Vol 5 (2008) - Issue 6

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Clawback of Transactions before Insolvency: Comparison of the German and English Provisions on Voidable Transactions

Introduction

In recent years insolvencies have become international with the globalisation of the economy. However, the law did not follow this trend. There is still a certain tension between the process of ‘globalisation’ and the legal system still being stamped by national structures. As a result of the globalisation process, the economic consequences of an insolvency may extend across various countries and legal systems, while the legal solutions to it are still limited to the national territory. It is possible that on an international level results might be reached which would be unthinkable on a national level. One famous example is the Maxwell case, where one lawsuit in the US concerning the rescission of a transaction undertaken in England, was rejected by the US court (otherwise well-founded) because of the general principle that the effects of an insolvency procedure are limited to the state in which the insolvency procedure takes place. Hence, only by crossing the border, a creditor could escape an otherwise well-founded avoidance action.

In order to prevent such an unfair decision in the future, international bodies like the European Union established rules, like the European Regulation on Cross Border Insolvencies. A comparison of German and English law on voidable transactions in insolvency is particularly interesting since both laws belong to different families of law, namely to the continental and anglo-american system.

1. Aims and principles of the rescission of voidable transactions

A comparison of the aims and principles governing the provisions concerning voidable transactions shows a different dogmatic approach in Germany and England. Under German law, the main aim of voidable transactions provisions is to support equal treatment of all creditors. Only on a secondary level, unrighteous advantages are corrected. Thus, the rules governing voidable transactions under German law are, in general, a specification of the pari passu principle.

The English rules governing voidable transactions are rather narrow. According to some legal writers, the rules pursue various aims. They serve to increase the assets of the insolvent debtor; protect against unrighteous advantages of single creditors; and secure the principle of pari passu.