30. Dec 16

BGH: Asking to pay in instalments not a clear indication of insolvency

If a debtor asks to pay in instalments, the creditor should not necessarily infer from this that the former has stopped making payments. That was the verdict of the Bundesgerichtshof (BGH), Germany’s Federal Court of Justice.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: If a creditor knew of his debtor’s insolvency but nonetheless pressed for payment of his debts and accepted the payments, it may be possible for the insolvency administrator to reclaim the funds. However, just because the debtor states that he is not able to pay an invoice all at once and therefore asks to pay in instalments does not mean that the creditor should infer from this that the debtor has stopped making payments. That was the verdict of the 9th Civil Panel of the Bundesgerichtshof, competent to hear cases pertaining to insolvency law, among other things, in its ruling of July 14, 2016 (Az.: IX ZR 188/15).

In the instant case, a craft business told a supplier of building materials it was not able to pay an outstanding invoice all at once and broke down the debt into monthly instalments after being reprimanded multiple times. Approximately one year later, the craft business filed for insolvency. At that point in time, the construction firm still had outstanding debts of around 7500 euros. The insolvency administrator subsequently demanded that the construction firm pay back at least part of the funds which had been accepted.

The Court dismissed the claim, reasoning that the insolvency administrator was not entitled to reclaim the funds because the defendant had been able to demonstrate that it had no knowledge of the craft firm’s insolvency. It held that it is only if a creditor is aware of the insolvency that it could also be said to be regularly informed of the intention to disadvantage. The BGH went on to say that the request to pay in instalments was not sufficient evidence of this. It ruled that as the outstanding creditor the defendant had not had a complete overview of the debtor’s financial situation. The Court concluded that because the initial instalment payments had been regular, there were no circumstances clearly pointing towards illiquidity or insolvency. Furthermore, it had neither sought to apply to have its claims legally enforced nor initiated enforcement proceedings.

Creditors and debtors can turn to lawyers who are competent in the field of company law to deal with issues relating to insolvency law.

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