Quotation Gelter, Martin. 2006. The subordination of shareholder loans in bankruptcy. International Review of Law and Economics 26 (4): 478-502.




Bankruptcy and corporate laws in several countries allow or require courts to subordinate loans by shareholders to corporations. Examples include the German Eigenkapitalersatzrecht and the equitable subordination and recharacterization doctrines in the US. I use a model to show the incentive effects of subordination when a controlling shareholder attempts to rescue a closely held corporation by extending a loan. Even though subordination has some beneficial effects, it deters some desirable rescue attempts and is an insufficient deterrent for some undesirable ones. Legal reform should thus focus on narrowing down the scope of application to undesirable shareholder loans, where more severe penalties than subordination should apply.


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal International Review of Law and Economics
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, STRAT-B, VW-D, WH-B
Language English
Title The subordination of shareholder loans in bankruptcy
Volume 26
Number 4
Year 2006
Page from 478
Page to 502
Reviewed? Y
URL http://dx.doi.org/10.1016/j.irle.2007.01.003


Gelter, Martin (Former researcher)
Civil Law and Civil Procedure Group V (Civil, Business and Insolvency Law) AB (Details)
Research areas (Ă–STAT Classification 'Statistik Austria')
5208 Company law (Details)
5224 Comparative law (Details)
5238 Civil procedure law (Details)
5300 Economics (Details)
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