Regional Court Munich I declares Wirecard’s annual financial statements null and void – what happens now? | Hogan Lovells

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

The insolvency administrator may base claims for dividend reimbursement in particular on two statutory provisions: Liability action against shareholders due to the receipt of prohibited benefits (Section 62 (1) sentence 1 German stock companies (Aktiengesetz – “AktG)) and/or a claim for recovery based on insolvency law due to payment received free of charge (Section 134 (1) of the German Insolvency Code (Insolvenzordnung – “InsO)).

§ 62 (1) AktG

According to § 62 (1) sentence 1 AktG, shareholders must return to the company all benefits they have received from the company in violation of the provisions of the German Joint Stock Company Act. If insolvency proceedings have been opened against the company’s assets, the insolvency administrator exercises 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 law on joint stock companies, so the claim for restitution exists in principle.

However, § 62 para. 1 sentence 2 AktG states that if the amounts were received in the form of profit shares, there is an obligation to return them only if the shareholders knew or negligently did not know that they had no right to receive them. This exclusion is likely to prevent assertion of claims for reimbursement – regardless of a probable lack of economic profitability – against minority shareholders. As the annual accounts, which have now been declared null and void, have been audited by EY, most shareholders could assume that they would be entitled to receive dividends on this basis without any allegations of negligence.

Article 134 (1) InsO

There is a good chance that the dividends paid by Wirecard will be the subject of claims under Section 134 InsO. Under Section 134 InsO, any payment received gratuitously is voidable without further requirement, unless it was made more than 4 years before the insolvency proceedings were filed. This means that here, contrary to the request according to § 62 (1) AktG, the shareholders cannot claim that they were not entitled to receive the dividends.

According to case law, dividend payments which

  1. were not based on real but fictitious profits and
  2. to which the shareholder had no claim independent of profits under any applicable shareholders agreement

are considered voidable free payments under InsO Section 134.

Assuming that Wirecard shareholders had no dividend claims independent of earnings, the chances of a successful InsO Section 134 rescission claim appear quite high. This is true even though InsO Section 134 case law has not definitively settled the question of how to determine whether dividends paid were based on fictitious earnings. One can consider formal criteria (zero or voidable annual accounts), material/objective criteria (that is to say whether the objective profit situation of the company has shown a profit) or a combination of the two. However, from what is known about Wirecard so far, it seems likely that the alleged fictitious bookings were in fact only fictitious bookings and not just a formal accounting error. Therefore, the dividend distribution resolutions were most likely formally void and objectively false. If this is the case and there is no agreement allowing dividends independent of profits, the competent court will find it difficult to dismiss a claim under Section 134 InsO.

Since the decision of the Regional Court Munich I paved the way not only for a claim for reimbursement under German stock corporation law, but also for an action for recovery under § 134 para. 1, of InsO, the insolvency administrator now has an effective tool in hand to bring legal proceedings against shareholders. It remains to be seen to what extent it will act on a case-by-case basis, if only for economic reasons.

Elna M. Lemons