German Court Outlines Requirements for Insolvency Avoidance Due to Wilful Disadvantage to Creditors

In a recent decision, the German Federal Court of Justice (BGH) further outlined the requirements for the avoidance of a transaction under insolvency law on the grounds of wilful disadvantage to creditors pursuant to section 133 of the German Insolvency Code (InsO).

Background

• Under section 133 InsO, a transaction entered into by a debtor in the ten years prior to the application to open insolvency proceedings (or after this application) with the intention of disadvantaging its creditors can be contested if the other party was aware of the debtor's intention at the time of the act.
• On 6 May 2021, the BGH ruled that the debtor's intention to disadvantage creditors in the event of recognised insolvency also requires that the debtor knew at the relevant time or at least accepted that it would not be able to fully satisfy its other creditors in the future either (see our previous alert).

Decision

On 18 April 2024, the BGH ruled that a shortfall in cover which would allow the conclusion with sufficient certainty that the debtor had no reasonable prospect of being able to fully satisfy its other creditors in the future cannot generally be derived solely from the debtor's liabilities used to justify a suspension of payments.

Key takeaways

This recent ruling of the BGH contains a summary of the new case law on avoidance since the ruling of 6 May 2021 and confirms that detailed evidence of the debtor's inability to pay its creditors in the future is necessary if individual liabilities cannot justify insolvency on their own.

(Federal Court of Justice, decision from 18. April 2024 - IX ZR 239/22)

Find out more

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