The German Federal Court of Justice (Bundesgerichtshof) has taken the opportunity to clarify its position on section 17(2) German Insolvency Act (Insolvenzordnung, InsO).  According to sec. 17(2) a debtor is deemed insolvent if he is unable to pay his debts as they fall due (Zahlungsunfähigkeit).

The Bundesgerichtshof assumed, in previous case-law, that a debtor was not insolvent if he was only temporarily unable to pay his debts (Zahlungsstockung). The Bundesgerichtshof required that the debtor was able to gain the necessary financial means to pay at least 90 percent of mature debts within three weeks. This led some lower courts and practitioners to false conclusions. To establish whether a person or company was insolvent they compared the debts that were due on a specific date with the financial means available on that date plus the estimated incoming payments for the next three weeks.

The Bundesgerichtshof has clarified that not only do you take into account the debts which were due at the beginning of the three week period but also the debts which became due during that period.

The clarifying judgment is to be welcomed as this section is a key part of German insolvency proceedings and directors’ liability cases.

Bundesgerichtshof, 19 December 2017, II ZR 88/16