Meaning
Civil law statutes in Germany prevent the managing directors of a limited liability company from paying out assets to shareholders if the action causes net equity to fall below the registered share capital. This section 30 gmbhg impairment rule protects the core capital of the firm for the benefit of its creditors. It applies to any transfer that has the economic effect of a distribution, including loans to shareholders or the sale of assets at an undervalue.
Director Responsibility
Management must conduct a thorough liquidity and balance sheet check before every transfer to an owner.
Equity Restoration
Shareholders who receive a prohibited payment must return the funds to the company immediately. This clawback mechanism ensures that the capital buffer is restored even if the company is not yet in formal insolvency. Monitoring the daily cash position against the registered capital amount is a constant requirement for the treasury team.
Valuation Risk
Determining the value of non-cash assets requires expert judgment to avoid an accidental breach. If a subsidiary’s forecast for production yield fails, the resulting drop in asset value can turn a legal payment into a violation. The cost of calling a distribution too early is the threat of a management liability claim.
