Is there a liability for old debts in case of buying a business from the self-administrator?

According to the decision of the Federal Court of Justice ("BGH") the following applies: No liability for old debts even in case of buying a business from a so called “self-administrator” (Eigenverwalter) in insolvency proceedings.

Background

The insolvent company was not led by an insolvency administrator but by its manager as “self-administrator”[1] what is a possibility under German insolvency law. The self-administrator commissioned the plaintiff to carry out electrical installation work. In the insolvency proceedings, the self-administrator sold its business to the defendant. In the first court instance, the defendant was ordered to pay the plaintiff work wages. Both the court of first instance and the court of appeal were of the opinion that the defendant was liable for the insolvent company's obligation to pay the plaintiff work wages pursuant to section 25 (1) sentence 1 German Commercial Code ("HGB"). According to section 25 (1) HGB the successor of a business who is not only taking over the business itself but the name of it as well is liable for old liabilities.

The decision of the BGH of December 3, 2019, case no. II ZR 457/18

According to the BGH, the defendant is not liable for old debts pursuant to section 25 (1) sentence 1 HGB as this section does not apply in insolvency proceedings. And the self-administration is only a particular way of insolvency proceedings. The insolvency creditors' meeting is entitled to decide about achieving the insolvency proceedings’ (in particular closure, continuation, insolvency plan, transferring reorganization) in the best possible way. In the interest of the insolvency creditors, the objective is the best possible realization of the insolvent assets. Fulfilling this duty would be more difficult or rather impossible if the acquirer is potentially for old debts of the insolvent company liable pursuant to section 25 (1) sentence 1 HGB.

Note

The Federal Court of Justice’s decision is correct. The application of section 25 (1) sentence 1 HGB for sales in insolvency proceedings would make the sale of the business in insolvency proceedings for the sake of restructuring impossible. This was already clear for the “normal” insolvency proceedings and must apply in case of self-administration which is only a particular possibility for insolvency proceedings as well.