Federal Court of Justice (BGH) clarifies postponement of priority
> August 2015
In its ruling of 5 March 2015 (ref. IX ZR 133/14), the BGH clarified a number of open issues relating to so-called postponement of priority agreements.
In a postponement agreement the creditors and borrowers of a claim whose the creditor may demand payment, if no grounds exist for insolvency borrower or triggers the payment. Such agreements are frequently used both in restructuring practice and also structured finance in order to endow a liability a character similar to equity capital. In particular, this can eliminate over indebtedness and thus an application for insolvency of the borrower.Unfortunately, confusion was evoked by an ambiguous formulation of the BGH in 2001. The court has now eliminated this confusion and thus created the required clarity for practice. At the same time, the BGH has determined that payments, which are made after the postponement of priority, without legal basis and free of charge and therefore their return could be demanded. It is also not possible for parties to prevent this after occurrence of liability for insolvency by cancelling the order of precedence. This would require the agreement of all creditors of the borrower.
