Crowdlending and insolvency risks in Germany

Background

Crowdlending is the brokering of a loan over an internet services platform between a borrower and a credit institution authorised by German law. The platforms are managed by Crowdlending platform operators (CPOs).

Where borrowers have failed to make payments or have become insolvent, it is in the interest of all parties that the CPO (and not individual lenders) enforces the loan repayment claim. CPOs must assess the insolvency-specific risks of the borrower when pursuing and enforcing claims as they directly impact the borrower's ability to repay their loan(s).

Insolvency risk

Where the borrower's insolvency is impending, CPOs must consider the insolvency risk of the borrower as well as the insolvency risk of any guarantors.

When enforcing the loan or negotiating settlements with the borrower or the guarantor, CPOs must consider the risk of clawback claims of an insolvency practitioner. It is important to minimise the risk of clawback claims while negotiating a settlement agreement.

Where insolvency proceedings begin, the CPO needs legal authority to file the claim in those proceedings. CPOs must submit necessary documentation to acquire the right to bring the claim to the insolvency practitioner.

This should be considered in advance when drafting and updating the contracts between the parties to the crowdlending agreement. Existing agreements should be reviewed and adapted accordingly.

Lisa Katrin Iwersen