With a recession appearing to be inevitable, for many companies innovation is more important than ever. Innovating and contracting in times of crisis requires caution, however, and contracts should as far as possible be insolvency-proof. Popular solutions include guarantees, sureties and retention of title. But it may be worth considering a lesser known option, the intercompany settlement clause, which works as follows.

Paying a debt to an insolvent company

Cancellation of debt a key element of most restructurings generally triggers taxable income. The German tax authorities had issued an administrative decree (the "Tax Restructuring Decree" - Sanierungserlass), however, declaring that, upon the satisfaction of certain requirements and conditioned on forfeiture of any loss carry forwards, the cancellation of debt income ("CODI") would not be taxed.