6 November 2018

Insolvency administrator's right to sell leased assets in Germany

The German Insolvency Act says an insolvency administrator may sell a "moveable object" on which a right to separate satisfaction (Absonderungsrecht) exists if such object is in his possession. The right to separate satisfaction entitles creditors with such a right to be satisfied ahead of all other creditors from the proceeds of selling a separate pool of assets within the insolvent estate.

It depends on whether the debtor had the object in his possession when insolvency proceedings opened. Until now it has been unclear whether "possession" included leases.

In a recent decision the German Federal Court addressed this.

Case summary

  • A leasing company which filed for insolvency had leased various cars. The company transferred legal ownership of the cars to its bank for security purposes and assigned them its claim against the lessee to recover possession.
  • The Federal Court ruled that the insolvency administrator is not entitled to realise the leased goods if the debtor has lost possession of the goods permanently. In relation to financial leasing this has occurred if the lessor leases the object for a fixed term and obtains a full amortisation of the acquisition costs of the leased assets after the expiry of the lease term.
  • Where the debtor transfers legal ownership of goods to its bank after having handed over possession to the lessee, the lessor does not retain any possession which could justify the insolvency administrator’s realisation right.

Comment

This decision makes insolvency administrators’ realisation rights more difficult, as in each case they must check the indirect possession position of the debtor using the court's criteria prior to realisation. However, banks of leasing companies will welcome this decision, as it increases the value of their security and strengthens their position in the event of realization.

Case: IX ZR 295/16

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