Question referred to European Court of Justice concerning insolvency avoidance in Germany
The European Court of Justice (ECJ) is currently deliberating on a significant case that could shape the future of cross-border insolvency avoidance actions involving shareholder loans between German and Austrian companies.
The case, which was referred to the ECJ by the German Federal Court of Justice (BGH) on 16th January 2025, revolves around the interpretation of the European Insolvency Regulation (EuInsVO). Specifically, the questions concern the governing law for avoidance transactions under the EuInsVO.
The dispute involves an Austrian company and its bankrupt German sister company. The core issue is whether German provisions on the subordination and avoidance of shareholder loans can be circumvented by applying foreign law, in this case, Austrian law, via the EuInsVO.
Article 13 (now Article 16 EuInsVO) of the EuInsVO prevents avoidance if the relevant transaction is governed by the law of another Member State and is not avoidable under that law. The BGH maintains that German provisions should not be circumvented through the application of foreign law.
If the ECJ does not endorse the BGH's view, the German rules on the avoidance of shareholder loans, which serve to protect creditors, will potentially lose their effectiveness as they could be easily circumvented by granting loans from a foreign group company. On the other hand, if the ECJ endorses the BGH's view, repayments of shareholder loans would remain avoidable under German insolvency law, including in cross-border cases.
The outcome of this case will clarify key legal uncertainties in cross-border insolvency avoidance actions involving shareholder loans. If the German rules on avoidance are deemed non-circumventable, international insolvency practice may become more complex. However, if the rules can be circumvented, this could simplify international insolvency practice and encourage foreign investment.
As of July 2025, the ECJ has not yet issued a ruling. The court is being asked to clarify whether the EuInsVO allows avoidance actions to be governed by foreign law if the transaction in question would not be avoidable under that foreign law, or whether local (German) insolvency law takes precedence.
[1] Source: European Court of Justice (ECJ) Case Reference: C-46/23
This article is intended for informational purposes only and does not constitute legal advice. Readers should seek professional legal counsel for specific concerns.
In the context of the ongoing ECJ Case Reference C-46/23, the dispute revolves around the interpretation of the European Insolvency Regulation (EuInsVO) with regard to the governing law for avoidance transactions, particularly in the finance industry, where a cross-border business between German and Austrian companies is at stake. The outcome of this case could impact the effectiveness of German rules on the avoidance of shareholder loans in the law industry, potentially influencing business practices and international investments.
