Vol 14 (2017) - Issue 4

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New German Insolvency Claw-back Rules

At the end of 2015, the German federal government tabled a government draft bill regarding the reform of the insolvency claw-back rules into the parliament. The government draft bill was addressed during a first reading in the parliament at the beginning of 2016, but the legislative process since went very quiet. In mid February, however, the parliament surprisingly concluded the reform of the claw-back rules, which came into force on 5 April 2017.
The declared objective of the reform is to create greater legal certainty and transparency with regards to the claw-back practice for all kind of market participants. But can the reform live up to all the promises it makes?

Incongruent transactions
First, it is pleasing to see that the legislature refrained from the so called 'fiscal privileges' which were contained in the government draft bill and which were heavily criticised over the course of the legislative process. According to current law, transactions during the three months before the filing for insolvency are challengeable under conditions which are easily fulfilled. This applies in particular to satisfactions received by means of enforcement actions. For these three months, the Insolvency Code ('InsO') distinguishes between
– congruent transactions (i.e. payments or the provision of collateral that the creditor had a right to receive at that time and in that form) and
– incongruent transactions (i.e. payments or collateral which are either not yet due or due in another form).

Regarding the latter, a successful claw-back claim does not require the beneficiary to be aware of the debtor’s illiquidity at the time of the transaction (sec. 131 of the InsO). Payments made under enforcement pressure, and even satisfactions received through the actual enforcement of a final judgment, are currently not protected and are considered as incongruent transactions. By way of a more difficult claw-back, the government draft bill provided for the protection of the recipient of such enforcement payments, which at first glance appeared to be desirable. However, such protection had especially privileged tax authorities and social insurance agencies, as these entities are in a position to issue enforcement rulings on their own. In other words, the government draft bill provided for a preferential right in favour of the Treasury. This rule has now been completely removed. However, we consider that a partial preservation of the enforcement privilege would have been appropriate in a form that at least allowed for the protection of the recipient of payments based on final judicial judgements. Thus, everyone that goes to court, wins, and enforces the judgement, should be protected. Unfortunately, the legislator has missed this opportunity.