New German Rules on Shareholder Loans

The German federal legislature has adopted a new set of rules as part of the German Insolvenzordnung (Insolvency Code) which codify and somewhat modify the existing regime on repayment priority of shareholder loans. Under the new rules, once formal insolvency proceedings against the company's assets have been initiated, all shareholder loans automatically lose their priority in the order of payment to all other creditor claims and any payments on the loans received by the shareholder(s) during the 12-months prior to the commencement of insolvency are subject to a claim for recovery by the insolvency trustee.

Outside of insolvency, repayment of shareholder loans is generally permitted. That being so, the officers of the company may become jointly liable to reimburse the company for any payments made to a shareholder, if such payments caused the company to become insolvent.

The new rules are expected to go into effect as of November 2008.