15.03.2021 | KPMG Law Insights

Will claims against asset-less limited companies recover their value after Brexit?

Will claims against asset-less limited companies recover their value after Brexit?

The German Federal Ministry of Finance published on December 30, 2020 (BStBl. I 2021, p. 46 ff) that the tax authorities will no longer recognize British companies with their principal place of business in Germany as of January 1, 2021. This corresponds to the domicile theory traditionally advocated by case law in Germany. The domicile theory is applied to foreign companies unless they are privileged under European law or under treaty provisions. It is only on the basis of such privilege that foreign companies are subject to their home law, irrespective of the place of their head office. The last-minute trade and cooperation agreement with the United Kingdom does not convey such protection, according to the BMF. This means “a limited company with its management in Germany (is) treated under civil law – if several persons are involved in it – as one of the standard legal forms available in Germany, i.e. as a general partnership (OHG) or as a partnership under civil law (GbR). If only one person has an interest in the company, under civil law the previous sole shareholder takes the place of the limited company as a natural or legal person.” Under civil law, then, “all assets and liabilities of a multi-person limited are attributable to the partnership, and all assets and liabilities of a single-person limited are attributable to its former sole shareholder.”

This opens up additional liability for the creditors of such a limited company. While the protection of EU law meant that only the company’s assets were liable for the liabilities of such a limited company, its shareholders can now also be held liable. This is because, as is well known, the partners of a general partnership or a partnership under civil law (GbR) also have unlimited liability for the company’s obligations. This applies in any case to the sole shareholder who takes over the assets and liabilities of the limited company by way of universal succession. Receivables from essentially asset-less UK companies with administrative headquarters in Germany may be restored to value by these additional debtors. Particularly in cases where such claims have not previously been asserted in court because there were insufficient enforceable assets in the event of victory, an action may now become attractive after all.

It should not be concealed that this understanding of the legal consequences of Brexit is currently prevailing, but by no means undisputed. With reference to European and/or constitutional law, it is argued that such companies should in any case be granted a transitional period. If they use this time to adapt to the new circumstances, the limitation of liability must also be maintained for the transitional period. Since there are still thousands of such companies in Germany, the legislator would be well advised to create legal certainty through appropriate statutory regulations. However, the letter from the BMF speaks against the Federal Government taking action here. It is therefore to be expected that the European Court of Justice or the Federal Constitutional Court will at some point have the final say in one direction or the other. Even before that, however, the BMF’s letter is good for a court or out-of-court settlement of a claim that may have been written off a long time ago.

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