GERMANY TRENDS AND DEVELOPMENTS Contributed by: Carsten Loll, Otto von Gruben, Torsten Volkholz, Frank Grell and Sebastian von Hornung, Latham & Watkins
entity) is not required to file for insolvency due to illiquidity or over-indebtedness resulting from lack of a (mid-term) going-concern. As for the transaction structure, each real estate investor should carefully consider and assess whether an asset deal or a share deal is the more favourable option. In a distressed world in particular, investors must weigh potential claw- back risks, which come into play if the relevant seller needs to file for insolvency following the transaction. Claw-back risks – depending on the jurisdiction in which the seller has its centre of main interest (COMI) – exist especially in rela - tion to legal acts (eg, transfer of ownership, all kinds of payments) in the period after a material insolvency occurs, but prior to formal insolvency proceedings. In this context, cross-border trans - actions imply an increase of complexity since, in particular, local insolvency law regulations differ significantly in different countries, even within the EU. To assess the overall magnitude of potential risks, the financial situation of the potential sell - ing entity also needs to be considered. Reasons for Deal Structuring The following section summarises claw-back rights under German law in an insolvency situ - ation, focusing on the various claw-back rights, the legal consequences of a claw-back and the so-called right of choice of the insolvency administrator. General introduction to claw-back rights under German law Insolvency law in Germany is based on the prin - ciple of equal treatment of creditors. A key tool used to ensure the application of this principle and establish a level playing field between the various creditors is the claw-back right of the insolvency administrator. The German Insolven - cy Code (InsO) provides an exhaustive number
of claw-back rights (Section 129 et seq, InsO). In practice, insolvency administrators examine claw-back rights thoroughly, given that their remuneration depends on the size of the insol - vency estate. Legal consequences of claw-back The following section focuses on the legal con - sequences of a successful claw-back by the insolvency administrator. In general, assets received as a result of a void transaction must be returned to the insolvency estate – ie, retransfer of ownership. Therefore, the transfer of owner - ship claim revives, but: • is solely an unsecured insolvency claim; • can be filed only with the insolvency table; and • is therefore only satisfied on a pro rata basis, like all other unsecured claims. If the transfer of ownership claim is to be real - ised, the purchase price might need to be paid again if the settlement of the initial purchase price payment was clawed back by the insol - vency administrator as well. As for the burden of proof, the insolvency admin - istrator shall specify and prove: • the existence and scope of claw-back rights – ie, the voidable transfer of asset(s) to the creditor;
• any benefits and surrogates; and • the specific value of the assets. Overview: grounds for claw-back
The following section serves as an overview of claw-back under German law in an insolvency situation, discusses the general requirement of a creditor disadvantage and focuses on the dif - ferent grounds for claw-back.
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