REFORM OF AVOIDANCE OF TRANSACTIONS IN INSOLVENCY PROCEEDINGS

Avoidance of transactions in insolvency proceedings: Reform law entered into force on 5 April 2017

In recent years, the Supreme Court judicature over the so-called pre-emptive action of wilfully disadvantageous transactions according to sect. 133 of the German Insolvency Act (GIA) was completely out of hand. The granting of generous terms of payment to buyers, who are – often just temporarily – in a tight financial situation became a more and more incalculable risk.

Representing the interests of the Federal Association for Credit Management, PASCHEN has been fighting for a reform of avoidance of transactions in insolvency law since 2013. Those efforts have now been successful: The reform law has come into force on 5 April 2017. 

For insolvency proceedings which have been opened on 5 April 2017 or later, the following amendments apply: 

  • The period of appeal for coverage transactions (payment of provided deliveries and services) is reduced from ten to four years
  • In these cases, with regard to knowledge it is no longer linked to “imminent” but to “entered” insolvency at congruent coverage. This is the case if the means of payment correspond to the original agreements concluded.
  • If the creditor has granted the debtor accommodations for payment/deferment of payment it is assumed that he was not aware of a possible bankruptcy – in such events, the insolvency administrator must in such cases prove that the creditor was aware of this fact
  • So called “cash transactions” (short period between service and return) are only contestable if the creditor has recognized that his debtor has acted unfairly 
  • In terms of wages the period for existing cash transactions was approved up to three months
  • Interest of right to appeal is to be paid only after default (not starting after date of insolvency).

The new regulations are only valid for cases in which the opening of insolvency happened after coming into force of the law with the exception of regulations regarding default interest.

In the hope of curbing the previous handling, when liquidators often appreciated the right of appeal as capital investment and suspended its assertion until just before the expiry period in order to benefit from default interest, the new default interest regulations shall apply for all insolvency proceedings from the entry into force of the law, regardless if it was already opened or not at that time.

The reform represents a real milestone in restoring confidence within the granting of trade credits. It remains to be seen how courts will handle the new regulations. However, there is a good chance to achieve more legal certainty and fairer results.

PASCHEN will actively support these developments and report on it.

See also the TV programme on the ARD from 8 July 2015 or on the WDR from 8 February 2017: