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. 

The creditor's knowledge is presumed if the creditor is aware of the debtor's current inability to pay its debts and the payment disadvantages other creditors (known as "the intent to disadvantage creditors") (see our previous alert here).

Decision

A recent judgment of the German Federal Court has confirmed that:

• A creditor must satisfy the court that it was entitled to assume that the debtor would satisfy its other existing and foreseeable creditors in full within a reasonable time to avoid insolvency proceedings.

• The creditor must have a sufficiently reliable basis for this assumption. An email from the debtor indicating that a sale of shares would lead to an increase of liquidity was not a reliable basis to assume that the sale would take place and the debtor would be in a position to satisfy its creditors in the near future.

Key takeaways

This decision clarifies that the creditor can only rebut the presumption of knowledge of a debtor's intent to disadvantage creditors based on reliable facts. A mere hope that the other creditors will be satisfied is insufficient.

Find out more

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

26 October 2023 (IX ZR 112/22)