Germany: Potential Invalidity Of Insolvency-Related Termination Clauses Under German Insolvency Rules

"Ipso facto": The concept that clauses allowing for the termination of contracts purely for the insolvency of the contractual counterpart should be invalid, has long been an established principle of the Chapter 11 regime in the US.  However, in another example of trend suggesting that this approach may also be increasingly adopted in European jurisdictions where previously such clauses have been relied upon, Christian Stempfle of our Munich office provides an update on German case law below.

Many contracts include automatic or discretionary early termination provisions if insolvency-related events occur for one of the contractual parties (such as the filing for insolvency or the opening of insolvency proceedings with respect to one of the contractual parties).  The approach of courts to such provisions vary on a jurisdiction by jurisdiction basis.

Under German insolvency law, it is unclear whether such clauses are valid and can be enforced in the case of an insolvency.

In a recent case, one such clause was the subject of a lot of criticism by the German Federal Supreme Court (Bundesgerichtshof) and held to be invalid: termination based on said clause could not be enforced. The consequence is that the contract remains and the party relying on such insolvency-related termination clause is potentially liable for all damages the opposite party incurred as a result of such invalid termination.

In more detail, this was finding of the 9th senate of the Federal Supreme Court (docket-no.: IX ZR 169/11). The German Federal Supreme Court decided that insolvency-related termination clauses in contracts regarding the continuous delivery of goods or energy should be invalid if such termination is either triggered by the cessation  of payments, a request for the opening of insolvency proceedings or the opening of insolvency proceedings over the assets of the other contractual party.

The clause forming the basis of the underlying dispute had – in English translation – the following wording:

"This contract shall automatically terminate without prior notice if the customer filed a request for the opening of insolvency proceedings or if, upon a request of a creditor, the preliminary insolvency proceedings will be started or opened."

Whereas the lower courts – Hannover Regional Court/Court of Appeal Celle –upheld the above-quoted provision, the Federal Supreme Court, in an overruling judgment, found against the validity of such provision.

The core legal dispute at issue is: The insolvency administrator, once appointed by the insolvency court, has, in principle, the right to choose which contracts of the insolvent debtor he will perform (see sec. 103 German Insolvency Act – InsO). He can opt for performance or non-performance of the relevant contract.

According to sec. 119 InsO, any contractual provision excluding or limiting this right, is invalid.

However, inter alia the Munich Court of Appeal held that this provision shall not apply to so-called insolvency-related termination clauses. This because the insolvency administrator has to accept contracts as they stand when he is appointed as insolvency administrator of a specific company (unless the insolvency administrator has a right to challenge the relevant provision which was not the case in the underlying dispute here).

The Düsseldorf Court of Appeal, to the contrary, was opposed to the validity of such insolvency-related termination clauses since these, in their opinion, are in clear violation of the statutory prohibition in sec. 119 InsO unless such clauses repeat specific statutory insolvency-related termination rights.

The 9th senate of the Federal Supreme Court made clear that insolvency-related termination clauses (those which provide for the right to terminate a contract in case of a cessation of payment, the filing for insolvency or the opening of insolvency proceedings) in contracts for the continuous delivery of goods / energy are in breach of sec. 119 InsO and therefore invalid. In line with the Düsseldorf judgments, such invalidity, however, shall not apply if the insolvency-related termination clause only mirrors a statutory insolvency-related termination right.

The Federal Supreme Court, in his decision making process, was led by the purpose of the insolvency administrator's right to opt for the performance/non-performance of contracts. This legal purpose is to protect the assets of the insolvent company and to increase such assets in the interest of a settlement of creditor claims parri passu. And such purpose would be obstructed if the contractual partner of the insolvent debtor, just because of its insolvency, could terminate a contract which is in the interest and to the benefit of the insolvent debtor.

In the Federal Supreme Court's opinion, this does not lead to any disadvantage to the contractual partner of the insolvent company since this contractual partner then will receive payment for his deliveries in full as so-called preferred estate liability.

For today's contractual practice, this means that insolvency-related termination clauses in bilateral contracts for delivery of goods or energy have the clear risk of being (held) invalid. Moreover, it is also to be expected that contracts for the provision of on-going services bear the same risk since there is no real argument to differentiate these contracts from the delivery of goods.

However, the discussion is not over yet. In Germany, the 9th and the 11th senates of the Federal Supreme Court, have to deal with insolvency-related disputes and questions. Though, it still remains to be seen which position the 11th senate of the Federal Supreme Court will take (it is not rare that these two senates expressed different views).

To reflect that risk in contractual practice, one may still include insolvency-related termination clauses, but be aware of the potential risk of invalidity, and provide for a clear severability clause according to which invalid or void contractual provisions shall not render the whole contract invalid or void and that such invalid or void provision shall be deemed replaced by a valid and enforceable one which meets the interests of the contractual parties best.

Last not least: against this background, one has to carefully consider whether to terminate a contract on the basis of the insolvency of the other contractual party. Should such termination be held invalid, then the terminating party would be liable for all damages caused to the insolvent contractual party by such termination. And insolvency administrators are legally obliged to pursue such legally unlimited claims for damages.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.