Why can a German insolvency administrator claim payments from creditors?

If a company or individual with its registered office in Germany falls into financial difficulties, insolvency proceedings are opened in Germany at the request of the debtor or a creditor.

The aim of insolvency proceedings is to enable all creditors to be satisfied equally from the debtor’s assets. To this end, the insolvency administrator has access to all of the debtor’s assets, which include not only goods, inventories, real estate and vehicles, but also claims against other companies. In addition, the insolvency administrator examines whether a creditor has obtained an advantage over other creditors as a result of partial payments made by the debtor or as a result of enforcement measures. The Insolvency Act regulates whether and under what conditions the insolvency administrator can demand that the creditor repay these amounts to the insolvent estate.

Contestation in insolvency on the basis of partial payments by the debtor

In the context of long-standing business relationships, debtors often ask their creditors to grant them instalment payments due to an acute crisis situation. It is not uncommon for creditors to agree, hoping that the outstanding amount will be paid in this way. If insolvency proceedings are opened on the debtor’s assets after full or partial payment of the debt by instalments, the insolvency administrator may demand repayment from the creditor of instalments previously paid by the debtor within a period of up to ten years prior to the filing of the insolvency petition.

The prerequisite for this is that the debtor knew at the time of the instalment payment that his payment would disadvantage other creditors because his assets were not sufficient to satisfy all creditors.  In addition, the recipient of the instalment payment must have been aware of the debtor’s intention. For this purpose, it is sufficient that the creditor was aware of circumstances from which compelling conclusions can be drawn as to the debtor’s poor financial situation.

Can the insolvency administrator also reclaim payments received by the creditor in the course of enforcement?

In the case of payments received by the creditor as a result of compulsory enforcement measures, the insolvency administrator may contest the payment and reclaim the money for a maximum period of three months prior to the filing of the insolvency petition. Again, the prerequisite for challenging a payment is the debtor’s insolvency and the creditor’s knowledge of it.

How can creditors protect themselves from being reclaimed by the insolvency administrator?

Creditors should only accept instalment payments from debtors if the debtor can pay the outstanding invoices within a short period of time. If in doubt, they should take enforcement action and not accept instalments.

In this situation, it is always advisable to seek legal advice in order to avoid later challenges and demands for payment by the insolvency administrator.

Grau Rechtsanwälte PartGmbB offers legal support in day-to-day business, especially for foreign companies operating in Germany or suppliers of German companies – the whole spectrum of German business law, starting with corporate and commercial lawdistribution lawlabor lawinsolvency law and debt management.

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