Federal court of justice sees no reason for limitation of liability
Shareholders with unlimited personal liability must also bear the costs of the insolvency proceedings in the event of the company’s insolvency. This was decided by the Federal Court of Justice in its judgment of November 21, 2021 (Ref.: II R 69/22).
Shareholders with unlimited personal liability are liable for all obligations arising from their business, unless laws provide otherwise. However, legal practice has often assumed that the costs for insolvency proceedings are not covered by the liability of shareholders with unlimited personal liability. The BGH has rejected this legal opinion, according to lawyer Michael Rainer, contact person for corporate law at MTR Legal Lawyers.
Insolvency administrator asserts cost assumption
In the underlying case, a real estate fund organized in the form of a civil law partnership (GbR) had taken out loans amounting to millions. When the fund ran into economic difficulties and could no longer service the loans, the bank called the loans due and subsequently, on its application, insolvency proceedings were opened over the fund. The insolvency administrator asserted against the shareholders that they should bear the costs of the insolvency proceedings in accordance with their share of ownership. The Higher Regional Court of Zweibrücken had dismissed the insolvency administrator’s lawsuit, but he was successful before the BGH. The judges in Karlsruhe made it clear that, as a rule, there is no justification for limiting the liability of shareholders with regard to assuming the costs for the insolvency proceedings.
Liability until the opening of insolvency proceedings
In principle, shareholders with unlimited personal liability are liable for all obligations arising from their business. However, with the opening of the insolvency proceedings, control over the company’s assets passes completely to the insolvency administrator. Therefore, the liability of the shareholders can be reduced to the period up to the opening of the insolvency proceedings. This is comparable to a shareholder who has left the company, who is also only liable for obligations up to the time of his departure. However, the BGH made it clear that the costs for the insolvency proceedings are not covered by this limitation. Because insolvency is a direct consequence of the actions of the shareholders.
The unlimited liability of the shareholders represents a high personal risk. Therefore, it is necessary to recognize crises early and take measures that counteract insolvency.
MTR Legal Lawyers advise on corporate law.
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