Background 

Shareholder loans were granted by an Austrian based shareholder to a German company. The insolvency administrator of the German company demanded return of the loan repayments under the German Insolvency Code (InsO) which treats shareholder loans as equity and subordinated, in an insolvency, to unsecured creditors. 

The shareholder loan agreement was governed by Austrian law. The shareholder argued that Austrian law applied and repayment of the loans could not be challenged under Austrian law. 

Under the EU Insolvency Regulation (EU Reg), the law of the state in which the insolvency proceedings are opened generally applies. Article 13 EU Reg says that this does not apply if the person who benefits from the contested act proves that the law of another member state is applicable, and the act cannot be challenged according to that law.  

Decision 

The German Federal Court of Justice (IX ZR 229/23) has referred the following questions to the European Court of Justice (ECJ): 

• Does Article 13 apply to a claim to enforce the subordination rules applicable under the law of the member state in which the proceedings are opened?
• If yes, does it also apply to claims to protect the equal treatment of shareholder loans and equity?
• If yes, should Article 13 be interpreted as meaning that the law applicable to a loan granted by a shareholder to the company is governed by the company's articles of association?
• If no, whether under Article 9 Rome I Regulation, national insolvency provisions, such as those concerning the subordination of shareholder loans, can apply regardless of the law chosen by the parties.

Key takeaways

The ECJ's decision could prove to be significant in the context of insolvency challenges in cross-border corporate structures. It could also heavily influence the international significance of the German principle of subordination.

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring and Insolvency team.

Authored by: Frederik Kaup

German Federal Court of Justice (IX ZR 229/23)