GmbH liquidation Germany: How investors safeguard capital

What happens to an investor’s capital when a GmbH or UG is liquidated in Germany? While these legal forms limit personal liability, they do not automatically protect investors. In the event of insolvency or voluntary dissolution, the risk of a total loss is real. The Ecovis consultants explain how this can be avoided.

GmbH and UG – popular but risky

GmbH and UG are common for start-ups, project companies, and investments. Yet in liquidation, company assets can be depleted quickly, and unsecured investors are often subordinated in insolvency proceedings. Without protection, most or all of the investment may be lost. The good news: There are legal and contractual instruments that can be used to protect capital

What is liquidation protection?

Liquidation protection involves measures designed to reduce the risk of total capital loss if a company is dissolved or becomes insolvent. This includes protective clauses in the articles of association, the use of collateral or guarantees, and the careful structuring of shareholder loans, all combined with a clear understanding of priority rules in insolvency.

Typical investor risks

Shareholder claims, such as those from loans, are legally subordinated to other debts (§ 39 Abs. 1 Nr. 5 InsO). Even in voluntary liquidation, capital is only repaid after all liabilities are settled (§ 60 Abs. 1 Nr. 2 GmbHG). Without participation rights, investors also have little influence over crisis decisions.

Our legal and financial experts will help you develop customised protection strategies for your investments.

Richard Hoffmann, Lawyer, ECOVIS Rechtsanwaltskanzlei Richard Hoffmann, Ladenburg, Germany

How investors can protect themselves

The articles of association are the central tool for protection. Well-drafted provisions can regulate repayment rights in the event of liquidation, grant information and control rights, and ensure participation in key decisions. These clauses should be precise and legally enforceable to withstand disputes.

Security can also be strengthened through collateral and external guarantees, such as bank guarantees, the pledging of shares or assets, or guarantee statements from parent companies. This is particularly relevant for UGs, which often have minimal share capital.

Finally, shareholder loans should be structured in a way that avoids automatic subordination in insolvency. This can be achieved by limiting qualified subordination, using secured and interest-bearing loans with clear termination rights, or in some cases renouncing shareholder status if it improves repayment chances.

Be prepared

Anyone investing in a GmbH or UG should prepare for worst-case scenarios. With strong contractual provisions, reliable security instruments, and a sound legal structure, the risk of losing capital can be significantly reduced.

For further information please contact:

Richard Hoffmann, Lawyer, ECOVIS Rechtsanwaltskanzlei Richard Hoffmann, Ladenburg, Germany
Email: richard.hoffmann@ecovis.com