Ranking Of Shareholders' Claims For Damages In Insolvency Proceedings

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.

Background

Facts of the Case

Wirecard AG, a publicly listed stock corporation, filed for insolvency on 25 August 2020. Approximately 50,000 shareholders filed capital markets law-based damages claims totaling around EUR 8.5 billion. A German investment management company that acquired shares in Wirecard AG between 1 January 2015 and 12 June 2020 filed damages claims totaling around EUR 9.8 million for alleged capital markets misrepresentations as ordinary insolvency claims under Section 38 InsO, in the same rank as unsecured creditor claims. The insolvency administrator disputed these claims, arguing that they do not qualify as ordinary insolvency claims and rank behind those of ordinary insolvency creditors. They can only be considered in the event of a surplus resulting from final distribution, once all insolvency creditors' claims have been satisfied. Consequently, the investment management company filed a lawsuit against the insolvency administrator to have their claims confirmed in the insolvency table.

Previous Proceedings

In the first instance, the Munich Regional Court¹ (Landgericht München I) ruled that shareholders' damages claims do not constitute ordinary insolvency claims under Section 38 InsO. Instead, the court held that such claims are to be considered only in a surplus distribution under Section 199 Sentence 2 InsO.

On appeal, the Munich Higher Regional Court² (Oberlandesgericht München) held the opposite view: It determined that shareholders' damages claims do qualify as ordinary insolvency claims within the meaning of Section 38 InsO and, therefore, participate in the general distribution alongside, and pari passu with, other ordinary insolvency creditors.

Decision of the Federal Court of Justice

On 13 November 2025, the Federal Court of Justice³ overturned the Munich Higher Regional Court's decision and ruled – like the first instance court – that capital markets law-based damages claims by shareholders against an insolvent company do not qualify as ordinary insolvency claims under Section 38 InsO and, therefore, rank behind the claims of ordinary insolvency creditors.

The Federal Court of Justice clarified that such shareholders' claims are closely linked to their status as shareholders because they arise solely from the shareholders' participation and economically compensate for the failed investment in the company. Consequently, these shareholders' claims are subordinated in the insolvency of the company.

Previous Discussion in Legal Literature and Case Law

The legal issue of ranking of capital markets law-based shareholders' claims for damages in insolvency proceedings had so far not been decided by the Federal Court of Justice and, thus, been subject of vivid discussion in legal literature and case law.

Arguments for Qualification as Ordinary Insolvency Claim

• Damages claims arise solely from a preceding act of fraud and not the contractual relationship between shareholder and company and is therefore not originally linked to the status as shareholder.
• To the extent capital markets law-based damages claims are not subject to the restrictions of the capital maintenance regime, i.e. can be asserted in full against the company prior to insolvency, they must rank on the same level with insolvency creditors.

Arguments against Qualification as Ordinary Insolvency Claim

• Shareholders take on more economic risk but in return participate in potential profits. Consequently, principles of insolvency law require that equity ranks after debt – this must also apply to shareholders' capital markets law-based damages claims since the fraudulent act concerned the value of the investment and not the status as shareholder as such.
• Shareholders' damages claims arising from a breach of capital markets law regulations are legally independent but eventually retain its inherent corporate-law character.
• As such claims are ultimately based on the shareholder position, i.e. it is a prerequisite to be a shareholder, it would be contradictory to reject such status in insolvency proceedings.

Legal Framework under the U.S. Bankruptcy Code and Conclusion

The ruling of the German Federal Court of Justice is in line with the treatment of claims arising from securities fraud under U.S. bankruptcy law. Section 510(b) of the U.S. Bankruptcy Code states that for purposes of distribution in a U.S. bankruptcy case, “a claim […] arising from rescission of a purchase or sale of a security of the debtor […], for damages arising from the purchase or sale of such a security” shall be subordinated to the level of the underlying security interest. A principal goal of this provision of the U.S. Bankruptcy Code is to ensure that equity holders do not elevate their equity positions to that of debt by seeking damages in connection with their acquisition or disposal of the equity positions. The reach of the statute is not limited to equity securities, however.

As regards equity security interests, the ruling of the German Federal Court of Justice likewise protects the hierarchy of debt and equity claims and ensures that ordinary creditors will not be diluted by shareholders' damages claims, providing for a higher recovery for ordinary creditors in insolvency proceedings. Whether the German Federal Court of Justice would apply the same principle if a claim for damages was based on a securities fraud related to debt, instead of equity, securities remains to be seen, but seems rather unlikely in light of the reasoning of the ruling of the German Federal Court of Justice.

Footnotes

1. Judgement of the Munich Regional Court dated 23 November 2022, docket no. 29 O 7754/21.
2. Judgement of the Munich Higher Regional Court dated 17 September 2024, docket no. 5 U 7318/22 e.
3. Judgement of the Federal Court of Justice dated 13 November 2025, docket no. IX ZR 127/24; note that the ruling and its reasoning has not yet been published. This client alert is based on the court's press release on the case.

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