Avoiding the requalification of loans under German and U.S. Law

Inhaltsverzeichnis (Table of Contents)

• A. Introduction
• I. Description of the Topic
• II. Motives for Granting Shareholder Loans Instead of Contributing Equity
• B. Rules Applicable to Loan Subordination
• I. German Law
• 1. The Purpose of the Rules on Equity Substitution
• a. Introduction
• b. Speculation at the Costs of the Outside Creditors
• c. Deception of Creditors
• d. Insiders' Finance Responsibility
• e. Summary
• 2. Requirements of Loan Subordination
• a. Shareholder Loan
• aa. Substantive Point in Time
• bb. Cases concerning the "Quasi-Shareholder"
• b. Equity Function of the Loan
• c. "Granting" of a Loan
• d. Exemptions
• e. Differences between the Statute and the BGH Decisions
• 3. The Consequences of Equity Replacing Loans
• 4. Summary
• II. US-Law
• 1. Recharacterization
• 2. The Doctrine of Equitable Subordination
• a. Historical Development of the Doctrine of Equitable Subordination
• aa. First Step: Doctrine of Piercing the Corporate Veil
• bb. Second Step: The Doctrine of Equitable Subordination
• cc. The Differences between Piercing the Corporate Veil and Equitable Subordination
• b. Requirements for Applying Equitable Subordination
• 3. Application to Outside Lenders (Lender Liability)
• 4. Summary
• III. Common Features and Differences of U.S. and German Law
• 1. Objectives
• 2. Different Historical Paths of Development
• 3. Rules Concerning Outside Lenders
• 4. Importance of Lenders' Behaviour for Legal Classification
• 5. Results of the Comparison for Development of Measures to Avoid Subordination
• C. Strategies for Avoiding Liability
• I. German Law
• 1. Avoid Fulfilling the Requirements for Application
• a. Qualification as Outside Lender
• aa. Share of the Profits
• bb. Power to Influence Fundamental Decisions
• cc. Summary
• b. Avoiding the Equity Function of the Loan
• 2. Fulfilling the Requirements of an Exemption
• a. Minority Clause
• b. Privilege for Rehabilitation
• aa. Acquisition of Shares
• bb. Intent to Rehabilitate
• cc. Time of Rehabilitation
• dd. Consistency of § 32 a (3) sentence 3 GmbHG
• ee. Summary
• II. US-Law
• 1. Avoiding Equitable Subordination
• 2. Avoiding Lender Liability
• 3. Avoiding Recharacterization
• 4. Summary
• III. Strategies Applicable in both Legal Systems
• D. Summary

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This master thesis aims to explore the legal framework surrounding shareholder loans in Germany and the United States, specifically focusing on the avoidance of loan requalification as equity. It examines the potential consequences of loan subordination under both legal systems, analyzing relevant legal doctrines and their application.

• The Purpose of Loan Subordination Rules
• Requirements for Loan Subordination in Germany and the US
• Strategies for Avoiding Loan Recharacterization
• Legal Differences and Commonalities between German and US Law
• Consequences of Loan Subordination for Outside Lenders

Zusammenfassung der Kapitel (Chapter Summaries)

The thesis begins by introducing the topic of shareholder loans and outlining the reasons why companies might choose to grant loans instead of contributing equity. It then delves into the legal rules applicable to loan subordination in Germany, focusing on the purpose of equity substitution, the requirements for loan subordination, and the consequences of equity replacing loans. The analysis then transitions to US law, examining the doctrine of equitable subordination, its historical development, and its application to outside lenders.

The thesis proceeds to compare the legal frameworks in Germany and the US, highlighting common features and differences in their objectives, historical development, and the impact of lender behavior on legal classification. It then explores strategies for avoiding liability under both legal systems, including strategies for avoiding the requirements for loan subordination, fulfilling the requirements of exemptions, and strategies applicable in both legal systems.

Schlüsselwörter (Keywords)

The key concepts explored in this thesis include shareholder loans, loan subordination, equity substitution, equitable subordination, lender liability, German GmbH law, US corporate law, legal comparison, avoidance strategies, and outside lenders.