While avoidance proceedings with insolvency administrators used to be focused on the question of whether and to what extent the party to whom avoidance is declared was aware of the illiquidity, more recent decisions seem to focus more on the question of whether the would-be insolvency debtor acted with the intent to place creditors at a disadvantage in the first place. The case law to date deemed it sufficient for this purpose for the insolvency administrator to prove that liabilities were outstanding at the time of the avoidable payments that were not settled until the insolvency proceedings were opened. In a recent judgment, the court points out that from now on, this submission of facts will be sufficient only in exceptional cases.

Facts of the case

The would-be insolvency debtor operated as a charter airline for tour operators with three aircraft. It operated flights from various German airports. Before each flight, police officers of the German Federal Police checked passengers and their luggage. The Federal Police department having jurisdiction for the airport concerned charged a fee for this service in accordance with the German Aviation Safety Act [Luftsicherheitsgesetz - LuftSiG]. The would-be insolvency debtor failed to pay aviation safety fees in a six-digit amount. The arrears of these fees built up in the period from August to October 2014. The appellate court held at least in line with the case law of the IX^th Civil Senate prior to May 2021 that the company was illiquid and thus acted with the intent to place creditors at a disadvantage. It thus ordered to defendant authority to make payment.

Decision

The German Federal High Court of Justice [Bundesgerichtshof – BGH] took a different view. It held that the facts had not been sufficiently established and remanded the matter to the previous court instance for re-decision. In this context, the BGH made it clear that it is only in exceptional cases that intent to place creditors at a disadvantage can be established (exclusively) based on the fact that there are high liabilities outstanding. In addition, the nature (total) amount, number and significance of such liabilities must be such that, at the time of the avoidable payment, it must have been clear that even with the most optimistic view, these liabilities would never be settled in full. This could be the case, for example if the liabilities concerned obviously exceed by far the ability that can be expected of the debtor to cover its debts. The liabilities must be such that they alone had to result in the financial collapse of the debtor from the ex ante perspective and without considering the liquid assets and future performance of the debtor, and could only end in insolvency proceedings. In the specific case at hand, this could not be assumed because the would-be insolvency debtor had always settled arrears of this kind in the past.

If such liabilities do not exist, the insolvency administrator is now required also in the avoidance proceedings to draw up a liquidity balance sheet. As a first step, the liquid assets have to be put into proportion with the liabilities for this purpose. As a second step, it must be considered whether the development that is possible even in the most optimistic scenario justifies the expectation that the outstanding liabilities will be settled in full. In the opinion of the BGH , it must be considered in particular in this context that creditors having high receivables outstanding are usually willing to make concessions by agreeing to deferments, instalment payments or even partial debt relief to be able to realise at least part of their receivables outside insolvency proceedings. If any uncertainty arises in this context, this risk is borne by the insolvency administrator because he has the burden of statement and proof.

Practical note

This judgment can be expected to have an even greater impact on avoidance proceedings in practice than the judgment of 6 May 2021(click here). The reason is that the BGH now makes it clear that high liabilities from now on will almost never be deemed sufficient indication for an intent to place creditors at a disadvantage (although the situation is different with regard to the demonstration of illiquidity, for example, in avoidance proceedings under Sec. 131 of the German Insolvency Code [Insolvenzordnung – InsO]). If this is acceptable and results in a kind of equality of arms in avoidance proceedings, it remains to be seen who will benefit from the fact that the development of liquidity “that can be expected with the most optimistic view” is to be referred to as a basis. On the one hand, the litigation risk of the insolvency administrator increases, of course, but on the other hand, it must not be underestimated that it will also be almost impossible to foresee for the party to whom avoidance is declared what the outcome of such proceedings will ultimately be. It can be assumed that not only the lower courts but also counsel will be overchallenged by this requirement. It can only be hoped that the Senate will provide practitioners with interpretation aids in future decisions as to the standards to apply to an “optimistic” view. Leave to appeal on issues of law should generally be granted in lawsuits where the optimistic view is decisive.

(BGH, judgment of 18 April 2024 – IX ZR 239/22)