Provisional judgments and illiquidity in Germany - key insights from a recent case

Background

The German Federal Court of Justice (BGH) has considered whether a provisionally enforceable judgment is a liability for the purposes of determining a company's insolvency. 

In Germany, a company must file for bankruptcy if its liquid funds are insufficient to cover its due liabilities (illiquidity). In this recent case, a company disputed its obligation to repay a EUR 2.3 million loan but a reserved judgment was made against it leading to the provisional enforceability of the claim.

Decision

The BGH held that disputed liabilities confirmed by a provisionally enforceable judgment must be considered in full when assessing insolvency if enforcement conditions are met and the creditor has initiated execution. The substantive validity of the claim is proven by the provisionally enforceable title, therefore, unless the debtor can prove otherwise, the claim must be recognised in full. 

The court emphasised that the objective legal situation is decisive for the assessment of illiquidity, but recognised the evidential value of the enforceability of the claim.

Key takeaways

The decision represents another piece of the puzzle in the complex case law on the determination of insolvency according to Section 17 of the German Insolvency Code (illiquidity). 

In practice, a claim that is being enforced is to be considered as due, even if the enforcement is based on a provisional title and the debtor is convinced that the claim does not exist at all.

23 January 2025 - IX ZR 229/22.

Find out more

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

Authored by: Frederik Kaup