The Law Applicable to the Treatment of Shareholder Loans: Remarks Following the SML Maschinen Judgmen

Payments on shareholder loans to the company may be restricted in national law, under conditions generally relating to the influence of the shareholder on the company and to the financial condition of the latter. Such restrictions may appear either in connection with the company’s insolvency or possibly irrespective of insolvency proceedings. A significant issue is to determine the law applicable to this particular treatment of such payments. The CJEU has held in its recent SML Maschinen judgment that related rules, the effects of which develop in connection with insolvency proceedings, fall under the lex fori concursus, in particular as a matter of ranking of claimants. This allows Member States to preserve their national rules and apply them to companies with COMI in their territory. Restrictions that might apply, depending on national law, at an earlier stage, i.e., irrespective of insolvency proceedings, such as if this financing is treated like equity and therefore payments are regarded as permissible only out of profits, should be thought to fall under the lex societatis.