Germany: Insolvency Avoidance Of The Transfer Of A Lease Agreement

(BGH, judgement of 1 March 2018 – IX ZR 207/15)

INTRODUCTION: The Federal Court of Justice had to decide on the insolvency avoidance of the transfer of a lease agreement to an affiliated company of the debtor. A particularity of the case was that the group company and prior to the transfer the debtor in insolvency were tenants of a warehouse renting it to a sub-tenant under identical conditions as the conditions of the main lease, except for the amount of the rent.

THE DECISION: Scarcely seven months before the debtor in insolvency filed an application to open insolvency proceedings over its assets, it leased a warehouse for the purpose of sub-letting for storage of de-icing salt. The monthly net rent in the sub-lease agreement with the federal state of North Rhine Westphalia for the storage of salt was higher than the rent agreed according to the main lease agreement, so that the debtor was left with a surplus of EUR 3,749.00 per month. Both leases were transferred to the defendant, an affiliated company of the debtor in insolvency, with the consent of the owner of the warehouse on the one hand and the sub-tenant on the other. The insolvency administrator contested this process and demanded compensation for the value. The Federal Court of Justice decided in favour of a challenge of a gratuitous transaction pursuant to Section 134 (1) InsO [German Insolvency Code] and ordered the defendant to pay the EUR 100,000.00 claimed with interest. The Düsseldorf Higher Regional Court (court of appeal) focused on the fact that the defendant had assumed both rights and duties from the lease agreement. In contrary to this opinion, the Federal Court of Justice decided that, in this particular constellation, the transfer of the lease agreement was a gratuitous benefit. Because the duties undertaken had to be assessed as being significantly less than the rights obtained, meaning that no adequate counter-performance was provided by the defendant to the debtor in insolvency. Shortly after the transfer of both leases, the managing director of the defendant, who is also the sole shareholder, transferred his company shares in the debtor to the managing director of the debtor. The transfer of company shares in the debtor so close to one another in terms of time was not made a further subject of discussion in the judgement because this was not relevant to the assessment of the gratuitous nature in the relationship between the debtor and the defendant.

IMPACT ON DAY-TO-DAY BUSINESS: Caution should be exercised in restructuring and transfer of contracts within a group. It is not only recommended to observe the "arm's length principle" with regard to tax issues, but also to possible later insolvency of a group company. This does not only apply for lease agreements, but the assessment could also turn out to be comparable as regards the transfer of other contractual relations. In the case of insolvency avoidance, it simply depends on the relationship between the debtor in insolvency and the addressee of an avoidance. A possible benefit for other parties involved in the group or other actions, which, where applicable, are economically closely connected with the contested legal action, remain unconsidered.

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