In February 2017, the German legislature enacted reforms designed to improve procedures governing the avoidance of pre-insolvency transfers and to encourage work-outs between debtors and creditors. Under the Insolvency Code, an insolvency trustee (or the supervisor in a debtor-in-possession proceeding) has the power to avoid and recover: (i) preferential transfers made during the three months prior to the petition date; (ii) transfers made with the intent to defraud creditors during the 10 years prior to the petition date, if the transferee had knowledge of the debtor's intent or is deemed to have constructive knowledge of fraudulent intent because it was aware of the debtor's anticipated cash-flow insolvency and the fact that the transfer would harm creditors; (iii) transfers made for no consideration during the four years prior to the petition date; (iv) shareholder loan repayments made during the year prior to the petition date; and (v) certain transfers made subsequent to the petition date but before the formal commencement of insolvency proceedings.
The reform amends, among other things, the fraudulent transfer provisions in the Insolvency Code by reducing to four years the longest-possible avoidance look-back period of 10 years (applicable to "claw-back" of transfers made by a debtor with the intent to harm creditors), provided that such four-year period applies in those instances where the transfer resulted in a fulfillment of the transferee's claim or the securing of such claim. It also changes the rules governing the circumstances under which a transferee will be deemed to have knowledge of the debtor-transferor's insolvency, especially in cases where the transferee has agreed to modified payment terms on a loan or extension of credit or with respect to the delivery of goods and services made before an agreement as to the modified payment terms was reached. In addition, the reform amends the Insolvency Code to require that, if a contemporaneous exchange for new value is challenged as a fraudulent transfer, the transferee must have had knowledge at the time of the transfer of the debtor's "dishonesty" as well as the debtor's insolvency and its intention to cause harm to creditors.
According to the legislative history, the amendment is intended to obligate the administrator to prove—as was required prior to 2003—that the debtor and the transferee actively colluded to remove assets from the reach of creditors or that the transferee had knowledge of the debtor's intent to do so.
Finally, section 143 of the Insolvency Code was amended to provide that interest accrues on a monetary avoidance judgment only after the transferee defaults on paying the judgment. Previously, interest began to accrue on the filing date of the avoidance litigation and became payable if the insolvency administrator prevailed in the litigation.
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