Insolvency (Trade Credit Insurance)

Legal classification

Under German insolvency law, insolvency (illiquidity) is, alongside over-indebtedness, one of the two central grounds for opening insolvency proceedings (sections 17, 18 InsO). It exists when a debtor is unable to substantially meet its due payment obligations.

Relevance in trade credit insurance

In trade credit insurance, a buyer’s insolvency represents the central insured default risk. However, not every actual case of insolvency automatically triggers an insured event – what matters is the precise trigger definition set out in the general policy conditions, such as formal insolvency proceedings or an out-of-court settlement procedure.

Practical relevance

For corporate policyholders, a clearly defined insured event is essential, since payment delays without formal insolvency often fall outside the cover. Careful receivables management and creditworthiness monitoring accordingly complement trade credit insurance.

Additional risk: insolvency claw-back

A distinct risk, separate from trade credit insurance, is the insolvency claw-back (sections 129 et seq. InsO): under certain conditions, the buyer’s insolvency administrator can subsequently reclaim payments already received by the supplier, for example where the payment was made shortly before insolvency proceedings opened. Because such a claw-back claim can arise years after the original payment and is not covered by conventional trade credit insurance, some credit insurers offer a separate insolvency claw-back insurance as a supplement or standalone policy.