Insolvency law: The treatment of salary payments to employees of a sister company in insolvency avoidance proceedings

Federal Labour Court, 21.11.2013, Ref.: 6 AZR 159/12

Insolvency avoidance, i.e. the question of whether the insolvency administrator can reclaim payments made to a creditor of the company, is regulated in the Insolvency Code (Insolvenz-Ordnung - InsO) in Sections 129 et seq. InsO.

If a payment is contestable in accordance with these provisions and is contested by the insolvency administrator, the creditor must return it to the insolvency estate in accordance with the provisions on unjust enrichment (Sections 812 et seq. BGB) (Section 143 (1) InsO).

Pursuant to section 130 (1) no. 1 InsO, a legal act that has granted or enabled an insolvency creditor to obtain security or satisfaction can be contested if it was carried out in the last three months prior to the application to open insolvency proceedings, if the debtor was insolvent at the time of the act and the creditor was aware of the insolvency at that time (congruent cover).

Pursuant to section 131 InsO, a legal act can also be contested if a claim of an insolvency creditor has been fulfilled without the creditor being able to claim this "in the manner".

In this case, we speak of incongruent cover because the legal act to be contested deviates from the content of the debt relationship that exists between the insolvency creditor and the debtor.

In the Federal Labour Court case mentioned above, the court had to decide whether wage payments made by a sister company of an insolvent company to an employed foreman of this insolvent company were incongruent and therefore contestable.

Facts of the Case The plaintiff was employed by the debtor as a foreman until 31 January 2009. Insolvency proceedings were opened over the debtor's assets upon application on 19 January 2009 and the defendant was appointed as insolvency administrator.

The sole shareholder and managing director of the debtor was also the sole shareholder and managing director of a sister company.

The debtor mainly carried out orders from this company. Both companies had the same registered office, used the same business premises and maintained clearing accounts.

From 30 October 2008 to 12 January 2009, the plaintiff received five payments totalling EUR 3,656.75 from the account of the sister company as remuneration for August to October 2008.

The defendant contested these payments in accordance with section 131 InsO and demanded repayment to the estate with his counterclaim.

The plaintiff, in turn, argued that he did not consider these payments to be suspicious because wage payments by the sister company were not unusual and he had also worked for this company.

The Regional Labour Court, unlike the Labour Court, denied the plaintiff's obligation to repay; the payments would have provided congruent cover.

The defendant filed an appeal against this judgement with the Federal Labour Court.

Federal Labour Court: The Federal Labour Court did not follow the opinion of the Regional Labour Court and set aside the appeal judgement and referred the case back to the Regional Labour Court for further clarification.

In the opinion of the BAG, the Regional Labour Court had wrongly assumed that congruent cover existed because the companies had taken everything from one "pot".

This assumption would contradict the fundamental principles of insolvency proceedings, which are organised on the basis of legal entities.

It also had to be clarified whether creditors had been disadvantaged, whether the debtor had been insolvent and whether other grounds for avoidance had been fulfilled.

Source: Federal Labor Court

Important Note: The content of this article has been prepared to the best of our knowledge and belief. However, due to the complexity and constant evolution of the subject matter, we must exclude liability and warranty. Important Notice: The content of this article has been created to the best of our knowledge and understanding. However, due to the complexity and constant changes in the subject matter, we must exclude any liability and warranty.

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