A judgement by the Bundesgerichtshof (BGH) from January 2023 is slowly making its way into the financing rounds of companies and can be summarised as “Small participation does not protect against avoidability”.
Facts of the case
In the facts underlying this decision, the later insolvent debtor planned the construction of a transshipment facility for combined rail and road transport (so-called CT terminal). The debtor’s shareholders were a large district town and two other parties, including a shareholder with a 10% stake in the share capital. As part of a consortium relationship, the shareholders undertook among themselves to provide and maintain the loans and collateral required for the construction. They formed a company into whose assets, among other things, the collateral provided by the debtor for the loan was incorporated. The collaterall consisted of a securitised land charge in the amount of EUR 3.8 million on the business property, which the debtor assigned to the defendant.
The debtor fell into insolvency and the insolvency administrator sucessfully contested this provision of collateral, among other things, by way of § 135 InsO.
Legal assessment
In its decision from January 2023, the BGH initially clarified that the small shareholding privilege of § 39 (5) InsO (which applies to the provision of collateral via § 135 (4) InsO) in principle also applies to shareholders who hold exactly 10% of the shares in the company. However, in this case, the BGH ruled out the privilege, specifically stating in the guiding principles:
“Coordinated financing by several shareholders may, irrespective of a crisis of the company and also outside the avoidance period of § 135 (1) no. 2 InsO, result in the participations of the shareholders involved in the financing in the liable capital of the company being added together; the decisive factor is whether an excess entrepreneurial responsibility is assumed.“
The BGH therefore added up the shareholding due to the “assumption of excessive entrepreneurial responsibility” also by the 10% shareholder and accordingly excluded the privileged treatment (which would have excluded this very avoidance!). According to the BGH, the coordination contrary to the small shareholder privilege is not only expressed in the consortial decision on the debt financing. It lies in particular in the consortium agreement concluded specifically for this purpose. Coordinated debt financing can express the assumption of entrepreneurial responsibility that goes beyond the nominal share in the company. This is – according to the BGH – the main reason for excluding such financing from the small investor privilege.
Conclusion
This judgement – which at first sight only appears to cover a niche topic – is likely to cause considerable headaches not only in the area of public-private partnership initiatives, but also for financiers of start-ups. This is because financiers of start-ups very often act on the basis of consortium agreements. Banks do this too, but without taking a stake in the company – which is standard practice for start-ups. Not good news for an industry that is already struggling.
BGH, Urt. v. 26.01.2023 – IX ZR 85/21 (in German)