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ARTICLE · 18 MAY 2026

The Qualified Subordination Declaration – Opportunities And Risks

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Shareholder loans serve as vital financing tools for German Mittelstand companies, but they can trigger insolvency obligations when financial difficulties arise. A qualified subordination (qualifizierter Rangrücktritt) offers a solution by converting these loans into liable capital, yet the Federal Court of Justice has established strict substantive requirements that must be met to achieve the desired legal and tax effects.

GermanyInsolvency/Bankruptcy/Re-Structuring
Marco Wilhelm
Marco Wilhelm
Malte Richter
Malte Richter
Tina Hoffmann
Tina Hoffmann
Stefanie Skoruppa
Stefanie Skoruppa
Inga Rupp
Inga Rupp
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I. WHY THIS TOPIC IS IMPORTANT

Shareholder loans are a proven tool for corporate financing, particularly in small and medium-sized “Mittelstand” enterprises. If a company encounters financial difficulties, these loans—like any other third-party loans—can become a problem (as liabilities on the balance sheet, they can significantly contribute to over-indebtedness within the meaning of Section 19 of the German Insolvency Code (InsO) and, if applicable, trigger an obligation to file for insolvency). To avoid this, a so-called qualified subordination (qualifizierter Rangrücktritt) is often declared with respect to the loan at issue.

According to case law issued by the Federal Court of Justice (BGH), a qualified subordination constitutes a debt modification agreement which, when validly agreed upon, establishes a moratorium on enforcement; that is, the creditor is not entitled to demand fulfillment of its claim as long as the company is in crisis. Conversely, in relation to the other

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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