German court confirms foreign law cannot circumvent insolvency clawback rules

The BGH’s confirmation follows a ruling by the Court of Justice of the European Union (CJEU) published earlier this year and brings to a close a long-running debate over cross-border clawback rights in Germany.

In its judgment (26 pages / 182KB PDF), Germany’s top court confirmed that a shareholder cannot avoid the country’s insolvency provisions on shareholder loans by relying on another country's laws, even where the loan agreement is governed by that foreign law and the transaction would have been shielded from being challenged under that law.

The case at the centre of the debate required the courts to examine whether domestic legislation in Germany should take priority in a dispute involving insolvency proceedings related to a cross-border shareholder loan granted by an Austrian parent company to a German limited liability company.

In that case, the Austrian shareholder had received repayments towards a loan granted to his company. The German insolvency administrator demanded that these payments were repaid – or clawed back – and argued that the claims were subordinated under German insolvency law.

The BGH initially referred the case to the CJEU in 2025 to decide whether a dispute governed by non-German law should be protected against a German clawback claim under the "safe haven" rule of article 16 of the European Insolvency Regulation, which is applied throughout the EU.

The CJEU judgment, handed down on 19 March, clarified that article 16 does not apply to claims brought by an insolvency administrator if the purpose of those claims is to ensure compliance with an EU member’s domestic insolvency framework governing creditor claims. Under German insolvency law, there is a strict priority to determine the order in which creditors can recover their claims. Claims for repayment of shareholder loans in Germany have the lowest rank in the order of claims.

In its ruling, the BGH confirmed that German insolvency law prevails where the insolvency proceedings are opened in Germany and the purpose of the administrator’s claim is to enforce the statutory subordination of shareholder claims behind ordinary creditors.

This ruling effectively confirmed the view previously adopted by the BGH that clawback claims related to shareholder loans apply regardless of the law that governs the underlying loan agreement. Germany’s highest court has now formally confirmed its position on this issue following the CJEU judgment.

Commenting on the two judgments, Dr Attila Bangha-Szabo, insolvency law expert at Pinsent Masons, said: "The Federal Court of Justice has tended to uphold the severe German rules for shareholder loan in the past and to limit shareholders’ options for evading these rules. It was foreseeable that the German court would seek to limit the effects of shareholders attempting to avert these German law rules by choosing foreign law to govern the loan agreement. When the case reached the CJEU, it was surprising that the CJEU would confirm this restrictive stance, even though the shareholder in question was seated in an EU member state and the loan agreement was governed by the law of that EU member state.”

The BGH also confirmed that the purpose of German insolvency law provisions on shareholder loan clawbacks is to enforce the order of priority for creditor claims. Claims for repayment of shareholder claims have a lower rank than ordinary creditors of the company.

In light of this, Bangha-Szabo said the ruling did not leave much room for shareholders of a German company to avert these German insolvency rules on shareholder loans. “Shareholder loans are subordinated under German insolvency law,” he said, “they cannot be effectively secured and any loan repayments made within one year before the application for opening of insolvency proceedings are subject to a claw-back.”

However, he said the judgment provides important clarity for both businesses and cross-border investors in German businesses. "International shareholders which have lent funds to their German companies cannot rely anymore on a choice of non-German law in the loan agreements. They should review and assess their exposure to clawback risks in the event of their German subsidiary becoming insolvent,” he said. “As soon as the company becomes subject of an insolvency proceeding in Germany, the repayment can be clawed back by the German insolvency administrator."

The BGH’s judgment is the first of its kind across the EU. In the near-term, Bangha-Szabo said it will only affect a peculiarity of German insolvency law on the treatment of shareholder loans that is not mirrored in most other jurisdictions.

However, he said the impact of the judgment – in conjunction with the CJEU’s preliminary ruling on EU member states’ national insolvency laws – is potentially much broader and could even create a “potential gap” in the ongoing harmonisation of EU insolvency law. “It effectively permits EU member states to provide for clawback claims which – if the purpose of those claims is to ensure the priority of creditor claims – override any foreign law governing a contract,” he added