Legislature Planning Changes to Voidance Actions under Insolvency Law in Germany

Insolvency law is about to undergo major changes. The German Federal Government introduced a bill at the end of September amending voidance actions under insolvency law.

The Federal Government introduced a bill at the end of September to reform voidance actions under insolvency law. The reform aims to eliminate legal uncertainties in business dealings.

One of the key changes concerns the rights of insolvency administrators, who have hitherto been able to challenge payments rendered by a company that was essentially already insolvent at the time. The insolvency administrator can reclaim this money from the recipient if the latter knew of the impending insolvency. According to the plans set out by the Government, this type of challenge will only be possible if the creditor was definitely aware that its business partner was insolvent. Additionally, the timeframe for bringing a challenge is to be shortened from ten to four years.

Another point is that creditors which, e.g. due to current liquidity problems have allowed their business partner to pay in instalments ought to have legal certainty and these instalments should not justify challenges to wilfully disadvantageous transactions. It will be assumed for legal purposes that the creditor was not aware of the insolvency of the debtor. If the insolvency administrator then wishes to challenge these payments, he would bear the burden of proof. In cases involving dishonest asset transfers and bankruptcy acts, rights of challenge will not to be restricted.

Cash transactions shall be largely exempt from challenges to wilfully disadvantageous transactions as well. It will no longer be possible to rescind cash transactions if both partners have rendered performance. The same applies to the right to rescind wage payments. According to the draft legislation, wage payments cannot be challenged if the period between performance of the work and payment of wages does not exceed three months.

In principle, the changes to insolvency law are meant to create legal certainty for creditors who did not know that the debtor was already insolvent and accordingly availed themselves of legal means such as judicial execution. Going forward, it will only be possible to challenge these kinds of measures if there is knowledge of the insolvency.

When it comes to issues pertaining to insolvency law, creditors and debtors can turn to lawyers who are competent in the field of company law.

GRP Rainer LLP is an international firm of lawyers and tax advisors who are specialists in commercial law. The firm counsels commercial and industrial companies and corporations, as well as associations, small- and mid-sized businesses, self-employed freelancers and private individuals worldwide from offices in Cologne, Berlin, Bonn, Dusseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London UK.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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