Limitation Language

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As limitation Save a clause in loan agreements is referred to, by which the monetary obligation of a company with a limited liability mass of an inherited from this liability or recoverability of their collateral for liabilities of its direct or indirect shareholders or their affiliates so-called (. Upstream - Collateral) is limited.

background

The background to this is the regulations on capital preservation in corporations and the resulting prohibition on the return of capital contributions, which is in the interests of the company's creditors, as it exists in many countries in different forms, but with similar legal consequences. The prohibition of the return of contributions also covers cases of joint liability for shareholder liabilities or the provision of collateral for such liabilities towards third parties.

Germany

Public companies

In the case of the AG , the prohibition of the return of contributions follows from § 57 AktG. Accordingly, the contributions may not be returned to the shareholders. Any service provided by the AG to its shareholders due to their position as a shareholder falls under “restitution”, unless it is made from a balance sheet profit or is exceptionally permitted by law. According to the prevailing opinion, a violation of § 57 AktG leads to the nullity of the relevant obligation and disposition transactions .

  • Exceptions to the prohibition of the return of contributions : A major exception to the prohibition of the return of contributions in connection with the limitation language is the existence of a domination or profit transfer agreement (Section 57 (1) sentence 3, Section 291 AktG).

Limited Liability Companies

The regulations on capital preservation and the resulting prohibition of the return of capital contributions are laid down for the GmbH in Sections 30 and 31 GmbHG. The word "payout" or "payment" used in the legal text is to be interpreted broadly and therefore also includes the provision of collateral in favor of the partner or persons closely related to him. The resulting personal liability of the managing directors in the event of a violation in accordance with Section 43  (3) in conjunction with Sections 30, 31 GmbHG is intended to be avoided by the clause, in that the company is not obliged to pay out the assets required to maintain the share capital or to sell them reveal.

  • Exceptions to the prohibition on the return of capital contributions : By virtue of a statutory order, a return of capital contributions is exceptionally permissible if there is a control or profit transfer agreement within the meaning of Section 291 AktG between the GmbH and the beneficiary shareholder.

Accounting approach

With regard to the controversial question of when a "payout" is a return of contributions within the meaning of § 30, 31 GmbHG, the MoMiG clarified that only the accounting approach applies. Thereafter, only such amounts can be paid out by which the net worth of the company (assets less liabilities) exceeds the amount of the share capital. Insofar as the GmbH has a full counter-performance or reimbursement claim against its shareholder, this can - due to the relevant accounting view - be taken into account in the assets . If and to the extent that the amount of the share capital would fall below the amount of the share capital (so-called sub-balance sheet ) or an already existing sub-balance sheet would be deepened due to a payment on the liability assumed for the shareholder liabilities or the realization of the collateral provided for this purpose, a payment or realization can be made on the basis of the clause be denied to the creditor.

However, when collateral is provided, it is controversial as to which point in time should be used to answer the question of whether or not a deposit return is available. On the one hand, this could be the time at which the collateral is provided . This will - if the use of the security is not already foreseeable - however, in principle,  balance sheet- neutral, since according to § 251 HGB such contingent liabilities are only to be shown under the balance sheet. However, it could also be based on the time of recovery . Restitution claims resulting from the provision of collateral for shareholder liabilities, which the company has against its shareholder, will then, however, hardly be of any value. By activating them, a deficit that arises or deepens as a result of the realization of the collateral can generally no longer be offset.

foreign countries

Since the regulations on capital preservation in corporations and the resulting prohibition on the return of capital contributions serve the interests of the company's creditors and are ultimately intended to prevent abuse of the limited liability of the shareholders (on the contribution), similar regulations exist in many countries. In part, this topic is also dealt with under the heading " Financial Assistance ".

Anglo-American legal family

In the USA, corresponding contractual clauses are usually called "Savings Clauses". In its high-profile decision on the In re Tousa insolvency procedure of October 30, 2009, the United States Bankruptcy Court for the Southern District of Florida found a savings clause that is frequently used in the market to be ineffective. It remains to be seen whether other courts will follow suit.

Significance in practice

The Limitation Language represents a considerable concession on the part of the lenders in favor of the management of the company concerned, since in case of doubt they have to waive the enforceability of the liability obligation and the securities granted to them . Despite this problem, the limitation language is widespread in practice.

Risks

Lender

The capital maintenance regulations only apply in the relationship between the company and the managing directors and shareholders. A breach of this does not mean for the lender - at least with the German GmbH - that he is not allowed to access the jointly liable person or the security. However, the manager's legitimate interest in avoiding personal liability is seen. In this respect, it has become established in banking practice that lenders are regularly ready to include a limitation language in the loan documentation. However, this can have far-reaching consequences. The main risk for the lender lies in the doubts associated with the limitation language about the enforceability of joint liability or the usability of collateral. In the worst case, the lender must expect that he will not be able to fall back on the joint liability or the collateral, or at least not fully, in the event of a security. Because of these doubts, it is also questionable for credit institutions as lenders whether the liability or security under Section 154  (1) in conjunction with Section 172  (3) SolvV (see also Basel II ) may be taken into account to reduce risk. If collateral cannot be taken into account, the equity burden on the banks and thus also the equity capital costs are higher, which would have to be reflected in more expensive loan terms.

executive Director

See also the article GmbH managing director liability .

Contract drafting

With the Limitation Language, two alternative contract designs in different variants are essentially conceivable. On the one hand, the Limitation Language can be designed as an objection to a payment obligation or the realization of collateral. With regard to the collateral provided, it is also conceivable, according to the accounting approach, that although this may initially be realized, the company has a payment claim against the collateral taker insofar as it involves a return of the deposit. At least in the case of banks as collateral takers, the claim to payment should generally also be valuable and thus prevent the creation of an under-balance sheet.

  • Limitation of the content of the regulation : The contract drafting practice tries to limit the limitation of liability or usability of collateral associated with the limitation language to the essential core of avoiding liability for the management. It is regularly agreed that the Limitation Language will not apply if liability for or collateralization of shareholder liabilities is permitted. This will be the case if the company or the shareholders have the opportunity to avoid personal liability of the managing directors through their own measures, e.g. B. by concluding control or profit transfer agreements. Even if joint liability or the realization of collateral would be restricted by measures taken by the company - e.g. B. in the case of capital increases from company funds - the Limitation Language should not intervene.
  • Extension of the regulation content : In practice, however, an extension of the regulation content of the Limitation Language to other issues can also be observed. In addition to the prohibition of the return of contributions and the resulting personal liability of the managing directors, there is a liability risk for the managing director in other cases.
    In particular, the liability according to § 64 sentence 3 GmbHG new version should be mentioned, which can also be realized in the case of joint liability or provision of collateral for shareholder liabilities. In contrast to the prohibition on the return of contributions, the balance sheet view is not decisive here. Rather, it is a matter of insolvency causation liability due to a foreseeable insolvency of the company resulting from the service . However, the inclusion of this fact in the Limitation Language will usually not be appropriate, because in the case of joint liability - be it jointly and severally or from a surety or guarantee - the acceptance of the liability does not yet give rise to liability and the managing director in the case of a claim from the Joint liability can and may have to refuse payment simply with reference to Section 64 Sentence 3 GmbHG. When ordering collateral, however, the managing director must ask himself whether a claim is likely to be made and, if so, whether a claim will foreseeably lead to the company's insolvency. As a rule, however, this will be answered in the negative at the time the collateral is provided, and this is the only point in time that is relevant for Section 64 Sentence 3 GmbHG.
    In addition, attempts are sometimes made to counter the case law of the Federal Court of Justice on the existence-destroying interference through contract drafting.
  • Proof of violation of the capital preservation regulations : In case of doubt, the lenders will not rely solely on the notification of the management that a payment or the realization of collateral would lead to a violation of the capital preservation regulations. It is therefore regularly agreed that this must be proven by a recognized auditor .

literature

  • Andreas Diem: Acquisition Financing. Syndicated loans for company acquisitions. 2nd fully revised edition. Beck, Munich 2009, ISBN 978-3-406-55466-7 , § 43 marginal number 106.
  • Stephan Heckenthaler, Tobias Tillmann, Peter Wand: Increasing loans and collateral at stock corporations according to the MoMiG and the MPS decision of the BGH. In: The corporation . 2009, pp. 148-161.
  • Alexander Kollmorgen, Matthias Santelmann, Olaf Weiß: Upstream collateralisation and limitation language after the MoMiG came into force . In: Operations consultant . 2009, pp. 1818–1822, online (PDF; 420 kB) .
  • Robert Freitag: §§ 30, 31 GmbHG, "Bremer Vulkan judgment" and "Limitation Language" - (deviating) ways in the GmbH group financing? In: Journal of Commercial and Banking Law . 2003, pp. 805-815.

References and comments

  1. ↑ Hüffer , AktG, 5th edition 2002, § 57 Rn 2.
  2. ↑ Hüffer , AktG, 5th edition 2002, § 57 Rn 23.
  3. ↑ Hueck, Fastrich; In: Baumbach, Hueck: GmbHG , 18th edition 2006, § 30 marginal number 20.
  4. ↑ This previously disputed exception has been decided since it was clarified by the MoMiG .
  5. ^ Financial Assistance in the English language Wikipedia
  6. ↑ Wicke , GmbHG, Munich 2008, § 64 Rn 27.