate elaborated that the reason for the company’s potential liability was the tortious behaviour of its management board; that the tortious obligation arose already upon the management board’s actions that caused the damage; that being a shareholder was not, therefore, necessary for the damage to occur; that the extent of the damage was rather to be determined by means of a comparison between the financial situation prior to and after the event causing the damage; and that the damage might thus not be linked to the circumstance of being a shareholder.

The Senate further elaborated that the German Insolvency Code did not lead to a different assessment. The purpose of the German Insolvency Code was to accept and settle the existing claims under substantive law unless and except to the extent that there were any deviating provisions of law, which did not exist in the case at issue. In contrast to this, classifying the claims as “lower-ranking” within the meaning of Section 39 of the German Insolvency Code would inadmissibly affect the legal position of the shareholders, thus violating their rights under Article 14 (1) of the German Basic Law. The dilution of the other insolvency creditors’ dividend in insolvency resulting from this decision had to be accepted. The Senate stated verbatim in this respect: “No creditor is protected from competition by other creditors.”

The Munich Higher Regional Court’s decision strengthens the rights of shareholders by allowing them to file their own (tort) claims for damages against the company as insolvency creditors. Consequently, shareholders can expect at least a small payment from the debtor’s estate in such cases. Whether it makes sense from a legal policy perspective to accept the resulting dilution of the other creditors’ insolvency claims remains doubtful in light of the fact that the average dividends in insolvency were already negligible prior to the presently discussed decision. Many creditors will have to ask themselves whether participating in the insolvency proceedings is still worthwhile.

It remains to be seen whether the German Federal Court of Justice will uphold the decision despite all legal policy concerns. The Munich Higher Regional Court has granted leave to file an appeal on points of law. There seem, however, to be stronger substantive law arguments in favour of the opinion adopted by the Munich Higher Regional Court.