Andreas Cahn

Equitable Subordination of Shareholder Loans

This comment concerns the financing of distressed corporations by shareholder loans. In the United States as well as in Germany, shareholder loans may be subject to subordination or even recharacterization as equity. The comment argues that the risk of an undue exploitation of a shareholder-lender’s insider status can effectively be neutralized by the law of fraudulent conveyances and unlawful preferences, supplemented by a general prohibition of securing shareholder loans.