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Insolvency: BGH bolsters creditors‘ rights

October 2017

Good news for creditors of an insolvent business partner: In its ruling of June 22, 2017, the Bundesgerichtshof (BGH), Germany’s Federal Supreme Court, has bolstered their rights when contesting a debtor’s transactions in insolvency proceedings (Az.: IX ZR 111/14).

According to insolvency avoidance law, the insolvency administrator can reclaim payments made by the insolvent debtor from the period prior to insolvency. This has resulted in legal uncertainty for payees and in some cases given rise to excessive burdens. We at the commercial law firm GRP Rainer Rechtsanwälte note that the BGH has since strengthened the position of creditors with its recent ruling.

The Karlsruhe judges held that just because a creditor is successful in forcibly enforcing a claim, it cannot be assumed from this that the creditor was aware of the debtor’s insolvency or cessation of payments if the creditor otherwise had no knowledge of specific circumstances pertaining to the insolvency or the debtor’s financial situation. The insolvency administrator cannot therefore automatically reclaim the forcibly collected debt.

In the instant case, the creditor had submitted the invoice in October 2007. Despite several reminders, the debtor had still not settled the invoice. Consequently, an application for provisional garnishment was made in June 2008. The creditor received his money shortly thereafter. The debtor finally filed for insolvency in October. The insolvency administrator then demanded that the amount be paid back by way of a challenge to transactions whose intention the administrator believed to have been to disadvantage creditors.

There is a presumption pursuant to the German Insolvency Act (Insolvenzordnung) that the creditor was aware of the debtor’s intention if he knew that the debtor’s insolvency was imminent and that the action disadvantaged the other creditors. To this end, it is sufficient for the creditor to have been cognisant of the cessation of payments. Notwithstanding this, the BGH ruled that it cannot be readily concluded that there was knowledge of the insolvency or cessation of payments if the creditor fully redeemed his only claim shortly after successfully contending for a default judgment and otherwise had no knowledge of the debtor’s insolvency or financial situation.

In insolvency cases, creditors and debtors can seek advice from lawyers who are versed in the field of company law to preserve their interests.

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