Requirements for revocatory actions

In another in a set of decisions the German Federal Court of Justice (FCJ) again ruled out a too schematic approach on the assessment of subjective revocatory action requirements. Revocatory actions are a tool of insolvency administrator to claim back payments made by the debtor to creditors, that have been made in the intend to discriminate prospects of other creditors. In the event that such payments have been made, the administrator may claim back such payments from the recipient under the clause of Art. 133 insolvency act. However, a somewhat collusive element is required. On the recipient’s side (the party the reclaim is directed at), such reclaims require positive knowledge of the debtors looming insolvency as well as knowledge of the debtors intention to set back competing creditors’ chances of fulfillment.

In its decision made in May 2020 (FCJ dec. 07th May 2020, IX ZR 18/19) the court clarified again, that the necessary knowledge of the recipient of such payments can not be simply assumed. On the contrary, a decision based on the peculiarities of the specific case must be made. It is within the insolvency administrator’s burden of proof to present reasonable evidence of such.

In the same decision, the court for the first time outlined the scope of the recently introduced Art. 133 para. 3 phrase 2 insolvency act.

 

The case

In the underlying case a bank granted the subsequent bankrupt debtor a loan. Within a few months before the debtor called for insolvency, its debts amounted in a way, that the debtor could not pay several consecutive due installments to the bank. A few months into the default, the bank - which has not been the debtor’s main bank - and the debtor closed a payment plan agreement. After the opening of insolvency proceedings insolvency administrator revocated installment payments made under this very agreement, arguing that the bank had sufficiently compromising knowledge of the debtor’s situation. After losing both the first and second court instances, the FCJ decided in favor of the bank’s appeal.

 

Requirements of a revocatory action under Art. 133 insolvency act

Successfully revocating a payment that has been made more than three months before filing for insolvency comes with three mandatory requirements:

  • the debtor needs to know of its own insolvency
  • the debtor intends to discriminate other creditors of its own by making the particular payment
  • the recipient of such payment has positive knowledge of the debtor’s insolvency as well as the debtor’s intention to discriminate

 

What circumstances lead to the assumption of discriminatory intention of the debtor?

The debtor acts in the intention to discriminate competing creditors if he is making payments to a specific creditor knowing that such payment sets back the available assets needed to satisfy the majority of other creditors. The FCJ continued its past jurisdiction by ruling that knowing of its own insolvency does not necessarily constitute the intention to discriminate. While it does establish a strong indication, such knowledge does not support a schematic conclusion of the positive discriminatory intention. The ascertainment rather requires a comprehensive consideration of all potentially relevant factors that need to be presented and proven.

 

When does the recipient know of the debtor’s discriminatory intention?

Art. 133 para. 1 phrase 2 insolvency act postulates, that the recipient’s knowledge of the debtor’s discriminatory intention is assumed as soon as he has positive knowledge of

  • the debtor’s knowledge of its own insolvency
  • the discriminatory nature of the payment

 

Does a payment plan give reason to assume the recipient’s knowledge of debtor’s insolvency?

Under the recently introduced clause in Art. 133 para. 3 phrase 2 insolvency act, it is assumed that the creditor did not know of the debtor’s insolvency when closing a payment plan agreement. The FCJ now for the first time ruled on the scope of this clause’s somewhat misleading phrasing. According to the judgement, the clause is construed in a way that the mere closure of a payment plan can not substantiate the assumption of creditor’s knowledge of the insolvency. The same counts for the debtor’s request to close such an agreement. Given the amended legislation, the insolvency administrator carries the burden to present and proof other relevant circumstances that constitute the creditor’s knowledge. While not being entitled to refer to the payment plan, the insolvency administrator may base his claim on defaulted payments from the past that would evntually lead to the payment plan closure themselves.

 

Does creditor’s knowledge of the insolvency necessarily establish knowledge of the discriminatory nature of the payment?

Not necessarily, but there is a tight correlation. A creditor who knows of the (looming) insolvency of his debtor is generally assumed to know that the received payments discriminate other creditors. The FCJ frequently rules that knowledge of the insolvency indicates knowledge of the discrimination (see FCJ dec. 4th May 2017, IX ZR 285/16). In the abovementioned 2020 decision however, the court ruled out a too schematic deduction. A payment recipient can only be assumed to have relevant positive knowledge if he knows that other creditors exist at all. While on the one hand such knowledge is generally existent should the creditor know of entrepreneurial activities of the debtor, it is the insolvency administrator’s burden to present and proof evidence. Certainly in cases where the lending bank is not the debtor’s main bank and thus not necessarily fully informed of its activities, this can turn out to be a major obstacle for insolvency administrators.

 

Are these findings limited to certain creditors?

The court’s findings are not only applicable to banks but can be transferred to suppliers and any other creditor of the debtor.

 

 

Do you have any questions about revocatory actions or did an insolvency administrator reclaim payments made to you? We will be happy to give you advice! Please contact us at central@schaffrathlaw.de, by phone at +49 351 44753 0 or visit our website www.schaffrathlaw.de.

 

By your side

 

Schaffrath & Metzmacher Team

October 30, 2020

Valentin Schaffrath

Valentin Schaffrath

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