A recent judgment (German FCJ, 9 June 2016, IX ZR 314/14) relates to the interface between the German master agreement for financial derivative transactions (GMA) and sec. 104 of the German Insolvency Statute (InsO).


The plaintiffs were shareholders and option sellers. The defendant was a trading company and an option buyer. The parties entered into a GMA including a netting agreement. The agreement set out provisions for arrangements on the filing for insolvency of either party. These terms provided detailed rules relating to the calculation of compensation for the solvent party, in conflict with those set out in sec. 104 InsO.


The federal court held that the application of sec. 104 InsO is mandatory. Accordingly, an insolvency administrator does not have the right to choose whether to fulfil a (partially) performed contract or not, if the sale was for a fixed price on a specific date after the insolvency. The contract is terminated by law. Thus the other party cannot claim performance, but is limited to damages based on non-performance of such contract.

Sec. 104 InsO aims at protecting the estate from speculative ‘dealing’ by an insolvency administrator. It would therefore be contradictory to limit an administrator’s rights concerning such contracts whilst enabling the parties to circumvent the legislation via the GMA. Consequently, the clause was invalid and sec. 104 InsO applied.


Although unsurprising, the judgment has had a major effect on the financial sector, as such netting agreements are standard for derivative transactions. They reduce the risks of banks in line with the Capital Requirements Regulation.

The German legislature has now declared its intention to consider amending this law to preserve netting arrangements and protect the financial sector.