Facts

A contractor (insolvent debtor) had outstanding liabilities to his supplier for certain goods. In order to continue the production work for his customer (building owner) the three parties entered into an agreement obliging the customer to pay the purchase price for the contractor’s work upfront and directly to the supplier. Immediately after having received payment the supplier delivered the goods required for the production work to the contractor. Subsequently the contractor filed for insolvency. The insolvency administrator alleges claims against the supplier based on insolvency claw-back provisions.

Decision

The BGH dismissed the appeal by the insolvency administrator whose claim was also rejected at the court of first instance. Deviating from the appeals court the BGH held that an objective creditor disadvantage was given: the approved direct payment from customer to supplier led to fulfilment of the contractor’s respective claim against his customer reducing the insolvency estate. However, there was no intent to disadvantage the creditors since the contractor wanted to continue the production work in order to receive further remuneration in the interest of all creditors.

In order to be “insolvency-proof” such agreement and direct payment is subject to the following requirements:

  • Payment from customer to supplier must be regarded as congruent cover (fulfilment of tripartite agreement).
  • Conclusion of agreement prior to performances of the work contract (work and remuneration).
  • Direct equitable consideration for payment (“cash transaction” pursuant to sec. 142 German Insolvency Act).
  • No intent to disadvantage creditors.

Comment

With the above criteria the BGH has put quite high demands on such agreements in order to be insolvency-proof. However, in the above scenario the requirements were all met.

German Federal Court of Justice (BGH), IX ZR 240/13 (7/17/2014)