When selling a commercial business during self-administered insolvency, the buyer is not liable for the liabilities arising from the operation of the business, according to the Federal Court of Justice (BGH) (Case No.: II ZR 457/18).
According to § 25 paragraph 1 sentence 1 of the German Commercial Code (HGB), the buyer of a commercial business is liable for the seller’s liabilities if they continue the business under the previous company name. However, this regulation does not apply according to the jurisdiction of the BGH when the sale of the business occurs during self-administered insolvency, explains the law firm MTR Legal.
In the underlying case, insolvency proceedings in self-administration had been opened for a company. During the self-administration, the company commissioned the later plaintiff to carry out electrical installation work. A few weeks later, the company sold its business operations entirely. The invoice for the electrical installation work was still unpaid. The plaintiff then demanded the amount from the new owner of the company.
The lawsuit was successful in the first two instances, but it did not succeed in the appeal proceedings before the BGH. According to established case law, § 25 paragraph 1 sentence 1 HGB does not apply when the company is sold by the insolvency administrator. This case law can also be applied to the sale during self-administered insolvency, according to the BGH. In both cases, the buyer’s liability for existing liabilities reduces the chances of selling the company at a good price, thereby achieving the best possible recovery of the assets in the interest of all creditors, according to the Karlsruhe judges.
The BGH further stated that applying § 25 paragraph 1 sentence 1 HGB would otherwise favor some creditors of the insolvent company. Even though the debtor has extensive powers regarding the realization of the insolvency estate in a self-administered insolvency procedure, their actions must be oriented towards the interests of all creditors.
With its supreme court ruling, the BGH has significantly facilitated the sale and continuation of an insolvent company.
Lawyers experienced in commercial law can provide advice.
