A company must apply for insolvency in Germany if it is either illiquid and/or over-indebted. Illiquidity must be confirmed where the debtor is not capable of meeting at least 90 % of all claims with its liquid assets within 3 weeks (section 17 of the German Insolvency Code).

Real estate assets – effect on liquidity

The Court of Appeal in Braunschweig has recently considered whether a debtor was insolvent due to illiquidity where it owned extensive real estate assets.

The Debtor argued that it was not insolvent but in fact could – via the sale of the real estate assets - provide liquidity within a short period of time to cover the due claims. 

The Court of Appeal disagreed and held that:

• The real estate assets could only be considered if they could be liquidated within 3 weeks. 
• Such a timeframe would be unrealistic in the case of the sale of real estate assets in Germany. 

Key takeaway

Although it seems obvious that real estate assets are not “liquid assets” and therefore cannot be considered in the liquidity status of the debtor, this judgment means that it is possible for a debtor to become insolvent where it holds real estate assets which could generate cash easily. 

(Court of Appeal (LG) Braunschweig, 5 April 2023 – 6 T 505/22).