As the 2019 Novel Coronavirus (COVID-19) continues to spread across the world, and governments and health authorities work tirelessly to defeat it, major economies are experiencing mounting pressure as consumer spending, production and investment are drastically curtailed due to virus-related risks.We recognize that many of our clients are also facing significant and urgent business impact and legal challenges.Our Baker McKenzie teams across the world are working with clients, regulators and various authorities to produce a…
1. Background of the claw-back reform
German insolvency law allows claw-back for actions made by the debtor during a period of up to 10 years prior to insolvency proceedings. Until the new rules entered into effect in April 2017, this long look-back period also applied to so-called coverage transactions, meaning payments to which the creditor was entitled under contract or law. The insolvency administrator only needed to prove that when making the payment the debtor willfully disadvantaged its other creditors, and the recipient of the payment was aware of this.
Over time, ample case law had developed that allowed the insolvency administrator to prove the debtor’s acceptance and the creditors’ knowledge in court by relying on certain indicators, such as direct debit returns, continuous arrears, requests for deferrals, or installment payments on amounts owed. This case law resulted in an excessive use of claw-back proceedings by insolvency administrators. Creditors were often confronted with claw-back resulting from payments made by the debtor on justified claims years prior to the insolvency filing. When claw-back cases went to court, the insolvency administrators often succeeded, especially when creditors at some point before the contested payment had agreed on deferred payment terms. This legal situation was often perceived as unfair and received fierce criticism by numerous associations as well as unions and employee representatives. The claw-back reform is the result of this criticism.