Case 15 - Indebted businessman sells business to brother

Summary

(Liability of purchaser of a business for pre-existing debts – actio Pauliana)

A operates a business as a sole trader. Bank B lends money to A. The loan is unsecured. On 1 July, A defaults on his loan payments. On 1 September, B executes against the business assets. It transpires that these assets were, in early July, sold to A's brother, C. A continued, however, to run the business. The purchase price was in fact paid and was a fair market price.

Questions

1. (a) Can B still execute against the business assets?

2. (b) Can B have the sale between A and C set aside?

3. (c) Would the answers to parts (a) and (b) change if the price paid was well below a fair market price?

Discussions

GERMANY

(a) According to § 25 HGB, the purchaser of a business is liable for previous debts of that business if the business is continued under the same name. This liability can be excluded by means of an agreement between the parties to the contract of sale. Such an exclusion will be valid as against third parties (i.e. former creditors), provided that either it is entered on the commercial register and published, or the creditors are notified individually of it (§ 25 s. 2 HGB).