Insolvency Contestation Under § 133 InsO

What insolvency contestation under § 133 InsO is

Insolvency contestation (Insolvenzanfechtung) allows an insolvency administrator to reverse transactions made before the opening of insolvency proceedings that disadvantage the creditors as a whole (§ 129 InsO).

Of the various grounds, intentional disadvantage under § 133 InsO (Vorsatzanfechtung) is the most far-reaching. It covers any legal act that the debtor performed in the ten years before the insolvency petition, or after it, with the intention of disadvantaging its creditors, where the other party knew of that intention at the time (§ 133(1) InsO). For acts that granted the other party security or satisfaction, such as payments, the look-back period is four years (§ 133(2) InsO).

For years, § 133 InsO was the administrator's sharpest weapon against suppliers, landlords, tax authorities and lenders who had received payments from a struggling customer. Courts inferred both the debtor's intention and the counterparty's knowledge largely from the fact that the debtor was, and was known to be, illiquid. Insolvency contestation claims were therefore a significant commercial risk for anyone dealing with a company in difficulty, even where they had simply been paid for their deliveries.

The 2017 reform of insolvency contestation

A reform in 2017 restricted the provision in several ways. The look-back period for transactions granting security or satisfaction was shortened from ten to four years (§ 133(2) InsO).

Where the other party received security or satisfaction that it was entitled to claim in that form and at that time (congruent cover), knowledge of the debtor's intention is presumed only if it knew of the debtor's actual, not merely imminent, illiquidity (§ 133(3) sentence 1 InsO). And where the other party agreed a payment arrangement with the debtor or otherwise granted payment relief, it is presumed not to have known of the debtor's illiquidity at the time (§ 133(3) sentence 2 InsO). The reform also clarified the protection of cash transactions under § 142 InsO.

The reform reduced the risk for ordinary trade creditors but left the subjective requirements largely to the courts. The decisive change came with the Federal Court of Justice's case law in 2021.

The BGH's 2021 change of case law

In its judgment of 6 May 2021, the Federal Court of Justice changed its approach fundamentally (BGH, judgment of 6 May 2021 – IX ZR 72/20). The case concerned payments by an illiquid GmbH of administrative fines and fees to the Federal Office of Justice for failing to publish its annual accounts.

The Court held that the subjective requirements of § 133 InsO can no longer be inferred solely from the fact that the debtor was knowingly illiquid at the time of the transaction. In addition, the debtor must have known, or at least accepted, that it would also be unable to satisfy its other creditors fully in the future, judged by the objective circumstances known to it.

The same applies to the counterparty: to prove its knowledge of the debtor's intention, it must be shown that it knew not only of the illiquidity but also that the debtor would not be able to satisfy its other creditors in the future, again judged by the circumstances known to it. Imminent illiquidity at the time of the transaction can as a rule no longer support the inference of intent.

The Court also emphasised that a declaration by the debtor that it cannot pay for lack of liquidity is a particularly telling basis for a suspension of payments, and that other circumstances must carry comparable weight if there is no such declaration. Finally, the strength and duration of the presumption that a suspension of payments continues depend on how clearly the illiquidity became apparent, particularly from the counterparty's perspective.

What the change means in practice

The decision shifted the focus from the moment of illiquidity to the debtor's and counterparty's view of the future. Administrators must now show that, from the perspective of the parties at the time, there was no realistic prospect that the debtor would overcome its difficulties and pay its creditors. Where a restructuring was being seriously pursued, with a concept that the parties could reasonably regard as viable, the inference of intent becomes much harder. Conversely, where a company continued paying selected creditors while it was obvious that others would not be paid, insolvency contestation remains a real risk.

Defence strategies against insolvency contestation

Counterparties can reduce their exposure through several measures:

• Cash transactions: where the debtor receives an equivalent consideration directly, in a close temporal connection, the payment is avoidable only under the conditions of § 133(1) to (3) InsO and if the counterparty recognised that the debtor acted unfairly (§ 142(1) InsO). Short payment terms and delivery against payment strengthen this defence.
• Payment arrangements: agreeing a payment plan or granting payment relief triggers the statutory presumption that the counterparty did not know of illiquidity (§ 133(3) sentence 2 InsO), but the arrangement should be documented carefully.
• Security: security agreed at the outset of a relationship, rather than requested in the crisis, is usually congruent and less vulnerable than security demanded later.
• Restructuring concept: where a counterparty supports a restructuring, it should obtain and document the concept and its plausibility, because a reasonable belief in success can rebut knowledge of intent.
• Limitation: contestation claims are subject to the regular limitation period of the Civil Code (§ 146(1) InsO), generally three years from the end of the year in which the proceedings were opened and the administrator knew of the claim.

Other contestation grounds and related persons

Section 133 InsO is complemented by shorter-period grounds. Congruent cover granted in the three months before the petition can be avoided if the debtor was illiquid and the creditor knew it (§ 130 InsO); incongruent cover in the last month, or in the second and third months under further conditions, is avoidable more easily (§ 131 InsO).

Against persons closely related to the debtor, such as group companies or managing shareholders, presumptions of knowledge apply (§ 138 InsO), and remunerated contracts with related persons that directly disadvantage creditors can be avoided if concluded within two years before the petition (§ 133(4) InsO). Repayments of shareholder loans are subject to a special rule; see our insight on shareholder loans in insolvency.

The legal consequence is restitution: whatever was removed from the debtor's assets by the avoidable act must be returned to the estate, and money claims bear interest only under the conditions of default or from the time the claim is litigated (§ 143(1) InsO). Once the counterparty has returned what it received, its original claim revives as an ordinary insolvency claim.

Insolvency contestation in groups and restructurings

Insolvency contestation is a particular concern in corporate groups and in out-of-court restructurings. Within groups, upstream payments, cash pool transfers, the settlement of intra-group receivables shortly before insolvency and the granting of security for the debts of affiliates are frequent targets of administrators. Group companies are typically related persons, so presumptions of knowledge apply, and transactions without adequate consideration may be avoided as gratuitous performances under a separate ground with a four-year look-back. Parent companies should therefore keep the terms of intra-group transactions at arm's length and document their commercial rationale.

In out-of-court restructurings, creditors often provide new money, accept deferrals or receive new security in exchange for support. These steps are exposed to insolvency contestation if the restructuring fails. The BGH's 2021 case law offers a degree of protection where the restructuring is based on a concept that the parties could reasonably consider viable. Lenders and investors should therefore insist on a restructuring opinion prepared to recognised professional standards, update it when circumstances change and ensure that the measures they agree are consistent with the concept. New money that is exchanged directly for new security can also benefit from the cash transaction rules.

A formal restructuring under the StaRUG offers additional protection: legal acts that implement a confirmed restructuring plan are protected against contestation in a later insolvency, until the restructuring has been achieved sustainably, except where the plan was confirmed on the basis of incorrect or incomplete information from the debtor that the counterparty knew of (§ 90(1) StaRUG); shareholder loans and certain security remain excluded from this protection. This is one reason why parties may prefer a court-confirmed plan to an informal agreement when large amounts of new money or new security are involved, even if the formal procedure takes more time and cost.

Practical points for lenders, landlords and suppliers

Lenders face contestation risk for repayments, additional security and fees received in the crisis, especially where security was granted later than the loan. Landlords and lessors should consider the cash transaction defence for rents paid on time and the effect of deferral agreements. Suppliers who switch to cash on delivery or demand prepayment in a crisis can benefit from the cash transaction rules, while collecting old debts under pressure carries higher risk. Our insights on customer insolvency and supplier strategies and sale-and-lease-back and insolvency avoidance address these situations, and our page on insolvency proceedings explains the wider framework.

How TRW & Co helps

We defend suppliers, lenders, landlords, group companies and public bodies against insolvency contestation claims, and we advise administrators and custodians on asserting them. We analyse payment histories and correspondence under the current BGH case law, develop defence arguments based on cash transactions, payment arrangements and restructuring efforts, negotiate settlements and conduct litigation. We also advise businesses dealing with customers in difficulty on structuring payments and security to reduce future contestation risk. This page is general information, not legal advice. To discuss a claim, please contact us.