Reed Smith Client Alerts

The recent reform of insolvency law regarding challenges against creditors (based on the creditor’s presumed intent to agree to prejudice creditors) is the legislative response to the increasing amount of criticism in the industry of the earlier rules regarding challenges against creditors and the related case law. This reform, which has now been adopted and came into force on 5 April 2017, is based on the experience made over the course of the past few years and re-defines some of the essential framework conditions.

Authors: Oliver Rathje Etienne Richthammer Christian Thomas Stempfle

Type: Client Alerts

The “state of play” until now

The recent reform of German insolvency law regarding challenges against creditors (based on the creditor’s presumed intent to agree to disadvantage creditors) is the legislative response to the increasing amount of criticism in the industry of the earlier rules and case law regarding challenges against creditors. This case law made it possible for insolvency administrators to extensively challenge claims of the creditors of the debtor within a period of up to ten years prior to the filing of the insolvency petition. In particular, the creditor’s awareness of the intent of the debtor to prejudice the creditors, as one of the prerequisites for a challenge, was assumed, if the creditor was aware of the imminent insolvency of the debtor. This rule was mainly applied in connection with payment facilities or arrangements, as these are usually only agreed upon if the debtor’s inability to pay would otherwise be imminent. In practice this meant that creditors that had agreed with ailing debtors on payment facilities or arrangements were regularly exposed to challenges by the insolvency administrator later on. In these cases, it was hard for creditors to provide evidence in their defence. This reform, which has now been adopted and came into force on 5 April 2017, is based on the experience made over the course of the past few years and re-defines some if the essential framework conditions.