Facts
Key point
In a financial restructuring, creditors have to pay attention that the restructuring undertakings of the insolvent company are likely to be achieved.
Background
Under German insolvency law, the insolvency administrator may challenge a transaction if an insolvent company intended to disadvantage its creditors (and the other party knew that intention). The German Supreme Court presumes such intention if a company knew about its impending illiquidity.
Facts
Ausgangssituation
I) Introduction
The Financial Crisis, a difficult market situation and a tense liquidity status have led to remarkable difficulties for mid-sized businesses within the past years. Strategic and financial investors have and continue to utilize these circumstances to acquire interesting distressed companies for comparatively moderate purchase prices.
In order to benefit from these circumstances, investors need to understand how to avoid or minimize the risks of liability related to such acquisitions.
Banking & Finance
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Fachbereichs Banking & Finance
News from the Banking & Finance practice
Juli / July 2014
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In its decision published on March 13, 2013 (dated February 21, 2013 – IX ZR 32/12), the German Federal Court of Justice (BGH or Bundesgerichtshof) made it clear that it will uphold its prevailing case law regarding two questions at hand even though the relevant legal provisions relating to equitable subordination have been moved from the corporate law regime to the insolvency law regime with the 2008 Act to Modernize the Law on Private Limited Companies and Combat Abuses (MoMiG or Gesetz zur Modernisierung des GmbH-Rechts und zur Bekämpfung von Mißbräuchen).
Cancellation of commercial agreements under German insolvency law
Commercial agreements usually provide for extraordinary termination rights or even automatic cancellation in the case of insolvency of one of the parties. Such a cancellation right may, however, contradict the general principles of German insolvency law.
The Federal Court of Justice (BGH) continued with its extensive interpretation of the rules for contesting transactions under insolvency law in a judgment dated 21 February 2013 (BGH IX ZR 32/12). In the case before the court, direct shareholder A in company T sold a claim under a loan to B at below par value. Following assignment, T repaid the loan to B at the nominal amount plus interest. Insolvency proceedings were opened around two months later in relation to T’s assets. The BGH’s decision covers three aspects: