Within just 24 hours of the judgement being announced, reports have been piling up that the insolvency administrator will now reclaim the distributed dividends from the stakeholders. But is it really that easy?

The insolvency administrator may base the claims for reimbursement of the dividends in particular on two legal provisions: Liability claim against shareholders due to receipt of prohibited benefits (section 62 (1) sentence 1 of the German Stock Corporation Act (Aktiengesetz – “AktG”)) and/or insolvency law based claw-back claim due to a payment received gratuitously (section 134 (1) German Insolvency Code (Insolvenzordnung – “InsO”)).

Section 62 (1) AktG

According to section 62 (1) sentence 1 AktG, the shareholders shall return to the company any benefits they have received from the company in breach of the provisions of the German Stock Corporation Act. In case insolvency proceedings have been opened over the company’s assets, the insolvency administrator shall exercise the rights of the company’s creditors against the shareholders (section 62 (2) sentence 2 AktG). Since the dividend payments were made on the basis of a void resolution, the shareholders received them contrary to the provisions of the Stock Corporation Act, so that the claim for restitution in principle exists.

However, section 62 (1) sentence 2 AktG stipulates that if the amounts were received as profit shares, there is only an obligation to return them if the shareholders knew or, as a result of negligence, did not know that they were not entitled to receive them. This exclusion will likely preclude the assertion of repayment claims - irrespective of a probable lack of economic profitability - against minority shareholders. As the annual accounts, which have now been declared null and void, were audited by EY, most of the shareholders could assume that they would be entitled to receive dividends on this basis without any allegation of negligence.

Section 134 (1) InsO

There is a very good chance that the dividends paid by Wirecard will be subject to claw-back claims under section 134 InsO. Under section 134 InsO, any gratuitously received payment is voidable without further requirements unless it was made more than 4 years prior to the filing for insolvency proceedings. This means that here, contrary to the claim according to section 62 (1) AktG, the shareholders cannot plead that they were not entitled to receive the dividends.

According to case law, dividend payments that

1. were not based on actual but on fictitious profits and
2. to which the shareholder had no profit-independent claim under any applicable shareholder agreement

are considered gratuitous payments voidable under section 134 InsO.

Assuming that the Wirecard shareholders had no profit-independent claim for dividends, the chances for a successful voidability claim under section 134 InsO seem quite high. This is true even though case law to section 134 InsO has not finally settled on the question on how to determine whether dividends paid were based on fictitious profits. One can look at formal criteria (void or voidable annual accounts), at material/objective criteria (i.e. whether the objective earnings situation of the company showed a profit) or to a combination of both. However, from what has been known so far from Wirecard, it seems likely that the alleged fictitious bookings really were nothing but fictitious bookings and not a merely formal accounting mistake. Hence the resolutions of distributing the dividends were most likely formally void and objectively false. If so and if there is no agreement allowing dividends independent of profits, the relevant court will be hard-pressed to reject a claim under section 134 InsO.

Since the decision of the Munich I Regional Court has paved the way not only for a reimbursement claim under the German Stock Corporation Act but also for a claw-back action pursuant to section 134 (1) InsO, the insolvency administrator now actually has an effective tool in hand to take legal proceedings against the shareholders. It remains to be seen to what extent he will take such action in each individual case, if only for economic reasons.

Authored by Christine Borries LL.M. (Sydney) and Katharina Kranzfelder