Background

The German Insolvency Act says an insolvency administrator may sell a "moveable object" on which a right to separate satisfaction (Absonderungsrecht) exists if such object is in his possession. The right to separate satisfaction entitles creditors with such a right to be satisfied ahead of all other creditors from the proceeds of selling a separate pool of assets within the insolvent estate

In a recent judgment, the German Federal Court of Justice (Bundesgerichtshof) took the opportunity to clarify its position on sec. 17(2) German Insolvency Act (Insolvenzordnung, InsO). According to sec. 17(2) InsO a debtor is deemed insolvent if he is unable to pay his debts as they fall due (Zahlungsunfähigkeit).

Background

In cases where upstream or cross-stream securities are granted by a German limited liability company (”GmbH“), the German capital maintenance rules need to be considered. Under these rules assets that are required for the maintenance of GmbH’s registered share capital may not be paid out to the shareholders. This payout prohibition concerns not only payments, but also granting of securities in favour of loans granted to the shareholders. The managing directors of a GmbH are personally liable for payouts made in violation of these rules.