Mandatory Disclosure by the ProReal Companies
Investors have put around 278 million euros into ProReal Europa 9 GmbH and ProReal Europa 10, providing the companies with subordinated loans. They now face significant financial losses. This was announced by the two ProReal companies in a mandatory disclosure according to § 11a paragraph 1 of the German Investment Assets Act (VermAnlG), which the financial supervisory authority BaFin published on July 25, 2024.
The ProReal Europa 9 and ProReal Europa 10 capital investments were issued by the issuing house One Group. Through these companies, investors could indirectly participate in real estate projects. A large portion of their invested money flowed as interest-bearing loans to the pool company SC Finance Four GmbH, which in turn lent to the project companies. However, SC Finance Four has since filed for bankruptcy, and the Offenbach District Court opened insolvency proceedings for the company on July 8, 2024 (Ref.: 8 IN 170/24). This puts the investors’ money in ProReal Europa 9 and 10 at risk, according to the law firm MTR Legal Rechtsanwälte, which advises private and institutional investors on capital market law.
Interest and Repayments Not Guaranteed
In a mandatory disclosure published by BaFin on July 25, 2024, ProReal Europa 9 GmbH and ProReal Europa 10 GmbH reported that a payment default threatens their investors.
The two companies justify this by stating that insolvency proceedings have been opened over the sole borrower involved in real estate project developments. This cumbersome wording likely refers to SC Finance Four GmbH. With the opening of the insolvency proceedings, the full and timely repayment of the loan to the ProReal companies is still at risk, according to the disclosure. This means that interest and repayments to investors are not guaranteed. In other words: investors face financial losses.
Total Loss Possible
Stiftung Warentest reported, referring to the insolvency application of SC Finance Four GmbH that was available to it, that investors could also face a total loss of their invested money. This is because SC Finance Four had lent the money to the project companies in the form of subordinated loans. Consequently, SC Finance Four was unable to take action when project companies encountered financial difficulties and failed to service the loans. Due to the agreed subordination, SC Finance Four could not make any claims.
This situation now affects the investors. They also provided subordinated loans to ProReal Europa 9 and 10 companies. This means they cannot make claims if doing so could endanger the companies’ solvency. If insolvency occurs, investors must rank at the very end in the insolvency proceedings due to the subordination. However, such subordination was not always effectively agreed upon. Subordination is only valid if the corresponding clauses are sufficiently clear and understandable to the investor. This needs to be reviewed.
Possible Claim for Damages
The insolvency proceedings of SC Finance Four are to be conducted under self-administration with the help of a trustee. Here too, creditors and thus indirectly investors must expect significant cuts.
For investors in ProReal Europa 9 and ProReal Europa 10 companies, the situation is extremely concerning. Regardless of further developments, they can already have their legal options reviewed. This can include asserting claims for damages. For example, investors should have been informed about the existing risks of the investment and particularly about the risk of total loss. If investment advisors or intermediaries concealed or downplayed the risks, investors may have claims for damages.
Investors in the ProReal Deutschland 7 registered bond have so far only been put off regarding the repayment date. They too can have their legal options reviewed.
MTR Legal Rechtsanwälte advises on capital market law and is happy to assist affected investors of the ProReal series.
Feel free to contact us!
