5.3 The Legal Capital Regime 141when the board submits a proposal to reduce “own capital” by distributing it to sharehold-
ers. But while rules on the distribution of “free own capital” are flexible and shareholders
can relatively freely decide how those funds will be distributed, it is difficult to distribute
“bound own capital” without the consent of the court or creditors.
Third, there can be fixed minimum capital requirements. Fixed minimum capital
requirements can be used to make the constraints more staggered and increase
those constraints for some asset classes. However, fixed minimum capital re-
quirements are not a necessary ingredient of a legal capital regime.^29 They can be
used to mitigate the risk caused by the nature of the balance sheet. The balance
sheet reflects past business and does not take into account the future ability of the
company to make distributions; fixed minimum capital requirements can create a
buffer.^30 The fixed minimum capital requirements can be absolute or relative. An
absolute requirement means that the amount of an asset class in the balance sheet
may not fall below a certain threshold. There can also be relative fixed minimum
capital requirements. Such a requirement could typically mean that a decision that
would cause the amount of an asset class in the balance sheet to fall below a cer-
tain threshold would be subject to particular constraints.
Fourth, a legal capital regime typically contains company law rules designed to
prevent circumvention. Usual examples of such company law rules include rules
that ensure that the company actually receives assets, as well as rules on share
buybacks and redemptions, financial assistance, other functional equivalents to
distributions (such as related party transactions or “verdeckte Gewinnausschüt-
tung”),^31 and the recharacterisation of loans as equity because of insolvency, con-
trol, or otherwise.
For example, the MoMiG introduced the concept of shareholder loans in Germany.^32 The
new concept replaced the older rules on equity-replacing loans (kapitalersetzende Darle-
hen). The concept of equity-replacing loans could, in rare cases, be applied even to long-
term loans extended by a bank that de facto controls the company (faktische Geschäfts-
führung). They could be applied both to GmbHs^33 and AGs.^34 – The concept of equity-
replacing loans is still applied in Switzerland.^35
(^27) In Finnish: vapaa oma pääoma. In Swedish: fritt eget capital.
(^28) In Finnish: sidottu oma pääoma. In Swedish: bundet eget capital.
(^29) See, for example, Lutter M, Das (feste Grund-)Kapital der Aktiengesellschaft in Europa,
Zusammenfassung der Überlegungen des Arbeitskreises „Kapital in Europa“. In: Lutter
M (ed), Das Kapital der Aktiengesellschaft in Europa, ZGR, Sonderheft 17. De Gruyter
Recht, Berlin (2006) p 7.
(^30) See Veil R, Kapitalerhaltung. Das System der Kapitalrichtlinie versus situative
Ausschüttungssperren. In: Lutter M (ed), Das Kapital der Aktiengesellschaft in Europa,
ZGR, Sonderheft 17. De Gruyter Recht, Berlin (2006) pp 104–105.
(^31) See Fleischer H, Verdeckte Gewinnausschüttung und Kapitalschutz im Europäischen
Gesellschaftsrecht. In: Lutter M (ed), Das Kapital der Aktiengesellschaft in Europa,
ZGR, Sonderheft 17. De Gruyter Recht, Berlin (2006) pp 114–133.
(^32) § 39(1) number 5 and § 135 InsO.
(^33) §§ 30, 31, 32a, 32b GmbHG and § 135 InsO. BGHZ 31, 258; BGHZ 76, 326.