A bankruptcy trustee can make use of bankruptcy pauliana if the bankrupt performed legal acts before her bankruptcy, while she knew or should have known that this would disadvantage creditors. The trustee can annul such prejudicial acts. In the Netherlands, bankruptcy pauliana is not easily established and the trustee has a heavy burden of proof. In German bankruptcy law, this is different. Dutch entrepreneurs are often unaware of this and are unpleasantly surprised by it.
The German system: wide recovery possibilities
In Germany, the receiver has ample opportunities to annul legal acts in order to collect as much money as possible for the estate in this way. This is due to the German bankruptcy system.
German law has an obligation for the directors of a company to file for its bankruptcy if there is insolvency "Zahlungsunfähigkeit" or "Überschuldung". This occurs very quickly. If this obligation is not complied with, a German director can be criminally prosecuted for this. The purpose of this strict bankruptcy filing obligation is to ensure a timely opening of the bankruptcy. Old creditors are protected from further depleting the estate and new creditors are protected from entering into agreements with the ailing company.
Insolvenzanfechtung
The German system also has implications for creditors of the German debtor. Creditors should be aware of the debtor's financial situation, as should the debtor's directors. As soon as creditors know or may know about the debtor's (impending) poor financial situation, risks arise for the creditors. German law and case law regulate various leads for the German insolvency administrator to demonstrate such knowledge. Under German bankruptcy law, if the German debtor suspends its payments, wants to make payment arrangements or indicates that it is "tight on cash this month", it is assumed that the creditor is or should have been aware of the debtor's poor financial situation. If you still receive payments from the German buyer despite these disclosures, a German bankruptcy trustee can reclaim these payments if the German buyer goes bankrupt.
The German liquidator's recovery action can go far. In the case of German companies that went bankrupt before 5 April 2017, the receiver can recover payments up to 10 years back. Since a recent change in the law, for bankruptcies after 5 April 2017, the receiver can 'only' reclaim up to four years before the bankruptcy.
Misunderstanding among Dutch companies
The strict German bankruptcy law, can give Dutch companies unpleasant surprises. After all, a German bankruptcy trustee will seize every opportunity to destroy legal acts in order to increase the estate's income. From a Dutch law perspective, these legal acts are often normal legal acts that fall under normal business risk. A Dutch entrepreneur will therefore also find it difficult to understand such an action by a German liquidator.
Escape for Dutch companies
The European legislator also understands that a foreign creditor cannot simply become a victim of a different legal system. Therefore, the European Insolvency Regulation provides for an escape.
An escape is possible if two requirements are met:
- The contract between the Dutch entrepreneur and the German bankrupt, on which the payments are based, is governed by Dutch law. This is the case, for example, if a choice of law for Dutch law has been made in the sales contract or general terms and conditions.
- Under Dutch law, the payments cannot be challenged or affected either. It is therefore necessary to look at the hypothetical situation, how a Dutch trustee would rule, if there were a Dutch bankruptcy.
The Dutch company must prove that these two requirements have been met. The two requirements seem straightforward, as in Dutch law the receiver cannot easily challenge payments. The problem is that the German court and the German receiver need to be convinced, that in the Dutch system the soup is not eaten so hot. This can be tricky. Even a German lawyer will not easily understand the Dutch system.
In conclusion
As the above shows, German bankruptcy law is very strict and the receiver has many and far-reaching powers to reclaim payments. As a Dutch entrepreneur, you may be surprised by this. After all, the Dutch system works differently. You can reduce the risk if you deal with your German buyer under Dutch law or by opting for insurance. If you are insured against debtor risks, credit insurers offer limited additional cover for this. Besides additional cover with your insurer, there are other options for insuring risk. We will be happy to inform you about the various forms of risk mitigation.
Source: boelszanders.co.uk Lawyer Anne-Marie van Dijk
