Pandemic-Resistant Corporate Law: How to Help Companies Cope with Existential Threats and Extreme Uncertainty During the Covid-19 Crisis

This essay argues that, to address the Covid-19 crisis, in addition to creating a special temporary insolvency regime, relaxing provisions for companies in the vicinity of insolvency, and enabling companies to hold virtual meetings, policymakers should tweak company law to facilitate equity and debt injections and address the consequences of the extreme uncertainty firms are facing. After some general reflections upon the type of rules that are needed in these exceptional times, examples of temporary corporate law interventions for the emergency are provided. Specifically, rules to facilitate injections of equity capital and shareholder loans are suggested, together with relaxations of directors’ liability rules and measures to protect firms against hostile takeovers. All of these measures should apply merely by default and only for so long as the emergency lasts. The essay concludes with some thoughts about how to make normal-times corporate law ready for similar emergencies in the future. The goal is both to reduce the risk that the temporary extreme measures enacted for this crisis are made permanent under the pretence that another crisis may hit again and to have quick adaptation mechanisms already in place to respond to such a crisis.

Der Nachrang von Gesellschafterdarlehen in der Insolvenz bei der Konsortialfinanzierung und der Mehrheit von Gläubigern

The German Insolvency Code provides for a general subordination of shareholder loans during insolvency proceedings. In cases where shareholder investors and banks join forces in syndicated debt financing, there is a risk that the whole credit arrangement may be subordinated if insolvency occurs. This work deals with these issues in relation to both the scope and the legal consequences against the background of the relevant legal provisions. The author thereby also presents possible solutions, which may be taken as general guidelines for practitioners.

Gesellschafterdarlehen und stehengelassene Gewinne in Familienunternehmen

It has not been definitively determined whether family businesses require a banking licence pursuant to sec. 32 para. 1 sentence 1 of the German Banking Act (KWG) for corporate financing with shareholder loans and profits left in the business. Considerations regarding the scope of sec. 32 of the KWG, especially its limitations, and an interpretation of the elements of the deposit business pursuant to sec. 1 para. 1 sentence 2 no. 1 of the KWG generally make clear that such a licence is not necessary. On the one hand, shareholder loans and profits left in a business are not covered by the protective purpose of sec. 32 of the KWG, especially since they are comparable to other excluded operations and due to systematic and legal policy-related considerations. On the other hand, shareholder loans and profits left in a business are not banking transactions in the form of deposits. They can neither be qualified through interpretation as unconditionally repayable funds nor as funds from the public.

Harmonization of European Insolvency Law: Preventing Insolvency Law from Turning against Creditors by Upholding the Debt–Equity Divide

In essence, insolvency law is collective debt collection law. By means of a collective procedure, insolvency law seeks to ensure that the going concern value is captured for the creditors. Where the shareholders possess the dominant voice outside of insolvency, in insolvency creditors take over this position and become the economic owners of the company. In three different settings shareholders can interfere with the insolvency process and try to capture all the value in the company or at least leave the creditors with the liquidation value and usurp the going concern surplus. These three settings are (i) shareholders as secured lenders, (ii) shareholders as acquirers out of pre-packs or other asset sales and (iii) shareholders under composition plans. The proposed EU Directive on Preventive Restructuring Frameworks and Second Chance (November 2016) contains measures in the field of composition plans as part of a preventive restructuring. The proposed directive addresses the potential problem that shareholders would usurp the going concern surplus by introducing the Absolute Priority Rule. The proposed directive should be considered a first step in the right direction. It should, however, be realized that the protection offered in the proposed directive could easily be circumvented by a shareholder financing not with capital but with secured shareholder loans. Also, if pre-pack sales or other sale processes do not limit interference by shareholders, shareholders will prefer the route of an asset sale above a restructuring.

Das reformierte Recht der Gesellschafterdarlehen – eine Zwischenbilanz*

Mit Wirkung zum 1. November 2008 hatte der deutsche Gesetzgeber das Recht der Gesellschafterdarlehen in haftungsbeschränkten Gesellschaftsformen grundlegend reformiert. An die Stelle des früheren „Zwei-Säulen-Modells“ mit sowohl gesellschaftsrechtlich als auch insolvenzrechtlich ausgerichteten Regelungen sind ausschließlich insolvenzrechtlich konzipierte Sondervorschriften getreten. Sie begründen den Nachrang der erfassten Gesellschafterforderungen in der Insolvenz der Gesellschaft, abgesichert durch eine Haftung aus Insolvenzanfechtung für bestimmte gläubigerbenachteiligende Handlungen innerhalb abgegrenzter Fristen. Der Beitrag analysiert – im Sinne einer Zwischenbilanz – Entwicklung und Stand der Erkenntnis auf zwei zentralen Themenfeldern: dem Normzweck des neuen Rechts und den Rechtsfolgen vorinsolvenzlicher Forderungsabtretung und Anteilsübertragung. Ergänzend werden einige weitere Grundsatzentscheidungen des Bundesgerichtshofs zum reformierten Recht der Gesellschafterdarlehen in den Blick genommen, um erste Rechtsprechungstendenzen aufzuzeigen.With effect as of the 1st of November 2008, the German legislator has fundamentally reformed the law concerning shareholder loans in regards to limited liability companies. The former so-called “two-pillar model”, which was based on company law as well as on insolvency law regulations, has been replaced by special provisions solely regarding insolvency law. The German legislator justifies the subordination of the requirments of shareholders regarding the insolvency of the company by securing the possibility of, within a specific time period, creating a liability resulting from contesting the insolvency for certain actions that put creditors at a disadvantage. For the purposes of an interim balance, the following article analysis the development and state of knowledge on two important thematic fields: the ratio legis of the new law and the legal consequences in regards to a pre-insolvency assignment of claims and the transfer of shares. Additionally, some other fundamental decisions by the Federal Court of Justice in regards to the reformed company law based on insolvency will be looked at, in order to indicate primary jurisdiction tendencies.

12 Ancillary Finance Documentation

This chapter begins with a discussion of various financial and other varieties of sponsor support which may be provided to a project, including, among other things, shareholder loans, contractual undertakings intended to mitigate completion risk, and ongoing sponsor commitments, post-completion. It provides an overview of security arrangements, considering particular issues that may arise in foreign jurisdictions or in light of the types of asset being secured, and examines how lenders are afforded ‘step-in’ rights in relation to key project contracts through direct agreements. Finally, the chapter discusses legal opinions and their purpose, with particular focus on issues in relation to those where a project is one of the first of its kind in a particular country.

Shareholder Loans in Corporate Insolvency – A New Approach to an Old Problem

The treatment of shareholder loans in corporate insolvency is a controversial issue in many jurisdictions. On both sides of the Atlantic, lawmakers and courts have struggled to answer the question if and under what circumstances shareholder loans should be treated differently from loans granted by outsiders. In particular, the difficulties turn on three issues: (i) whether shareholder loans should rank pari passu with the claims of outside creditors or whether they should be subordinated; (ii) whether the repayment of shareholder loans should be subject to specific restrictions, particularly in the vicinity of insolvency; and (iii) whether specific restrictions should apply to secured shareholder loans.