Volume 5
<nobr>A guide through the labyrinth of equity substitution law</nobr>

Feitsch

As shareholders in corporate crises generally do not have the strength and realism to take unpleasant decisions such as the liquidation of the company, the courts and legislators felt compelled to exert legal pressure and expand the existing institutional creditor protection to the detriment of the interests of the shareholders. Among other things, case law and legislators had to react to the observable fact that shareholders in a corporate crisis try to avoid financial responsibility for the risky continuation of the crisis-ridden company by dealing with their company at the level of debt law rather than company law. The law must therefore influence the financing behaviour of the shareholders in order to restore the balance between the shareholders with insider knowledge and the outside creditors. In legal terms, this goal is achieved through the Institute of Equity Substitution. In this way, financial assistance provided by a shareholder to his company under debt law is reclassified as equity for the duration of the corporate crisis. The aim of this paper is to present the financial consequences of such a reclassification from a business and company law perspective. The presentation of the tax consequences, however, must be reserved for a separate treatise.

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