BGH (IX. Civil Senate), Judgment dated 27.10.2022 – IX ZR 213/21

Once again, corporate insolvencies are increasingly becoming the focus of public attention. The economic difficulties of a contractual partner regularly cause unrest on the part of the creditors, short-term options for action are examined and the contractual partner is often confronted with the termination of the business relationship.

Insolvency-dependent solution clauses: termination of contract in the event of insolvency situation

To this end, creditors regularly invoke so-called “insolvency-dependent dissolution clauses”, which see the existence of a reason for insolvency, the filing for insolvency or the opening of insolvency proceedings as grounds for terminating a contract without notice. This approach is often legally ineffective, because one of the aims of the insolvency code is to provide the debtor with the greatest possible opportunities for reorganization and also to safeguard the insolvency estate. The more creditors would therefore terminate favorable agreements, the more the insolvency debtor’s chances of successful reorganization would decrease accordingly.

The effectiveness of insolvency-dependent dissolution clauses must therefore be assessed on the basis of the Insolvency Code, in particular Sections 103, 119 InsO: The insolvency administrator has the right of choice to decide on the continuation of contracts that have not yet been fully performed, cf. Section 103 InsO. § Section 119 InsO prohibits contractual arrangements that override the provisions of the Insolvency Code in advance.

Insolvency-related contract termination: Legal effectiveness

Whether insolvency-related dissolution clauses are thus generally invalid has been disputed in case law and literature for years. The discussion is dominated by a 2012 ruling of the Federal Court of Justice (BGH) (Case No.: IX ZR 169/11), according to which insolvency-dependent dissolution clauses in contracts for the ongoing supply of goods and energy that were linked to the filing for insolvency or the opening of insolvency proceedings were invalid because they undermined the insolvency administrator’s option. However, according to the BGH, an exception applies in the event that the law already provides for a solution option that corresponds to the insolvency-dependent solution clause. As a result, case law regularly regarded insolvency-dependent resolution clauses relating to construction contracts, for example, as effective, since they were closely based on the statutory resolution options under the law on contracts for work and services (see BGH VII ZR 56/15).

BGH (IX. Civil Senate), Judgment of 27.10.2022 – IX ZR 213/21

In November 2021, however, the Higher Regional Court of Celle as the court of appeal judged the termination of a transport contract due to the insolvency of the bus company to be invalid. The practice hoped that the decision of the BGH, which was then appealed to, would provide further clarity on insolvency-related termination options.

The BGH (Ref.: IX ZR 213/21) overturned the appeal ruling and referred the case back to the OLG Celle. Although the ruling does not provide the desired clarity with regard to insolvency-related termination clauses, it does allow further conclusions to be drawn on how to deal with such provisions:

According to the BGH, insolvency-related solution clauses are in any case not per se invalid. In particular, an insolvency-related termination option is said to be effective if it is closely based on an existing statutory solution option and covers a risk that was already seen in connection with insolvency at the time the contract was concluded.

in connection with insolvency at the time the contract was concluded. Cases from the law on contracts for work and services should be mentioned here, for example, in which the law already permits termination for good cause. In other cases in which the law provides for termination for cause, insolvency-related severance clauses can also be effective, because the reliability of the contractual partner is also regularly decisive here. In such cases, they could often serve “to make the question of the reason for dissolution legally secure and no longer dependent on the difficult circumstances of the individual case, which are susceptible to dispute and may be difficult to prove”. However, the BGH still makes a restriction by citing an exercise control: i.e. the termination may under certain circumstances be contrary to the interests of the insolvency debtor and thus inadmissible, which is to be assessed on the basis of a weighing of interests in the specific individual case. In addition, insolvency-dependent severance clauses in favor of a monetary creditor would probably continue to be invalid on a regular basis.

Practical implications: Insolvency situation and possible courses of action

It remains to be said that an insolvency situation at the contracting party does not necessarily mean that a creditor is released from its obligation to perform and can detach itself from the contract. Often, therefore, the service must continue to be provided in accordance with the contract.

Companies should therefore take appropriate precautions in the event of the insolvency of their contractual partners. There are a variety of ways to do this, and we will be happy to help you examine and implement them. Whether insolvency-dependent solution clauses can also be used will still have to be assessed on the basis of the specific individual case. In this context, it remains to be seen what further specifics the case law will provide on the admissibility of insolvency-dependent severance clauses.

Please do not hesitate to contact us if we can assist you in reviewing and drafting your contracts!