Payments made shortly before bankruptcy

If a creditor knows that their debtor is insolvent and still receives payment, they are thereby putting other creditors at a disadvantage. The insolvency administrator may challenge the payment and reclaim the amount for the estate. The Federal Court of Justice recently had to rule on such a case.

The defendant company had long-standing business relations with the debtor, who later became insolvent. Over time, the outstanding payments amounted to €200,000. Consequently, the machinery trading company imposed a delivery freeze. The debtor then announced that, through financing, it would be able to settle its debts in installments. In the judges’ view, the offer of installment payments and the fact that payments subsequently failed to materialize were indications that the creditor should have recognized the insolvency.

Suspension of Payments as an Indication of Insolvency

In the meantime, the debtor required a new machine from the defendant. At that time, the debts owed to the defendant had already reached €800,000. The company agreed to deliver the machine in exchange for a down payment of €200,000 and a bank guarantee covering the remaining outstanding claims of €600,000. The creditor was required to reimburse the insolvency administrator for the down payment made. This is because the creditor should have been aware that the debtor was on the verge of insolvency.

Conclusion:
If the creditor is aware of the debtor’s insolvency or of circumstances suggesting that the debtor is insolvent, the insolvency administrator may challenge payments made. The creditor must then return the amount paid to them.