GERMANY TRENDS AND DEVELOPMENTS Contributed by: Carsten Loll, Otto von Gruben, Torsten Volkholz, Frank Grell and Sebastian von Hornung, Latham & Watkins
• Payment of purchase price only at the time of transfer of ownership ( Zug-um-Zug ) to avoid the right of choice of a potential insolvency administrator (see Right of choice of the insolvency administrator section above). • Registration of a priority notice of conveyance ( Auflassungsvormerkung ) in the relevant land register as early as possible to avoid the right of choice of a potential insolvency administra - tor (see Right of choice of the insolvency administrator section above). • No payment of the purchase price by the purchaser during the preliminary insolvency proceedings to avoid claw-back pursuant to Section 130 of InsO (see Congruent cover- age (Section 130, InsO) section above), yet a specific agreement with the insolvency administrator may be found which would protect the purchaser. • Consideration of a legal expert opinion to limit claw-back risks and liability issues based on A practical exemption to the claw-back by the insolvency administrator is the concept of fair market value: Cash transactions ( Bargeschäft , Section 142, InsO) are exempted for an at arms’ length direct exchange of goods or services against payment (unless there is an intention to harm creditors). If the assets are sold significant - ly below book value, a market valuation should be considered to reduce claw-back risks. In a best-case scenario, an auction process should be held, since it is the most secure option to prove a fair market value. That said, off-market opportunities and the generally tight schedule often do not allow for such measures. A less time-consuming option may be to seek a third-party opinion on the fair market value or that the seller has no reason to file for insolvency wilful misconduct by the investor. Fair market value (Bargeschäft)
(if applicable, when the purchase price has been received). Still, the agreement on a purchase price below market value is always possible if the target has a going concern or may be liquidated (by pay - ing off all third-party creditors and covering the costs of the liquidation) after receipt of the pur - chase price. A fair market value is not decisive if filing for insolvency is avoided or is likely to be avoided. In light of the current market conditions, which are characterised by an exceptional lack of volatility, investors and sellers must exercise increased diligence in their transactions. Recent insolvencies of major market players highlight how rapidly circumstances can change and emphasise the importance of risk mitigation in any investment strategy. By ensuring that the purchase price reflects the fair market value, most of the claw-back risks can be effectively removed. For that reason, investors and sellers must remain cautious as the market environment can shift swiftly, impacting valuations and the feasibility of a transaction. In this context, the allocation of interest rate risks and the potential for upside value sharing in successful outcomes are critical considerations for both buyers and lenders. Buyers may seek to mitigate interest rate risks by negotiating a discount on the up- front purchase price, while lenders must careful - ly assess the financing environment to determine the viability of their lending terms. Liquidation agreement Besides the issue of fair market value, a liquida - tion agreement may serve as a practically impor - tant tool. The liquidation agreement is execut - ed between the investor, the selling entity and potential third-party creditors, and secures the solvent liquidation process of the selling entity.
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