Bankruptcy-related termination clauses or solution clauses are contractual agreements under which a party gains the authority to terminate a contract if a case of bankruptcy occurs. Sometimes, it is also agreed that the contract will be changed when bankruptcy proceedings are opened.

A termination clause that applies in the event of bankruptcy can provide for an automatic end of the contract or, alternatively, give the contractual partner a right to choose. The termination agreement due to bankruptcy can either be linked to the opening of bankruptcy proceedings. The possibility of termination can also be created by deteriorating financial circumstances.

This article explains when termination clauses due to bankruptcy are generally ineffective and in which cases an exception applies.

New legal situation: Ineffectiveness of termination clauses related to bankruptcy

In a case before the Federal Court of Justice, the question arose as to whether a bankruptcy-related termination clause is legally effective. This was preceded by an agreement between an electricity provider and the electricity purchasing company. There was a clause in the underlying contract stating that:

The contract ends automatically without notice if the customer files for bankruptcy or bankruptcy proceedings are initiated or opened because of a creditor application.

On the basis of this clause, the electricity provider saw the contract as automatically terminated after bankruptcy proceedings had been opened against the assets of the electricity-purchasing company. It offered the bankruptcy administrator a new contract, which provided for a further supply of electricity, however, at increased prices.

Thereupon the bankruptcy administrator sued and attacked the bankruptcy-related termination clause. He complained that the bankruptcy-related termination clause violated Section 119. The Federal Court of Justice agreed with this in its decision of November 15, 2012 - IX ZR 196/11. For the Federal Court of Justice, such a bankruptcy-related termination clause interferes with the liquidation authority of the bankruptcy administrator, which by law leaves him to decide whether a continuing obligation should continue to be fulfilled or whether it will be terminated. If monthly expenses exceed due to overwhelming amounts of debt, click here for chapter 7 bankruptcy.

The Federal Court of Justice allows an exception to this in cases in which the law specifically provides for a detachment from the contract. More on this in the next section.

When are bankruptcy-related termination clauses effective?

In the case of insurance contracts: If the insurer encounters payment difficulties, the contractual relationship with the policyholder ends after the opening decision, Section 16 VVG. In the case of partnership agreements of partnerships: If bankruptcy proceedings are opened over the assets of a partner, the company is generally dissolved or the insolvent partner leaves the company.

Under certain circumstances in the case of debt contracts: If someone is obliged to perform in advance and it becomes apparent that the other party is getting into financial difficulties, the contract can be withdrawn from the contract after a period that has previously been set and has expired without result, cf. § 321 BGB.

In the case of corporate contracts: Parties to a domination agreement can provide for a termination clause so that termination is possible if one of the parties has financial difficulties, Section 297 AktG. In the case of loan agreements: The lender is granted an extraordinary right of termination if the borrower's financial situation threatens to deteriorate, § 490 BGB.

Please note that this is an exemplary and non-exhaustive list.

Scheduling and public announcement of the exam date

In contrast to the reporting date, the examination date is usually a mandatory date in bankruptcy proceedings. The examination date generally takes place at the creditors' meeting, which regularly follows the reporting date. This can be deviated from if the bankruptcy court orders a written procedure instead.

The bankruptcy court usually sets the examination date in conjunction with the reporting date, so that the examination period is terminated within 3 months after the opening decision. This date is made public and is on the government-furnished this Inter side visible. The creditors will be formally informed of the date by delivery of the opening resolution.

Expiry of the exam/audit date

During the audit/examination, the registered claims of the creditors against the bankruptcy debtor are examined. This is based on the registration of the claims of the creditors in the bankruptcy table, the process of which we describe in our article.

To this end, each claim is checked individually. Particular attention is paid to the amount and rank of the claim during the audit. The rank of a claim means that claims can be of different types. Claims from unpaid invoices are, for example, simple bankruptcy claims. The type of claim then determines the extent to which a preferential satisfaction of the claim can take place at the end of bankruptcy proceedings. You can find a list of the various types of claims and thus also the various positions of creditors in our article Creditors.

In addition to the simple bankruptcy claims, there are also special claims, such as from tort, tax offenses or arrears of maintenance. These claims do not take part in the debt discharge procedure, for example. In other words, the debtor must continue to settle these claims despite having completed the bankruptcy proceedings and granted residual debt.

Since the bankruptcy quota is reduced as the number of registered claims increases and thus less of the bankruptcy estate reaches the individual creditor, there is sometimes a struggle over the existence of the respective claim. The bankruptcy administrator cannot recognize a claim. In this case, he denies the existence of the claim as a whole or to a certain extent. This can lead to disputes. In the next section, we will outline what consequences this has for the creditor concerned and what effects this will have for the bankruptcy proceedings.

Not only the bankruptcy administrator can dispute a claim. The bankruptcy creditors and the debtor can also object to a registered one in whole or in part. The bankruptcy creditors are pursuing the purpose of keeping the bankruptcy estate as large as possible in order to maintain the highest possible chance of complete satisfaction of their claims. The debtor will object to a claim because otherwise he must fear that the creditors will pursue foreclosure against him after the bankruptcy proceedings. Because the determination of the claim to the table represents an enforceable title. If the debtor contradicts the claim, this has no influence on the bankruptcy rate and the distribution of the bankruptcy estate.