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Federal Court of Justice rows back on insolvency avoidance
New ruling on the scope of the provision on presumption
After the Federal Court of Justice (BGH) had already dealt with the statutory presumption of fact in Section 133 (1) sentence 2 of the German Insolvency Code InsO in its decisions of 3 March 2022 (IX ZR 78/20) and 23 June 2022 (IX ZR 75/21), it took up this aspect again in a decision of 26 October 2023 (IX ZR 112/22) published only now in January 2024.
This confirms our assessment published at the time, according to which the Federal Court of Justice wishes to give the presumption of Section 133 (1) sentence 2 of the German Insolvency Code (InsO) more significance again. It can be assumed that the successive changes in the chairmanship of the IX. Civil Senate responsible for bankruptcy proceedings in the last three years are responsible for this change in case law to the detriment of creditors affected by avoidance actions.
Knowledge of the intention to disadvantage creditors
According to the provision in section 133 (1) sentence 2 of the German Insolvency Code (InsO), the presumption is that the opposing party is aware of the insolvency debtor’s intention to disadvantage creditors if he knew that the insolvency debtor was insolvent. On the other hand, knowledge of the impending insolvency can only be considered in cases in which the opposing party has not provided any direct consideration for the contested legal act. In this respect, the reform of avoidance law of 5 April 2017 has fortunately slightly improved the legal position of suppliers and service providers.
Following the decision of the Federal Court of Justice of 6 May 2021 (IX ZR 72/20), many creditors had assumed that the scope of statutory presumption of Section 133 (1) sentence 2 of the German Insolvency Code (InsO) is now only limited to exceptional cases.
Although the two decisions of 3 March 2022 and 23 June 2022 had brought a little more legal certainty for those creditors who received payments on the basis of a conclusive restructuring concept, but at the same time already clearly emphasised that the scope of Section 133 (1) sentence 2 of the German Insolvency Code (InsO) should not be restricted.
Key points of the BGH ruling IX ZR 112/22
In the now published decision of 26 October 2023, the Federal Court of Justice is once again giving particular attention to the scope of provision on presumption of Section 133 (1) sentence 2 of the German Insolvency Code (InsO).
The key points of this decision are clear: if the opposing party is aware of the insolvency of the subsequent insolvency debtor, the factual presumption of fact of Section 133 (1) sentence 2 of the German Insolvency Code (InsO) argues for the contesting insolvency administrator, i.e. they have provided evidence that the opposing party was aware of the debtor’s intention to disadvantage creditors.
For his part, he must now refute the legal presumption and provide full proof that he was not aware of the insolvency debtor’s intention to disadvantage creditors. To this end, he has to demonstrate to the conviction of the court that he can assume that the debtor will be able to fully satisfy his other existing and foreseeable additional creditors in the time available for this purpose. This alone puts huge obstacles in the way for an outside creditor who, from experience, does not know the economic situation of his debtor. However, the Federal Court of Justice has added another obstacle that is unlikely to be overcome: the opposing party may only make this forecast on a sufficiently reliable basis for assessment. So, in other words, he cannot trust vague information from the debtor, and mere hope that the other creditors will also be satisfied is not enough for the Federal Court of Justice. Rather, a sufficiently reliable basis for assessment is required; when this is given, the Federal Court of Justice will then leave it to the courts of lower instances to decide when this is the case.law.
As a result, this means that – once the presumption of Section 133 (1) sentence 2 of the German Insolvency Code (InsO) intervenes in favour of the insolvency administrator – the opposing party will only be able to refute this presumption in exceptional cases, for example if a reliable restructuring concept is available (for its requirements: see the Federal Court of Justice ruling of 3 March 2022 – IX ZR 78/20 and of 23 June 2022, IX ZR 75/21).
The Federal Court of Justice has not yet ruled on whether the assumption laid down in Section 133 (3) sentence 2 of the German Insolvency Code (InsO) in favour of the opposing party intervenes with regard to the opposing party not being aware of the insolvency of the debtor when concluding a payment agreement or granting payment facilitation. The Federal Court of Justice also leaves open the period of time it wants to use as a basis for the complete satisfaction of all creditors with the wording “in the available time”. The legal uncertainty for creditors will thus significantly increase again.
What does this mean for business partners of companies that are experiencing payment difficulties?
They should try to comply with the requirements of Section 133 (3) sentence 2 of the German Insolvency Code (InsO) in order to be able to claim at least this legal presumption of fact in favour of the opposing party.
In general, it is advisable to switch to the so-called cash transactions (Section 142 InsO) to continue the business relationship if a business partner has payment difficulties and to transfer any arrears to a payment agreement. However, this must be designed in a legally secure manner in order to actually be able to make use of the desired granting of privilege in the event of a contestation. Our insolvency law experts will be happy to help you with this.