Identifying Further Restructuring Risks in Germany - Federal Court of Justice Clarifies Liability for Continuing the Business of an Insolvent Company

March 27, 2014

The Financial Crisis, a difficult market situation and a tense liquidity status have led to remarkable difficulties for mid-sized businesses within the past years. Strategic and financial investors have and continue to utilize these circumstances to acquire interesting distressed companies for comparatively moderate purchase prices.

In order to benefit from these circumstances, investors need to understand how to avoid or minimize the risks of liability related to such acquisitions.

The statutory liability for existing obligations of the acquired business is one of the main risks for the purchaser who continues the business. Although established German case law provides for an exemption from this liability in cases that involve an acquisition of an insolvent business from the insolvency administrator, the timing of the transaction, which might lead to a factual continuance of the business before the initiation of insolvency proceedings, is the determinant of liability risks for the purchaser.

Read the complete Dechert OnPoint "Identifying Further Restructuring Risks in Germany - Federal Court of Justice Clarifies Liability for Continuing the Business of an Insolvent Company".