By two decisions of April and June 2010 the Federal Court of Justice further consolidated its case law on the requirements for challenging payments made to creditors not by the debtor itself but a third party (BGH, 27 April 2010, IX ZR 122/09 and BGH, 17 June 2010, IX ZR 186/08).
In German insolvency proceedings, a transaction granting a "gratuitous benefit" can be set aside under § 134 German Insolvency Code by the insolvency administrator unless the transaction was made earlier than four years before the petition for the opening of insolvency proceedings is filed.
There is established case law allowing an insolvency administrator to challenge payments made by an insolvent company (or person) to discharge a debt owed by a third party as "gratuitous benefit" if the debt was at the time of payment economically not enforceable anymore against the debtor. German courts argue that in such a tripartite situation the creditor by receiving payment from the third party did not give up anything of value because its claim was not enforceable anymore. Therefore, the creditor did not grant equivalent consideration so that it received a gratuitous benefit from the payor. It is noteworthy that the payment can be challenged even if the creditor was not aware of the financial difficulties of its debtor.
In the aforementioned April decision the BGH confirmed the aforementioned requirements for a challenge of a third-party payment as a gratuitous benefit.
In its June decision the BGH had to judge a case where the debtor whose debt had been paid by a third party (the claimant of the challenge action) still owned certain receivables against other persons. The payee (defendant of the challenge action) argued that due to the existence of these receivables the paid debt had at the time of payment not been unenforceable. The court rejected the creditor's arguments and confirmed its previous case law that the fact that the debtor was bankrupt was sufficient to render the unsecured claim against that debtor "unenforceable" (even if the debtor still owned certain assets/receivables). The receivables still shown in the debtor's balance sheet did not help the creditor's case.
Practice guide
- The German laws on challenging third-party payments as "gratuitous benefits" become particularly relevant for bank creditors when restructuring group financings. In this situation, proposed third party payments by German members of a group should be checked as to whether they may be challenged as a gratuitous benefit.
- A challenge as gratuitous benefit does not depend on any intention or knowledge of the creditor. Therefore, the mere fact that a third party makes payment renders the payment received susceptible to later challenge by a German insolvency administrator of the payor.