German Insolvency Law
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Recent judgments (As of: 20/10/2018)
Contesting Resolutions of the Bondholders' Meeting in Issuer Insolvency
The Federal Court of Justice (BGH) specifies the requirements and the standard of review for the judicial setting aside of resolutions of a bondholders' meeting passed after the opening of insolvency proceedings over the assets of the issuer. The provisions of the German Insolvency Code, particularly § 78 InsO, are decisive, rather than those of the German Bond Act (SchVG).
- Admissibility of the Application for Setting Aside: An application to set aside a resolution of the creditors' meeting under § 78 InsO is also admissible if the resolution is ineffective. The court may set aside a void resolution for the purpose of removing legal uncertainty (declaratory).
- Applicability of the InsO: The judicial control of bondholders' resolutions after the opening of insolvency, especially regarding the appointment, remuneration, and liability of a joint representative, is governed exclusively by the provisions of the German Insolvency Code (§ 19 Para. 1 S. 1 SchVG, § 78 InsO).
- Standard of Review: The sole standard for setting aside is whether the resolution contradicts the common interest of the bondholders (not all insolvency creditors). A procedural error or a violation of substantive law alone is not sufficient, unless it leads to a clear and significant violation of this common interest.
- Principle of Ex Officio Investigation: In the proceedings for setting aside a resolution, the principle of ex officio investigation applies (§ 5 Para. 1 InsO). The court must investigate substantiated allegations of its own accord.
- Appointment of the Joint Representative: The appointment of a joint representative by majority resolution is permissible even if the bond conditions do not provide for this. A foreign but expert legal entity may also be appointed.
- Remuneration and Liability as Ancillary Decisions: Resolutions on the remuneration and liability of the joint representative are permissible as ancillary decisions to the appointment and are covered by the resolution competence of the bondholders' meeting under § 19 Para. 2 S. 1 SchVG.
- Appropriate Remuneration: The appropriate remuneration of the joint representative is determined by the circumstances of the individual case. Time-based remuneration is appropriate. A flat-rate orientation toward the German Attorneys' Fees Act (RVG) is ruled out as unsuitable.
- Personal Suitability of the Joint Representative: A resolution contradicts the common interest if the appointed representative offers no guarantee of exercising their office in the interest of the bondholders. The court must investigate concrete indications of potential unsuitability (e.g., past misconduct); a final criminal conviction is not required for this.
Entscheidung vom 16/10/2025 (IX ZB 10/24) - Vorinstanzen: Local Court (AG) of Munich, Regional Court (LG) of Munich I
Guiding Principles
The Federal Court of Justice clarifies that the assessment of the suitability of a joint representative of bondholders in insolvency proceedings (§ 19 SchVG) requires a careful and comprehensive evaluation. A resolution of the bondholders' meeting to appoint a representative can be set aside under § 78 InsO if the appointment contradicts the common interest of the creditors, which is particularly the case if the representative lacks suitability.
- The assessment of whether the appointment of a joint representative contradicts the common interest of creditors must not be limited to a formal review. The insolvency court must consider all presented circumstances that argue against the candidate's personal or professional suitability in an overall evaluation.
- Circumstances to be evaluated may also include aspects that do not directly concern the person of the representative, such as misleading advertising by a company associated with the representative or doubts about the proper processing of payments to creditors (here: procedures for forwarding quota payments).
- A rejection of objections against suitability by lower courts without sufficient examination of the facts is legally erroneous and leads to the setting aside of the decision.
Practical Note
The decision underscores the importance of the right to contest under § 78 InsO as a corrective against majority decisions in creditors' meetings that run counter to the common interests of the creditors. For practice, this means:
- For Bondholders: Creditors who have concerns about the suitability of a joint representative standing for election should present these precisely and with substantiation (e.g., evidence of past misconduct or conflicts of interest) in the proceedings. The decision strengthens their position to demand a comprehensive judicial review.
- For Insolvency Courts: The courts are required to seriously examine objections against the person of the joint representative and must not reject them globally. The reasoning of a dismissive order must reveal that an overall evaluation has taken place.
- For Candidates: Persons or companies standing for election as joint representatives must expect a critical examination of their suitability and their business environment. Transparency regarding one's own qualification and the processes intended for office management is crucial.
Entscheidung vom 16/10/2025 (IX ZB 14/24) - Vorinstanzen: Local Court (AG) of Munich, Regional Court (LG) of Munich I