A German insolvency administrator represented by Taylor Wessing claims back fees amounting to € 4.5 million from a leading German law firm paid by the insolvent company for restructuring advice. The claim is based on German rescission law.

The first instance court decided in favour of the claimant. This ruling is paid great attention by German restructuring and insolvency practitioners as it tackles the question if and under which circumstances highly-paid restructuring advisors have to reimburse their fees which were paid for an unsuccessful attempt to rescue the company. It is common understanding that restructuring advisors are generally entitled to keep their fees even though the insolvency of the client was not prevented.

The remuneration of restructuring advisors is not a success fee – and will not be in the future. Under certain circumstances, however, advisor’s fees might be subject to rescission law. The first instance court pointed out that restructuring advisors have to reimburse their fees to the insolvency estate if the restructuring concept was lacking sufficient prospects of success from an ex-ante view. In the particular case, the requirements for a restructuring concept with sufficient prospects of success are defined by the German Insolvency Code, according to which directors of an over-indebted company are obliged to immediately file for insolvency unless it is predominantly likely, considering the circumstances, that the company will be able to meet its mature obligations to pay in the future. Such circumstances were missing here. The over-indebted company would have only been able to meet its existing obligations to pay on the date of their maturity, if a three-quarters majority of the creditors had agreed to a debt-to-equity swap. However, the creditors were unwilling to commit themselves to support the restructurings plans of the company. Furthermore, some of the creditors initiated legal actions against the restructuring concept on the grounds that it was based on an inapplicable legal basis (the new German Bonds Act). They won their cases. Under these circumstances, the court held that the mere hope to convince the creditors and the court was purely speculative and did not justify continuing with the endeavours to restructure an over-indebted company that was generating great losses. The advising law firm had to reimburse its fees according to German rescission law as it accepted that the creditors might be disadvantaged while continuing the business and satisfying the fee claims of the law firm.

The court emphasised that the claw back claim of the insolvency administrator has not been affected by the later judgement of the Federal Court in a similar case, who shared the view of the advising law firm that the new German Bonds Act is applicable on such restructuring cases. First, in the present case, the Federal Court had no competence for the injunction process of the creditors. Second, as a basic principle of German claw back law, the question whether there were circumstances justifying a going concern prognosis has to be solely judged from an ex-ante perspective. At the time of the challenged payments, there were no circumstances allowing the assumption that the creditors might accept the restructuring plans and the competent courts might overturn their own precedents with predominant probability.