It is not unusual for the sale of a company to be considered if it is in a financial crisis. If the company in a crisis situation can be rescued in the opinion of a potential buyer, demand may well be particularly great as crisis companies can frequently be purchased on more advantageous terms than companies which are not suffering from a financial crisis. In addition, crisis companies frequently have loss carry-forwards which can be used by the buyer for taxation purposes. If the purchase of a company in a crisis situation is being considered, it is critical for the buyer to establish whether judicial bankruptcy proceedings have already been petitioned on the company or not.

Asset deals for buyers of a company threatened with insolvency are fraught with extreme risks. The purchase of a company with all its assets and liabilities is not advisable if the extent of the indebtedness in the crisis situation cannot be determined particularly in view of the general urgency of such a purchase. If the buyer only takes over the assets, certain contracts and the existing employees, he/it must reckon with the above-mentioned liability consequences arising from the transfer of assets in accordance with =A7 419 of the German Civil Code (BGB) and =A7 25 of the German Commercial Code (HGB). He/it must also reckon that the assets in question are encumbered by third party rights. If the existing employees are taken over, the buyer is also liable for all outstanding claims of the employees in question as defined in =A7 613a of the German Civil Code. In the interests of the buyer, the purchase of a company or parts of a company in a crisis situation is only advisable if the opening of judicial composition or bankruptcy proceedings or the transfer of liability and insolvency risks to be buyer can be avoided beyond doubt, e.g. by concluding an extrajudicial settlement with the creditors of the company. The buyer of a company in a crisis situation runs the legal risk that the sale is contested by the receiver or composition trustee in the event of subsequent bankruptcy or composition proceedings or also by a creditor outside the scope of such proceedings in accordance with the German Annulment and Contestation Act (Anfechtungsgesetz). Consequently, the buyer also has to ensure that he/it is not involved in a penal act of thwarting enforcement or favouring creditors or other liable parties. If bankruptcy proceedings have already been petitioned on the estate of a company in a crisis situation, however, the purchase of such company offers considerable advantages for the buyer. The negotiation party in this case is not the company but the receiver, whereby, unlike the proprietor, such receiver is not only entitled to sell the assets concerned but is also obliged to do so under =A7 117 of the German Bankruptcy Act (KO) and =A7 8, para. 2 of the German bankruptcy enforcement regulation (GesO). A speedier agreement is possible with an experienced receiver who is able to assess the market realistically rather than a hesitant company proprietor. What is also important is that the liabilities of the buyer of the company under =A7 419 of the Civil Code (BGB), =A7 25 of the Commercial Code (HGB) and =A7 75, para. 1 of the Tax Code (AO) no longer apply if a company is purchased from bankruptcy assets.

In summary, it may be said that if a buyer is unable to assess the risks involved with the purchase of a company in a crisis situation, he/it is advised to defer the purchase in question until judicial composition or bankruptcy proceedings have been petitioned.

For further information please contact Dr Erich Michel, Wessing Berenberg-Gossler Zimmermann Lange, Freiherr-Vom-Stein-Strasse 24-26, Frankfurt am Maim 60323, Frankfurt, Germany- Tel: +496 997 1300, Fax: +496 997 130100.

You may also wish to read through related Wessing Berenberg-Gossler Zimmermann Lange. You can view the entire archive via the Internet on Business Monitor Online (, or via your online provider by entering "Wessing Berenberg-Gossler Zimmermann Lange" and "Business Monitor" as a free text search.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.