German court clarifies the presumption that applies in insolvency avoidance proceedings

The German Federal Court of Justice (BGH) in its ruling of 12 January 2023 (IX ZR 71/22) clarifies the requirements for proving an 'intent to disadvantage creditors' that it established in its landmark ruling of 6 May 2021.

Background

• Payments made by a debtor which disadvantage its creditors may be void and if so must be returned. This applies where the debtor and the recipient of the payment knew that the debtor was unable to pay its debts. 
• Since the ruling of the BGH on 6 May 2021, the insolvency debtor must not only know that it is currently unable to pay its debts, but also that it will be unable to do so in the future. This is known as the “intent to disadvantage other creditors”.
• The payee must also know about the debtor's “intent to disadvantage other creditors". This knowledge on the part of the creditor is difficult to prove.

Decision

• In a helpful decision for insolvency administrators, the court held that the creditor's knowledge is presumed if the creditor is aware of the debtor's current inability to pay its debts and that the payment disadvantages other creditors. 
• The creditor does not also have to know that the debtor would not be able to be satisfy its other creditors in the future. Here it is sufficient to know about the current payment difficulties only.

Key takeaways

• This decision clarifies the scope of application of this important presumption in avoidance proceedings and assists in mitigating the consequences of the 2021 ruling in insolvency litigation.

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our German Restructuring & Insolvency team.

IX ZR 71/22