If a third party (not obliged to do so) settles liabilities of the (future) insolvency debtor from its own resources, the question arises as to whether such payments may be avoidable under German insolvency law. At present, this question is repeatedly raised by the insolvency administrator in the context of a larger insolvency procedure in Berlin. Reason enough to take a closer look at the current case law.
The German Federal Supreme Court (“Bundesgerichtshof“, “BGH“) decides on the availability of such payments by distinguishing between a so-called “instruction on debt” and an “instruction on credit”. In the latter case (“instruction on credit”), the BGH is of the opinion that there should be no (voidable) payment, but in the former (“instruction on debt”) there should be.
An example of an “instruction to pay” is a decision of the BGH in 2011 in which the paying third party concluded a loan agreement with the debtor on the basis of which the third party then paid directly to the creditor (tax office). The BGH regarded this payment as contestable, because the debtor loses its claim on the third party (the right to claim the loan) with the payment to the creditor.
According to another BGH’s decision in 2012, in the case of an “instruction on credit”, on the other hand, the payment should not in principle be voidable if it is effected by a third party without any obligation towards the debtor, “because the payment merely results in a change of creditor in the person of the person instructed. The encumbrance of the assets with the right of recourse of the instructed party is compensated here by the release from the debt of the payee.”
In practice, this case law poses a problem for the creditor receiving such a “third-party payment” because in the rarest of cases he will gain knowledge of the legal relationship actually existing between the debtor and the third party. Accordingly, in the case of third-party payments, the Damocles sword of insolvency avoidance always hovers over the payment. Consequently, the creditor should, before accepting corresponding payments by a third party, obtain written assurance from the third party and the debtor that the payment is not based on a legal relationship between the debtor and the third party – in particular no loan agreement.