Clawback of payments in case of bankruptcy of your German customer
According to German insolvency law (Insolvenzordnung), the insolvency administrator has the option to challenge payments already made and recover them to add to the bankruptcy estate (the so-called actio pauliana). This is to prevent companies from gaining a privileged position at the expense of other creditors. This can happen if they apply increasing pressure on their struggling customers or make agreements about deferred payments. Moreover, the administrator can intervene when payments made shortly before the bankruptcy filing are diverted to privileged persons or companies, thus being excluded from the bankruptcy estate.
How does this work?
The legal rules in Germany have been tightened. They allow an administrator to reclaim a payment if you, as a supplier, could have been aware of your customer’s intention to disadvantage other creditors. This suspicion arises if you were aware of the imminent insolvency of your customer. According to the highest German court, this can be inferred from late payments by your customer, agreeing to payment arrangements, or the enforcement of a judgment.
Proving the contrary is difficult
Only if you can provide evidence that the payment arrangements were specifically made to improve your customer’s solvency can the clawback of the received payments be avoided. Experience shows that proving this is difficult in most cases. Several clawback actions are known to us, where payments received had to be refunded. This represents a significant financial setback, as years of revenue are often much more than an outstanding balance.
Protection against the risk of clawback in bankruptcy
When doing business and your customer goes bankrupt, for example, after having agreed on a payment arrangement in the past 4 years, it may happen that the administrator will claim all payments received since that arrangement. This risk is especially significant in Germany, but it can also occur in other countries. In Germany, it has been established that, depending on the situation, payments made up to 4 years before the bankruptcy can be reclaimed. The MODINT Industry Policy offers protection against this.
How to prevent it? Or how to deal with it?
We can often provide a solution through our own legal desk in Germany. It is wise to tighten debtor management when exporting to Germany. Particularly when invoices are not paid on time or are not paid in full, all alarms should go off. Do not simply accept a payment arrangement and discuss with the customer and us how to resolve this. For more information about Insolvenzanfechtung, how to prevent it, or how to handle it, contact the GermanDesk of MODINT Credit & Finance, phone +49 2821 99 77 973 or email info@modintcredit.com.
