Voidance in insolvency proceedings
Identifying, avoiding and defending against voidance claims
The intention of the legislator in providing for voidance claims is to reverse illegal transfers of assets that have occurred prior to insolvency proceedings. This right is exercised by the insolvency administrator. Merely by asserting this right, regardless of the success of such an assertion, an administrator increases his claim to remuneration. Given the decreasing number of insolvencies and dwindling revenue sources in connection with new German insolvency legislation (Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen, ESUG), voidance claims are also an effective means for generating revenue in this regard. It is becoming increasingly common that, whereas suppliers, in the past, deferred payments at the request of their customers and subsequently received payment within the framework of a deferred payment plan, insolvency administrators reclaim payments from such suppliers – often when the customer has become insolvent years after the payment was made. Insolvency administrators also refer to a decision by the German Federal Court of Justice (BGH) on Section 133(1) of the German Insolvency Code (Insolvenzordnung, InsO) in which the Federal Court of Justice ruled against a supplier in a similar matter. In such a case, the deferral may have occurred up to ten years before insolvency was filed for. The validity of credit collateral provided for banks is also questioned by insolvency administrators with increasing frequency.
The assertion of – primarily unjustified – voidance claims is becoming a serious problem for entrepreneurs, banks and savings cooperatives, as most recently recognized by the Federation of German Industries (BDI), the German Confederation of Skilled Crafts (ZDH) and the Federation of German Wholesale, Foreign Trade and Services (BGA). This special area of insolvency legislation takes years of practice to master, especially in light of ample case-law. The temptation is great to assert claims that are not actually valid, or the amounts of which are not commensurate, by inflating the scope of the action to the maximum in the hope of obtaining a settlement in court proceedings. Our insolvency experts have established tried-and-tested strategies and lines of argument that enable them to provide effective defence against such claims.
Our experience shows that in many cases voidance claims are unjustified. Jurisprudence of the 9th Civil Court of Appeal of the German Federal Court of Justice, which has jurisdiction in this matter, is often misunderstood by the courts. All too often, the examination of the circumstances in an individual case required by the Federal Court of Justice is circumvented by hand-picking specific evidentiary facts to bolster a case. Targeted expert argumentation is then required on the part of lawyers well-versed in insolvency law in order to defend against such claims before proceedings begin, whenever possible. We also develop solutions to voidance issues in an insolvency plan.
Assessment of voidance risks is essential before restructuring under insolvency protection or if one’s business partner has become insolvent. We help you identify and avoid potential voidance risks
- Risks for managing directors and partners (“double collateralization,” Doppelbesicherung)
- Risks for banks and savings banks [Sparkassen] (voidance-proof collateralization of loans; restructuring loans)
- Risks for entrepreneurs (payment by instalments, deferred payment agreement, execution)
- Risks within the scope of restructuring
In addition, we help you to successfully and effectively assert security interests against an insolvency administrator and refute the defence of failure to pursue remedies. Our team has years of experience in insolvency administration and knows the “tricks” used by insolvency administrators.