Minor instalment payments alone – also in the event of late payments – may not be sufficient to trigger knowledge of the debtor’s imminent illiquidity within the meaning of section 133 German Insolvency Act

Overview

The German Insolvency Act (‘InsO’) serves the purpose of equal treatment of creditors. In particular section 133 InsO encourages the insolvency administrator to contest payments received by certain creditors in case of ‘wilful disadvantages’: a transaction made by the debtor during the last ten years prior to the request to open insolvency proceedings, or subsequent to such request, with the intention of disadvantaging his creditors may be contested if the other party was aware of the debtor’s intention on the date of such transaction. Such awareness shall be presumed if the other party knew of the debtor’s imminent illiquidity and that the transaction constituted a disadvantage for the creditors. If in the past payment reminders, instalment agreements or return debit notes (Rücklastschriften) were shown to the court it was almost impossible for the payment recipient to rebut the presumption of knowledge. Now, however, the court has rejected this boundless application of the presumption.

Ruling

The BGH decided clearly that neither instalment payments nor the fact that the debtor is unable to fulfil a repayment obligation on time despite repeated payment reminders constitute sufficient criteria to justify the presumption within the meaning of section 133 InsO.

It cannot be automatically presumed that the creditor has knowledge of the debtor’s imminent illiquidity if the debtor only fulfils a minor obligation after repeated payment reminders.

Consequently, that evidence alone is not sufficient to establish such presumption of knowledge. In fact, such stagnant payments despite payment reminders are deemed to be common in the context of applicable customs business practice.

Comment

This new judgement appears to limit the application of the assumption regulation within the meaning of section 133 InsO – at least in cases of minor instalment payments.

German Federal Court of Justice (BGH), IX ZR 149/14 (4/30/2015)