Foreclosure proceedings can usually be suspended when there is an impending insolvency plan, up until the point at which the plan is judicially confirmed. Once the plan is confirmed, the rule no longer applies and enforcement can proceed.
Decision
The German Federal Court of Justice (BGH) has recently rejected a debtor’s request to suspend foreclosure proceedings, clarifying that the legislation only protects the period prior to an insolvency plan’s confirmation.
The debtor had filed for suspension of the proceedings despite the failure of its confirmed insolvency plan due to the withdrawal of financing, which violated the plan’s conditions and caused the restructuring process to fail.
Although it has been argued that the German Foreclosure Code (ZVG) applies to confirmed insolvency plans to suspend foreclosure to protect the implementation of the insolvency plan, the BGH has confirmed that this is not the case as this would disproportionately restrict creditors’ rights.
Key takeaways
- The decision confirms that the ZVG cannot be used to indefinitely delay foreclosure once an insolvency plan is confirmed. Suspension of foreclosure will also not apply when an insolvency plan has failed.
- For practitioners, this highlights the importance of timing and the legal effect of an insolvency plan’s confirmation: after this point, creditors can assert their enforcement rights and can also do so if the insolvency plan fails.
Find out more
To discuss the issues raised in this article in more detail, please contact a member of our Restructuring and Insolvency team.
Federal Court, decision from 19 September 2024 – V ZB 29/23
