5 juillet 2018

Act quickly or risk having to pay back

Background

Under section 133 para.1 of the German Insolvency Act (InsO) a transaction made by the debtor in the 10 years prior to the application to open insolvency proceedings (or subsequent to such application) with the intention to disadvantage its creditors may be contested by the insolvency administrator if the other party was aware of the debtor’s intention on the date of such transaction. Such awareness is presumed by law if the other party knew (i) the debtor’s illiquidity was imminent, and (ii) that the transaction constituted a disadvantage for the creditor.

In a decision dated 18 January 2018 (IX ZR 144/16) took the opportunity to clarify the position on criteria for determination of a debtor’s intention to disadvantage its creditors and of a creditor’s awareness of such intention of the creditor.

Decision

  • A debtor’s silence for several months (in this case 9 months) with respect to a creditor's invoice and the debtor’s non-payment of a significant claim (in this case EUR 80k) before enforcement (Vollstreckungsbescheid) can be sufficient indication of the debtor’s illiquidity.
  • The creditor is aware of the debtor’s illiquidity if the debtor offers instalment payments of unspecified amounts only following court enforcement.

Such payment behaviour of the debtor can only be interpreted in such a way that the debtor stands “at the edge of a financial precipice”.

Background

Under section 133 para.1 of the German Insolvency Act (InsO) a transaction made by the debtor in the 10 years prior to the application to open insolvency proceedings (or subsequent to such application) with the intention to disadvantage its creditors may be contested by the insolvency administrator if the other party was aware of the debtor’s intention on the date of such transaction. Such awareness is presumed by law if the other party knew (i) the debtor’s illiquidity was imminent, and (ii) that the transaction constituted a disadvantage for the creditor.

In a decision dated 18 January 2018 (IX ZR 144/16) took the opportunity to clarify the position on criteria for determination of a debtor’s intention to disadvantage its creditors and of a creditor’s awareness of such intention of the creditor.

Decision

  • A debtor’s silence for several months (in this case 9 months) with respect to a creditor's invoice and the debtor’s non-payment of a significant claim (in this case EUR 80k) before enforcement (Vollstreckungsbescheid) can be sufficient indication of the debtor’s illiquidity.
  • The creditor is aware of the debtor’s illiquidity if the debtor offers instalment payments of unspecified amounts only following court enforcement.

Such payment behaviour of the debtor can only be interpreted in such a way that the debtor stands “at the edge of a financial precipice”.

Comment

In view of this decision the creditor is forced to act very quickly if the debtor does not pay its debt completely when it becomes due. If the creditor does not take any measures to enforce its claims or takes such measures too late there is a very high risk of a claw-back by the insolvency administrator if the creditor receives partial payments from the debtor.

In view of this decision the creditor is forced to act very quickly if the debtor does not pay its debt completely when it becomes due. If the creditor does not take any measures to enforce its claims or takes such measures too late there is a very high risk of a claw-back by the insolvency administrator if the creditor receives partial payments from the debtor.

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