Continued application of the previous equity substitution law after the enactment of the MoMiG in so-called “legacy cases”
The significance of shareholder loans substituting equity capital in the context of corporate crises has been the subject of lively academic and practical discussions for decades. With the enactment of the Law for the Modernization of GmbH Law and to Combat Abuses (MoMiG) in 2008, the legislator comprehensively reformed the previously applicable equity substitution law and repealed it in significant parts. Nevertheless, the treatment of circumstances that originated before the enactment of the MoMiG – so-called “legacy cases” – continues to raise questions regarding the applicability of previous regulations.
The equity substitution law until the MoMiG
Legal classification and purpose
The former equity substitution law, predominantly shaped by the Equity Substitution Act (EKEG) and the legal concept of shareholder loans substituting equity developed by the highest court rulings, aimed to ensure the equal treatment of external and internal creditors – especially in the event of insolvency. A shareholder who provided a loan to their company during a crisis was ultimately ranked equally with equity providers; repayment claims were subordinated – particularly in case of insolvency – and could primarily be asserted after other creditors.
Systematics of liability tightening
The law primarily aimed to prevent circumvention of capital contribution and maintenance regulations. Shareholder loans granted or retained during a corporate crisis were generally considered equity substituting. As a consequence, repayments to shareholders could be reversed in certain cases.
Legislative paradigm shift by the MoMiG
Deregulation and reorganization of creditor positions
The MoMiG of October 23, 2008 repealed the equity substitution law. The legislator aimed to facilitate access to borrowed capital for GmbHs and improve investment conditions for shareholders. Equity substituting loans were no longer subject to former restrictions. Claims for repayment from shareholder loans are now only considered subordinately in insolvency proceedings under § 39 Section 1 No. 5 InsO. The formerly restrictive repayment prohibitions and the possibility to contest repayments to shareholders were thus placed on new, insolvency-law-based foundations.
Transition issues and scope for interpretation
The new regulations immediately raised questions regarding the treatment of already existing loan relationships and repayments that were entered into before the reference date (“legacy cases”). While the new provisions clearly apply to circumstances arising after the MoMiG came into force, the handling of old structures is more complex, particularly in light of transition provisions and their effects on already completed repayments.
Federal Court of Justice rulings on “legacy cases”: Decision of January 29, 2009
Facts and subject matter of the dispute
In the case decided by the Federal Court of Justice (BGH) (case number II ZR 260/07), the main question was whether the repayment claims from shareholder loans granted before the MoMiG came into force on November 1, 2008, and which had been executed, were still subject to the previously applicable equity substitution regulations or already to the new law. Specifically, the reclaim of loan repayments and associated shareholder liability issues were addressed.
Reasons for the BGH decision
The BGH clarified that the former equity substitution law applies to circumstances that occurred entirely before the MoMiG came into force. The decisive factors are the time of granting the loan and the decisive legal situation before November 1, 2008. The reversal of equity substituting loans that were conducted before this date is therefore still subject to the regulations applicable before the MoMiG came into effect.
The decision thus creates legal certainty for creditors and shareholders regarding the applicability of the old law to cases that arose before but continue after the MoMiG. At the same time, the BGH emphasizes that reversals under the old legal framework should not be undermined by the new MoMiG regulations. Consequently, the insolvency provisions created by the legislator apply only to loan transactions that were established after November 1, 2008.
Practical implications and criticism
Due to the dogmatically consistent application of transition rules, claims for the recovery of already executed repayments, contests under §§ 30, 31 GmbHG a.F., and liability proceedings under the old law continue to be shaped by previous regulations. For the affected parties, this means adherence to the sometimes stricter restrictions of the former equity substitution law, which could lead to sustained liability for shareholders. It is partially noted critically in literature and practice that this legal situation might lead to a prolonged parallel existence of two legal regimes, which could continue to affect the handling of legacy cases for years to come.
Outlook and significance for the future
As a result, the treatment of shareholder loans in connection with corporate crises remains a field of high complexity. Even after the fundamental reform by the MoMiG, the legal space continues to be characterized by transition provisions and the coexistence of old and new laws. Companies and investor groups are thus well advised to meticulously analyze the legal framework, especially when older loan structures continue to have effects.
The dynamics of corporate law demand constant observation of both legislative developments and the highest court rulings to accurately assess potential risks and liability consequences. Given the specific challenges of shareholder loans, precise legal examination remains of central importance.
For further questions regarding shareholder loans, restructuring financing, and transitional provisions in GmbH law, clients in business environments such as companies, investors, or wealthy private investors can receive Legal advice in corporate law tailored support from MTR Legal.
