Germany: No right of avoidance for German insolvency administrators acting in breach of good faith

An insolvency administrator may lose their right to restitution arising from an insolvency avoidance if they are prevented from exercising the right in good faith by their conduct in the context of the conclusion of a redemption agreement, by which the creditor (and opposing party) waives rights to separate satisfaction.

Decision

A recent judgment of the Düsseldorf Higher Regional Court (OLG Düsseldorf, court order of 8 January 2024 - 12 U 31/23) found that by concluding an agreement to redeem collateral, the insolvency administrator creates a legitimate expectation that they will not contest the instalments already paid by the insolvency debtor.

The Düsseldorf Higher Regional Court ruled that the opposing party/creditor was entitled to rely on the insolvency debtor's original payments being valid. A later declaration of avoidance of these payments was held to be inadmissible, pursuant to Section 242 of the German Civil Code (BGB), due to the trust created by the behaviour of the insolvency administrator in the settlement of the outstanding claims in connection with the relinquishment of the collateral by the opposing party/creditor.

Key takeaways

Although the Düsseldorf Higher Regional Court does not consider it necessary, it is advisable from a creditor's perspective to include a "reservation of incontestability" and a clarification on the revival of the right to separate satisfaction in the event of an avoidance in a redemption agreement until a decision on this matter is made by the Federal Court of Justice.

Before concluding a redemption agreement, an insolvency administrator should consider including and settling any insolvency avoidance claims in the agreement.

Find out more

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