At a Glance – Key Takeaway
The Federal Court of Justice (Bundesgerichtshof) ruled that shareholders’ damages claims based on violations of capital markets laws against an insolvent company do not qualify as ordinary insolvency claims under Section 38 of the German Insolvency Code (InsO) and, therefore, rank behind the claims of ordinary insolvency creditors (einfache Insolvenzgläubiger). This landmark ruling settles the controversial issue whether capital markets law-based damages claims constitute ordinary insolvency claims ranking pari passu with all other unsubordinated creditors of the insolvency estate or rank behind ordinary insolvency creditors.
As a result of the ruling, shareholders have to bear the risks associated with their status as equity holders, even if their damages claims are based on violations of capital markets laws. This aligns the legal treatment of shareholders’ claims for damages in an insolvency of the issuer in Germany to the treatment of damages claims against the debtor for breaches of securities laws under the U.S. Bankruptcy Code.
