Investors’ Compensation Claims
On January 27, 2025, a German real estate holding company and its subsidiary for existing properties and new construction filed for insolvency. According to a press release from the company, insolvency applications for the group’s capital company and for a further issuing subsidiary are expected to follow. Investors have invested a total of approximately 282 million euros in profit participation rights of this real estate group. Their funds are now at risk.
As bitter as this news is for investors, it does not come as a surprise. By the end of 2024 at the latest, it became evident that the real estate group was facing severe financial difficulties. According to the holding company’s board, the primary reason for this was that a financial institution withdrew from refinancing the residential portfolio at the end of 2023, and no bridge financing was secured. The group’s capital company, the further issuing subsidiary, and the subsidiary for existing properties and new construction, as issuers of the profit participation rights, subsequently announced that they would not be able to make the interest and repayment payments due in December 2024. At that point, the looming insolvency of the companies already cast a shadow over investors, according to MTR Legal Rechtsanwälte, a law firm with extensive experience in capital markets law and in enforcing investor claims.
Insolvency: The Worst-Case Scenario for Investors
For investors, insolvency represents the worst-case scenario. Due to a contractual subordination of the profit participation rights, they face the risk of receiving nothing in the insolvency proceedings. Initially, the claims of other creditors will take priority. Only if there are remaining assets in the insolvency estate will investors have a chance to recover any funds, though they should still expect substantial financial losses.
The insolvency court must first decide whether to open the insolvency proceedings. This requires an assessment of the financial situation of the companies to determine whether there is sufficient insolvency estate available. This process is expected to take several weeks. Only once the insolvency proceedings are formally opened can claims be submitted to the insolvency administrator. It is essential for investors to file their claims, as only registered claims will be considered in the insolvency process. Additionally, it should be examined whether the investors’ claims should indeed be treated as subordinate. There is a possibility that the subordination was not effectively agreed upon, as the respective clauses may have been too non-transparent for investors.
Disclosure of Risks
Regardless of the insolvency proceedings or the subordination issue, investors can have their claims for damages reviewed. Claims could particularly be directed against investment advisors, who had a duty to inform investors about the risks associated with the investment. The risks of subordinated profit participation rights have now become apparent in the insolvency. The real estate group’s profit participation rights were not suitable for risk-averse investors seeking a secure investment. If advisors failed to disclose or downplayed these risks, they could be liable for damages. Additionally, investors should have been informed about the complex structures of the real estate group. In addition to investment advisors or intermediaries, company executives may also be held liable. A potential violation of prospectus obligations, for example, could be considered.
Investors Face High Losses
For the investors of this real estate group, a significant amount of money is at stake. They have invested around 282 million euros in profit participation rights. Approximately 164 million euros were allocated to the Wohnkonzept 1 and Wohnkonzept 2 profit participation rights issued by the subsidiary for existing properties and new construction. Investors invested around 72 million euros in the Wohninvest 8 profit participation rights of the further issuing subsidiary. The group’s capital company issued the profit participation rights of Series L and Wohninvest 7, in which investors participated with approximately 46 million euros.
Following the insolvency, investors in all three companies must expect substantial financial losses, up to a total loss. To protect themselves, they can explore their legal options.
MTR Legal Rechtsanwälte has extensive experience in capital markets law and advises affected investors of this real estate group.
Feel free to contact us!
