Legal background

A transaction made by a debtor with the intention to disadvantage his creditors during the last ten years prior to a request to open insolvency proceedings may be contested if the other party was aware of the debtor’s intention on the date of such transaction (section 133 German Insolvency Code (“InsO”)). Such awareness shall be presumed if the other party knew of the debtor’s imminent insolvency.

Case summary

The debtor was not able to pay his due obligations by direct debit in 2011 anymore and the defendant was aware of the debtor’s imminent insolvency, so the defendant delivered goods only in return of cash prepayments by the debtor. After insolvency proceedings were opened in June 2012 the insolvency administrator contested these cash transactions.

FCJ (Germany) decision of 04-05-2017 – IX ZR 285/16

The Federal Court of Justice gave a ruling on the scope of applicability of section 133 InsO. Although section 133 InsO states that the awareness of the debtor`s intention to disadvantage insolvency creditors shall be presumed if the other party knew of the debtor’s imminent insolvency, that presumption shall not apply if the transaction in question was similar to a cash transaction. In such a situation each party will only perform its duties under the contract in exchange for the consideration of the respective other party. The situation is only different if the party to the contested transaction knows that the debtor’s business is unprofitable and the ongoing business only causes further financial losses. Under these circumstances the party to the contested transaction knows that the transaction in question will not be of any advantage for the debtor’s further creditors.

Following the FCJ ruling, insolvency administrators will have to substantiate in a lawsuit that the creditor was aware of the debtor’s economic losses prior to the opening of insolvency proceedings, if the transaction in question is similar to a cash transaction. The decision seems to be in line with a recent amendment of section 142 InsO and its influence on section 133 InsO which is only applicable to insolvency proceedings opened as of 5th April 2017.