The fiscal consequences of a contractual subordination have been subject of frequent discussion in recent years (see most recently here, in German). For example, German tax authorities often tried to probibit the recognition of liabilities (Passivierungsverbot) in the case of financially weak parties who had declared a subordination. The German Federal Fiscal Court (Bundesfinanzhof, BFH) has now put a bar to this approach:
On 12 January 2022, German the Federal Supreme Court (BGH) commented on the decision of the Higher Regional Court (OLG) of Dresden of 24 February 2021 on the Corona-related rent reduction, which I discussed here, and ruled that the more or less sweeping reduction by half opted for by the OLG Dresden in the case at issue was not permissible in this way. The BGH’s judgement is more differentiated. Reason enough to take a closer look at this decision, which is also important for companies’ liquidity planning.
The market for bond issues is booming (see also here on legal issues). It is not uncommon for such bonds to be issued as subordinated bonds (see e.g. here, in German), which of course can have harsh consequences for bondholders in the event of a crisis of the issuing company: In the worst case, up to the default of his bond (see only here for the “Windreich” case, in German). Often, however, (non-professional) investors are not aware of this risk at all when subscribing. After the Lower Regional Court (LG) Düsseldorf had already dealt with the requirements for subordination declarations in general terms & conditions in 2017 (here), the BGH now followed with another decision, though on a different case, in 2019.
With a view to the burdens that various corona aid packages (see here, in German) may have left on the balance sheets of small and medium-sized enterprises in particular, alternative or supplementary means to classic loan financing become increasingly popular in Germany. Also, as is well known, the financing of the “transformation” of the German … more
In July of this year, the second civil senate of the German Federal Court of Justice (BGH) ruled that “the deliberate delaying of the filing for insolvency with the intention of delaying the end of a company, which is recognised as inevitable, for as long as possible, constitutes immoral damage within the meaning of § 826 of the German Civil Code (BGB). The conditions of § 826 of the German Civil Code if damages to the company’s creditors is thereby condoned.” This decision is interesting because, on the one hand, it possibly contradicts a decision of the BGH’s sixth civil senate, but also because some commentators (wrongly?) see in the decision a proven remedy against so-called “corporate zombies”.
In two recent decisions, the second civil senate of the German Federal Supreme Court (Bundesgerichtshof, BGH) and the Higher Regional Court of Düsseldorf (OLG Düsseldorf) once again deal with the question of which criteria are to be applied for a positive continuation prognosis (“Fortbestehensprognose“) in the context of the over-indebtedness test according to § 19 (2) InsO. It is interesting to look at both decisions because they are diametrically opposed in essence, but also because they provide a good illustration of the standards for the monitoring and planning obligations of the management, not only of start-ups.