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Continued supply in customer insolvency
When it is justifiable to maintain the customer relationship in preliminary insolvency proceedings
Corporate insolvencies reached their highest level in 20 years in October 2024, as reported by the FAZ on 6 November 2024 under the title Unternehmen in Not. Creditors, most of whom have already suffered considerable losses in this situation, are currently often faced with the decision of whether it is justifiable to continue supplying their customers who are subject to provisional insolvency proceedings. The provisional insolvency administrator is regularly required under section 22 (1) no. 2 of the German Insolvency Code to continue the company at least until the proceedings are opened in order to keep all options for restructuring the company open, meaning that this question arises in a significant number of cases.
Interests of the provisional insolvency administration
They usually do not act entirely free of their own interests. This is because they also benefit financially if the continuation of the insolvent company can provide the basis for having enough assets available to open proceedings.
However, some creditors have already experienced first-hand how painful it can be to be motivated by the reassuring words of a provisional administrator to continue deliveries, only to be told by the same administrator in the proceedings that the liquidity planning was unfortunately wrong, which is why the payments made by the insolvency debtor in the provisional proceedings with his consent had to be contested.
In such cases, the price is often paid for widespread gaps in knowledge, which also have to do with the sometimes convoluted language of insolvency law. Only the so-called strong provisional administrator justifies liabilities with the quality of debts of the estate with his declarations on further orders, which enjoy priority in the proceedings opened. But how is this “strength” determined?
Establishment of insolvency liabilities that have priority in the proceedings opened
The law itself does not use the term “strong provisional administrator”, but section 55 (2) of the German Insolvency Code provides a decisive indication: (Only) liabilities established by a provisional administrator to whom the power of disposal has been transferred, it says, acquire the character of debts of the estate in the proceedings opened. Whether such a case exists is determined by the content of the appointment of the provisional administrator.
Whether and under what conditions a continued supply in provisional insolvency proceedings is justifiable therefore depends first and foremost on the exact text of the court order on the appointment.
If the administrator does not fulfil the above criteria, it is safe to assume that the provisional administrator is weak. The provisional administrator can be strengthened in relation to certain transactions or, exceptionally, as a whole (retrospectively) if he or she is authorised accordingly by the court.
At PASCHEN, we have many years of experience in how such an authorisation can be obtained quickly and what alternatives are available to put the continued supply on a secure footing.
Do not hesitate to seek our advice if you, as a creditor, are faced with the question of whether and, if so, how to proceed with your insolvent customer.
You can also find out what creditors should look out for here: Federal Court of Justice rows back on insolvency avoidance