When selling a commercial enterprise during self-administered insolvency, the buyer is not liable for liabilities incurred by the operation of the business, according to the Federal Court of Justice (case number: II ZR 457/18).
According to § 25 paragraph 1 sentence 1 of the German Commercial Code (HGB), the buyer of a commercial enterprise is liable for the seller’s liabilities if he continues the business under the previous company name. However, this regulation does not apply when the sale of the business occurs during self-administered insolvency, explains the economic law firm MTR Rechtsanwälte.
In the underlying case, an insolvency proceeding in self-administration had been opened for a company. During self-administration, the company commissioned the later plaintiff to conduct electrical installation work. A few weeks later, the company sold its entire business operation. The invoice for the electrical installation work was still open. The plaintiff now demanded the amount from the new owner of the company.
Although the lawsuit was successful in the first two instances, it was not successful in the appeal proceedings before the Federal Court of Justice. According to established case law, § 25 paragraph 1 sentence 1 HGB does not apply when the sale of the company is conducted by the insolvency administrator. This case law can also be applied to sales during self-administered insolvency, according to the Federal Court of Justice. In both cases, the liability of the buyer for existing liabilities diminishes the prospects of selling the company at a good price and thus achieving the best possible realization of the assets in the interest of all creditors, as stated by the Karlsruhe judges.
The Federal Court of Justice further stated that applying § 25 paragraph 1 sentence 1 HGB would otherwise favor certain creditors of the insolvent company. Even if the debtor has extensive competences regarding the realization of the insolvency assets in a self-administered insolvency proceeding, their actions must be guided by the interest of all creditors.
With its supreme court ruling, the Federal Court of Justice has significantly facilitated the sale and continuation of an insolvent company.
Lawyers experienced in commercial law can provide advice.
