GERMANY TRENDS AND DEVELOPMENTS Contributed by: Carsten Loll, Otto von Gruben, Torsten Volkholz, Frank Grell and Sebastian von Hornung, Latham & Watkins
General requirement of creditor disadvantage (Gläubigerbenachteiligung) An objective creditor disadvantage is required for all grounds of claw-back (eg, the sale of assets under market value or even the mere impairment of access to the asset). Whether a direct (ie, immediate) creditor disad - vantage is required or an indirect one is suffi - cient depends on the applicable legal provision for claw-backs. If third-party creditors are paid in full, there is no room for a creditor disadvantage (so-called solvent liquidation, see below). In addition, creditor disadvantage is unlikely if the asset in question is encumbered to the full value. To answer the latter, the actual amount of the secured claims (not the nominal amount of security, in particular land charges), is decisive. The German Federal Court of Justice (BGH) has ruled that creditor disadvantage is impossible to achieve for a property encumbered with a land charge to the full extent of its value. Congruent coverage (Section 130, InsO) The most relevant ground for claw-back is so- called congruent coverage (Section 130, InsO). A claw-back risk exists within up to three months before filing for insolvency if, at the time of the relevant legal transaction (ie, the transfer in own - ership), the debtor was unable to pay its debt when it was due and the creditor was aware of it at the relevant time – ie, knowledge of non- payment of claims and financial difficulties as a whole. By law, having knowledge of the underlying circumstances that compellingly indicate insol - vency is deemed equivalent to being aware of illiquidity (Section 130 paragraph 2, InsO). This presumption cannot be refuted. Relevant exam - ples of knowledge of such underlying circum -
stances include knowledge of instalment and deferral requests, mere partial payments or non- compliance with payment commitments. The calculation of the three-month period begins with the filing for insolvency. If, for example, the filing occurred on 4 March 2024, any transaction up to and including 4 January 2024 falls within this period if the debtor was unable to pay its debt when it was due at the relevant time. As for the burden of proof, the insolvency admin - istrator must specify and prove the objective and subjective requirements for a claw-back under Section 130, InsO. Incongruent coverage (Section 131, InsO) Another possible ground for claw-back is so- called incongruent coverage (Section 131, InsO). A claw-back risk exists within up to three months before filing for insolvency for any act to which the creditor was (i) not entitled, (ii) not in the manner entitled, or (iii) not at the time entitled to a claim – eg, transfer of ownership before obli - gation to do so, or payment in kind instead of payment in cash. The further requirements of this provision depend on when the transaction occurs: • for the month before filing for insolvency, there are no other requirements; but • for the second and third month before filing, (i) inability to pay its debt when it was due of the debtor, or (ii) knowledge of creditor disad - vantage of the creditor at the relevant time, is required. As for the burden of proof, the insolvency admin - istrator must specify and prove the objective and subjective requirements for a claw-back under Section 131, InsO.
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