Investors’ Money at Risk After Insolvency
What had been anticipated is now a reality: the 7×7 Group of Companies is insolvent and will file for insolvency. This was communicated to investors in a letter from the board dated October 14, 2024. For investors who have invested in various capital assets of the 7×7 Group, this means that their money is at greater risk than ever, and they must fear significant financial losses.
The letter cites the difficult market situation and the challenges posed by the COVID-19 crisis as reasons for the insolvency filings. It does not specify which companies within the 7×7 Group are filing for insolvency. However, it is feared that all companies—and thus all investors—may be affected. Investment products were issued by 7×7 Sachwerte Deutschland I. GmbH & Co. KG, 7×7 Energiewerte Deutschland I. GmbH & Co. KG, 7×7 Energiewerte Deutschland II. GmbH & Co. KG, 7×7 fairzins GmbH, 7×7 Bürgerenergie I. GmbH & Co. KG, and 7×7 Invest AG.
Filing Claims in Insolvency Proceedings
The insolvency proceedings have not yet been initiated. Once they are, investors who have invested in the various bonds or subordinated loans of the 7×7 Group will be able to file their claims with the insolvency administrator. Unfortunately, this does not apply to investors who participated in the funds. By becoming shareholders with their investments, they are not entitled to any insolvency dividend. However, all investors can have their claims for damages independently reviewed, according to the business law firm MTR Legal Rechtsanwälte, which has extensive experience in capital market law and represents the interests of injured investors.
The 7×7 Group’s financial difficulties had been apparent for some time. There were problems with payments to investors, extensions of maturities, or the conversion of bonds into subordinated loans. In January 2024, the 7×7 Group of Companies finally announced that it was withdrawing all bonds and that the cooperative Sieben Werte eG would take over financing. Investors were offered buyout and takeover options, with the possibility of continuing their investments as loans or converting them into profit participation rights.
Payments to Investors Halted
These steps do not appear to have contributed to financial consolidation. The extent of the difficulties became clear at the end of September, when the 7×7 Group informed investors that all payments, interest, and redemptions would be suspended as of October 1, 2024, under a moratorium. In addition, all existing contracts with investors were to be converted to “performance-based products.” Furthermore, a “pre-insolvency enforcement ban” was to be implemented, meaning that investors’ claims would be subordinated to those of other creditors. The board had already warned in its communication that the insolvency of various 7×7 companies was imminent if the investors did not agree to the moratorium.
Apparently, insolvency could not be avoided. Even though it is still unclear which companies are affected, investors must prepare for significant financial losses. To protect themselves from these losses, investors have several options. Once the insolvency proceedings are formally opened, investors who have invested in bonds or subordinated loans can file their claims with the insolvency administrator. As of now, this is not yet possible (as of October 18, 2024).
Insolvency Dividend and Compensation Claims
However, investors who have provided subordinated loans to the 7×7 companies face poor prospects in the insolvency proceedings, as their claims are subordinated and must stand behind those of all other creditors. Therefore, it is essential to first check whether the subordination was validly agreed upon, which is often not the case.
Investors typically cannot expect a high insolvency dividend in the proceedings, so they are still at risk of financial losses. To mitigate these losses, they can already—independent of the insolvency proceedings—have their claims for compensation reviewed. In addition to claims against the company’s directors, claims against investment advisors or intermediaries may also have arisen. These advisors should have informed investors about the risks involved, especially the risk of total loss. They should also have examined the economic viability and legitimacy of the investment. If they failed to fulfill their information obligations, they could be held liable for damages by the investors.
MTR Legal Rechtsanwälte has been advising injured investors in capital market law for many years. Investors in 7×7 bonds are welcome to contact us and have their options reviewed.
