Germany: German insolvency administrator grossly negligent for breach of duty in investigating contestation claims

In a recent case before the Federal Court of Justice, an insolvency administrator was found to have neglected his duties of investigation in a particularly serious and reproachable manner.

Decision

The insolvency administrator had contested the offsetting of an investment subsidy by the creditor bank to balance the debtor’s accounts.

The focus of the decision was whether the insolvency administrator had made the contestation claim within the statutory limitation period. In Germany, this is usually three years and starts:

• from the end of the year in which the claim came into existence and
• the claimant (in this case the insolvency administrator) obtaining knowledge of the circumstances giving rise to the claim and the identity of the opposing party (or could have obtained such knowledge without gross negligence).

The Court concluded that the insolvency administrator was obliged to review both the debtor’s payment history thoroughly and investigate and pursue the contestation claims within the statutory limitation period. A failure to do so resulted in a finding of gross negligence by the insolvency administrator.

Key takeaways

This important decision highlights insolvency administrators' obligations regarding contestation claims and the risks if they do not investigate and pursue them within the statutory time limits.

It also provides creditors with clear guidance on when an insolvency administrator is negligent and can be held accountable for breach of duty in the pursuit of contestation claims.

Find out more

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

Federal Court of Justice, decision from 27 July. 2023 - IX ZR 138/21