Introduction

Any functional analysis on how to protect creditors from the risks of abuse inherent in limited liability companies must take into account remedies for the avoidance or adjustment of acts that have occurred prior to the commencement of formal insolvency proceedings. English lawyers discuss the subject matter of this chapter under headings such as ‘transaction avoidance’ or ‘vulnerable transactions’ in insolvency, whereas German lawyers know it as ‘Insolvenzanfechtung’, which may be translated as ‘avoidance in insolvency’. In either case, the rationale is to allow for the retrospective reversal of transactions – the word is used here in a non-technical sense – between the debtor and a third party, which might otherwise be unassailable, on the ground that such transactions have impaired the position of the creditors in the subsequent insolvency of the debtor. Moreover, German law and English law both provide for more stringent avoidance rules where the transaction is between the debtor and a ‘connected person’, which aims at those persons who stand to gain most from abusing limited liability in the run-up to insolvency.

German lawyers, and German company lawyers in particular, may think of avoidance law as a strange point of departure, but it has a lot to commend it. In the conflict of laws, avoidance remedies follow the insolvency regime, which has been codified at the European level in the Insolvency Regulation.