Legal defense against avoidance-relevant restitution claims by means of the insolvency law small shareholder privilege based on the decision of the Federal Court of Justice of April 20, 2023 (case no. IX ZR 44/22)

In the decision, the BGH examined the requirements for insolvency avoidance in accordance with Sec. 129, 135 (1) no. 2 InsO in conjunction with Sec. 39 (1) no. 5 InsO against the background of a payment by the debtor to a minor shareholder in the form of the distribution of a profit carried forward.

The classification of the profit carryforward as a so-called loan-like act did not play a role. According to the BGH, an avoidance by the insolvency administrator is futile if the requirements of the small shareholder privilege (non-managing shareholder of a company receiving a loan holds ten percent or less of the liable capital) are given within a period of one year prior to filing for insolvency proceedings. The circumstances outside the one-year period are not decisive. The circumstances during the last year (Sec. 135 (1) no. 2 InsO) prior to filing for insolvency are decisive (see, among others, judgment of 15 November 2018 - case no. IX ZR 39/18); in this case, this is the period between April 2018 and April 2019. The background to this is that the “MoMiG” (Act to Modernize the Law on Limited Liability Companies and to Combat Abuses) deliberately abandoned the criterion of crisis, which is decisive for the law on equity substitution, and the associated requirement of an equity-substituting financing payment by the shareholder due to the under-certainty associated with this term and replaced it with a period of one year prior to filing for insolvency. Therefore, payments to shareholders can only be avoided during this critical period.

During this time, the defendant was consistently not part of the management and did not hold more than ten percent of the debtor's liable capital. It is irrelevant if a shareholder reduces his participation before the beginning of the one-year period or gives up his activity as managing director - as in the case of the defendant.

The small shareholder privilege is applied in the absence of a reason for exclusion. This involves, for example, coordinated financing of the company by a minority shareholder in cooperation with the majority shareholder. However, the defendant was not accused of coordinated action in cooperation with the majority shareholder. He did not go beyond his role as a small shareholder. The mere agreement of the shareholders on the resolution in the shareholders' meeting and/or the defendant's consent to the profit carried forward is not sufficient for the assumption of a "coordinated approach".

1. Examining the nature of the contested financing service

Even if the classification of the profit carryforward as an act similar to a loan was not discussed in detail in the decision, when defending against an action for avoidance, it should always be checked in advance whether the type of contested financing payment even falls under Sec. 135 (1) or (2) InsO. The regulation applies to shareholder loans and financing services equivalent to loans as well as security for third-party claims by a shareholder or equivalent person. Discussions regularly focus on what is meant by the term "equivalent to a loan". This generally includes loan-like transactions such as, in particular, the deferral of a (purchase price) receivable. Whether the distribution of a profit carried forward to a shareholder also constitutes an act similar to a loan has so far only been affirmed by the highest court in the case of a sole shareholder of a debtor.

If the action to contest insolvency is directed against a majority shareholder, the case law issued in favor of the creditor is likely to have considerable influence in the case of a sole shareholder. Nevertheless, no supreme court decision has yet been issued for the constellation in which profit carryforwards are distributed to several shareholders on a pro rata basis according to their respective shareholdings. The following argument could be made against the classification as "equivalent to a loan": A minority shareholder cannot exert any influence on the majority shareholder's specifications. The majority shareholder alone has the power to ensure that the annual profit is not distributed but carried forward to new account. Only the sole shareholder can then make a financing decision that results in the retention of profits being comparable to a loan. This possibility does not exist in a company with several shareholders. This means that the retention of profits - at least for the minority shareholder - is not a conscious financing decision.

2. On the requirements of the small shareholding privilege during the contestation-relevant period one year before filing for insolvency

However, the avoidance claim raised by an insolvency administrator can be invalidated in the case of several shareholders if the opposing party is a shareholder who meets the requirements of the small shareholding privilege. This is the case if the shareholder is not a managing director and holds ten percent or less of the liable capital. Both of these requirements must be given during the entire period relevant to avoidance one year prior to filing for insolvency. If, on the other hand, a small shareholder only relinquishes his position as managing director or reduces his stake in the liable capital to ten percent or less within one year prior to filing for insolvency, the conditions for avoidance are met.

In the above-mentioned decision, the BGH clarified that it is irrelevant if a shareholder held a position as managing director outside the one-year period and/or held more than ten percent of the liable capital. This is consistent, as the reduction of the shareholding in the company to the threshold of ten percent or less or the resignation of the managing director function is comparable to the resignation of a shareholder from the company. This means that a small shareholder is treated like an external party who is not involved in the company. A minor shareholder typically bears no co-entrepreneurial responsibility and lacks the insider status of another shareholder and the ability to exert influence.

3. On the grounds for exclusion

Shareholders should always keep in mind that in certain constellations they may be denied the benefits of the small shareholder privilege. It is both tempting and dangerous that the statutory provisions generally assume a privilege if the requirements of the small shareholder privilege are given by a shareholder. Nevertheless, actions for avoidance are successful in certain individual cases despite the existence of the requirements of the small shareholder privilege in the period relevant to avoidance. This is particularly the case if the requirements only exist "on paper" and the small shareholder is in fact a non-managing shareholder with more extensive entrepreneurial responsibility. An example of this is a small shareholder who has an influence (under the law of obligations) on the financing of the debtor that goes beyond his nominal participation in the liable capital. Case law assumes this in the case of so-called "coordinated financing" in the form of a syndicate agreement. This regularly involves a reciprocal obligation of shareholders to provide and maintain their financing contributions.

The decision is particularly relevant for shareholders who only have a small stake in the liable capital and are not part of the management. Shareholders should keep in mind the deadline of one year before filing for insolvency. The earlier the entrepreneurial influence dwindles, the lower the risk of avoidance. Caution is required if the conditions for the small shareholder privilege are actually given within the one-year period, but in reality a shareholder's entrepreneurial influence has increased. In this case, there is an increased risk of avoidance.