In a judgment dated 26 / 03 / 2015, ref. no. IX ZR 302 / 13, the Federal Court of Justice (BGH) held that a provisional insolvency administrator is personally liable for monies paid into the escrow account in the event of claims of unjust enrichment being made due to the payments having no proper basis in law.

The ruling related to the following situation:

Provisional insolvency proceedings were instituted in relation to the assets of a private limited company (GmbH), with a provisional insolvency administrator being appointed at the same time. The provisional insolvency administrator was authorised by the same court order to collect the GmbH’s receivables. A further court order stated that any legal transactions conducted by the management of the GmbH would only be effective with the consent of the provisional insolvency administrator.

Immediately thereafter, the provisional insolvency administrator cancelled all the direct debits executed by various banks on the GmbH’s accounts. At the same time, the administrator requested the banks to make all future transfers to an escrow account set up in his name. The banks duly complied with these instructions from the insolvency administrator.

It transpired following the opening of the insolvency proceedings that the payments had no proper basis in law as per the law of unjust enrichment, since the debits had been arranged by the debtor itself and did not require approval. The banks therefore demanded personal repayment from the provisional insolvency administrator. The BGH confirmed the payment obligation of the provisional insolvency administrator in its ruling and ordered him to make the payments.

The Court’s reasoning in favour of a direct reversal (instead of a reversal within the triangular relationship) is compelling and does justice to the interests involved:

It was central to the Court’s decision that the insolvency administrator had sole access to the escrow account, rather than shared access.

The provisional insolvency admin- istrator was merely a so-called “weak” provisional insolvency administrator in the provisional insolvency proceedings, under the terms of the relevant court order.

The order only granted him the authority to provide or refuse consent to legal transactions, hence the designation “weak”. The management of the GmbH retained the right to run the business. As such, the “weak” provisional insolvency administrator did not have the legal authority to open an account which would provide entitlements to and impose obligations on the debtor. As such, the debtor received no benefit of any kind as a result of the transfers made to the escrow account. The payments into the escrow account of the “weak” provisional insolvency administrator therefore represented a shifting of assets to the trustee and not to the trustor.

Two key conclusions can be drawn from this judgment with regard to practical legal advice:

On the one hand, this decision confirms that setting up an escrow account may still be a practicable solution for the purpose of safeguarding legal transactions during provisional insolvency proceedings. An escrow account is designed to protect the creditor, such that he actually receives the agreed performance for his consideration (i.e. the payment of money). On the other hand, the debtor can receive “advance financing” in this way, meaning that it is enabled to provide the performance owed. The ruling supports the argument that the funds in the escrow account can also be claimed back in full in the event of default of performance (this is not an insolvency claim) and the “weak” provisional administrator is personally liable for any use of the trust assets which is in breach of trust.

The judgment also highlights the fact that the funds in the “weak” provisional insolvency administrator’s escrow account do not form part of the insolvency estate. The “weak” provisional insolvency administrator must add the funds to the insolvency estate by transferring them after insolvency proceedings have been opened.