In the course of the COVID-19-pandemic already during this year´s spring most industrialised countries had adopted diverse simplifications for the respective businesses subject to their respective laws in order to enable them to face the pandemic´s economic impact. In this context, apart from diverse aspects in the areas of tax law, labour law and social security law, also measures concerning the areas of company law and insolvency law were taken. Some of them related to the rules governing shareholders loans under German, Spanish and Austrian law, thus in a specific field of law located in the border line between company law and insolvency law which according to its specific legal content pursuant to the respective law applicable may reveals more or less features of one of the both aforementioned areas of law.
Because the COVID-19-pandemic has proven to be much more persistent than suggested at the moment these initial legal remedies were adopted, legislators in all of the three aforementioned jurisdictions found themselves forced to extend them further respectively to amend them in terms of content as follows:
– German law: Sec. 1 of the German Act of 25 September 2020 amended the COVInsAG in a way that the period during which the duty to file for the opening of insolvency proceedings is suspended (so called period of suspension), has been extended from its initial date of expiry of 30.09.2020 to 31.12.2020. However it must be observed that following 1st of October, the debtor is exclusively granted an exemption from the reason for insolvency of the over-indebtedness (Überschuldung), whereas in the event of in solvency based on illiquidity (Zahlungsunfähigkeit) the ordinary duty to file comes into force again. Shareholders loans granted within this period of suspension are not subject to avoidance actions if they are repaid until 30.09.2023. Furthermore, such shareholder loans are not subordinated if a petition for the opening of the insolvency proceedings has been filed until 30.09.2023. However, pursuant to the rules already laid down in the initial version of the COVInsAG it must be borne in mind that only unsecured fresh loans granted withing the period of suspension are privileged, but not loans granted previously. This leads to difficult legal questions of classification particularly in the framework of current credit facilities especially in the context of cash pooling, in addition to those legal issues already existing in the context of the legal prerequisites for the suspension of the duty to file for the opening of insolvency proceedings.
– Spanish law: the Act 3/2020 of 18.20.2020 on procedural and organisational measures to address COVID-19 in the area of administration of justice which entered into force on 20.09.2020 establishes that the legal measures already established by the RDL 16/2020 concerning the privileged treatment of financing provided by shareholders shall remain in force. In accordance with these rules, in insolvency proceedings opened up to and including 14.03.2022, claims based on loans or other equivalent claims shall be treated as ordinary (consequently not subordinated) loans if they have been granted by a person particularly related with the debtor pursuant to Spanish insolvency law at a date commencing on the moment the State of emergency was declared (14.03.2020). Also under Spanish law, only loans offering fresh money are privileged, and the expiry date of 14.03.2022 determines a deadline before which the insolvency proceedings must be opened.
– Austrian law: § 13 of the 2nd COVID-19-JuBG establishes that a loan shall not be considered as substituting equity in the meaning of § 1 EKEG, if during the period between its coming into force (15.10.2020) and the 31.01.2021 an unsecured cash loan is granted and paid out for a period not exceeding 120 days. § 1 EKEG defines such loans which are granted by a shareholder during the company´s crisis as loans substituting equity. Given that the previous COVID-19 acts contained identical rules for shareholder loans granted on a date beginning on 16.03.2020, identical to the Spanish rules the Austrian Act constitutes a mere extension of the narrow temporal scope of application of the pre-existing COVID-19 rules in the context of shareholder loans.
The differentiated rules in the three aforementioned legal orders show that latter diverge considerably in detail, so that consequently it must be examined carefully on a case-by-case basis if the respective legal conditions of the rules applicable are met. In a cross-border corporate groups this leads to a complex legal situation with the consequence that unfortunately the well-intentioned purpose of offering legal security has not been accomplished at all. This complexity is even further increased if subsidiaries are organised completely or partially in the legal form of foreign companies, because in this event, classification issues in the borderline between the lex societatis and the lex concursus raise additional legal problems.
But also in a cross- border corporate groups organised in a traditional way of subsidiaries incorporated under the laws of the States where their respective real seat or principal business operations are located, the divergence of the leges societates applicable to the mother company on the one hand and the subsidiary on the other hand leads to frictions. Due to the fact that the financing in a group wide cash pooling is not only granted downstream, the mere fact that from the perspective of the lex concursus applicable to the subsidiary, the granting of a loan from its parent company is privileged does not automatically mean that its directors are also acting compliant when they grant loans the other way around from the subsidiary to its parent company. The same holds true for the duties based on the company law applicable at the level of the parent company when latter grants a loan to a financially troubled subsidiary. Thus, obtaining detailed legal advise from the perspective of all involved group companies is a must.
In general terms, we assume that the temporal limitations of the legal privileges particularly under German law will lead to the need of a further extension of the respective rules prior to their expiry, because due to the global economic recession it is unlikely that loans can be paid back in due time. The Spanish rules too encourage the postponed filing for the opening of insolvency proceedings by limiting the period of the privileged treatment of shareholder loans to insolvency proceedings opened prior to 14.03.2022. Consequently, in our opinion it would have been preferable that the respectively concerned legislators had abolished at least the subordination of shareholder loans completely and without any limitation in time. Because in particular the current crisis shows that external financing by financial institutions is becoming more and more complicated not only due to the constant increase of credit requirements and shareholder loans constitute always a reasonable because more economic and often even the only possibility to obtain loans.