“Silence means defeat” – On the secondary burden of demonstration in contestation proceedings Judgment of the Federal Court of Justice of 6 March 2025 – IX ZR 209/23

In its judgment of 6 March 2025 – IX ZR 209/23, the German Federal Court of Justice ruled on the secondary burden of demonstration in contestation proceedings. In the final analysis, it was especially suspicious that the parties opposing the contestation – as persons with a close relationship to the debtor – did not make detailed submissions on purchase price payments. As those payments were not clarified, the claimants’ (creditors’) submissions in this respect had to be regarded as acknowledged in the proceedings. As a consequence, the Federal Court of Justice quashed the next lower court’s judgment.

Facts

The claimants sought an order requiring the defendants to tolerate execution against their respective co-ownership interests in two properties located in Baden-Baden, Germany. The claimants had two enforceable claims against the debtor, in the approximate amounts of EUR 1.76 million and EUR 700,000. These claims were based on guarantees that had been furnished by the debtor as security for claims arising from leasing transactions.

The debtor was the first defendant’s mother and the mother-in-law of the second defendant. In October 2016, the debtor sold the defendants a property that was being let, for co-ownership in equal shares, at the price of EUR 650,000. In 2017, she additionally sold the first defendant a residential building that was being used by the debtor herself, at the price of EUR 600,000, following which the first defendant assigned a 50% co-ownership interest to the second defendant.

In the claimants’ opinion, the defendants obtained their respective co-ownership interests in the properties in a contestable manner. The claimants disputed that the purchase prices agreed in the notarial deeds had been paid.

The lower courts, however, denied the contestability of the transfers of ownership under the German Contestation Act. The main reason given for the dismissal of the action was that the claimants had failed to prove that at the time ownership was transferred, the defendants had been aware of the debtor’s intent to place her creditors at a disadvantage. The lower courts held that even though the defendants’ close personal relationship to the debtor might be an important indication that they were aware of the debtor’s intent to place her creditors at a disadvantage, especially if the performance owed was out of proportion with the consideration, the defendants had complied with their secondary burden of demonstration regarding the circumstances behind the purchase of the two properties. According to the lower courts, the defendants could not be expected to make further submissions – for example, with regard to the purchase price payments – as part of the secondary burden of demonstration. The Federal Court of Justice took a different view.

General information about being a “person with a close relationship to the debtor” (including legal persons)

The term “person with a close relationship to the debtor” is defined in Section 138 German Insolvency Code and means any person who, for personal, corporate or similar reasons, has special access to information about the debtor’s financial circumstances. If the debtor is a legal entity (for example, a limited liability company, limited partnership, stock corporation or SE), not only the members of the representative and supervisory bodies, but also general partners, shareholders holding more than 25% of the shares and intermediaries, if any, fall within the scope of the provision. Persons with a close relationship to the debtor within the meaning of Section 138 German Insolvency Code are subject to special rules regarding the burden of proof that make it significantly more difficult (but not impossible) for them from a procedural perspective to defend against rights to contest.

The judgment

The defendants should have made more detailed submissions on the payment of the purchase prices that had been agreed in the notarised purchase agreements. By contrast, they were not obliged to furnish proof of payment.

According to the Federal Court of Justice, the party opposing the party that bears the primary burden of demonstration is subject to a secondary burden of demonstration if the party bearing the primary burden of demonstration has no detailed knowledge of the relevant circumstances and no opportunity to further clarify the facts while the disputing party knows all the relevant facts and can easily provide more detailed information and this is not unreasonable for it. The disputing party is obliged to make inquiries as part of its secondary burden of demonstration, except where this would be unreasonable. However, the secondary burden of demonstration leads neither to a reversal of the burden of proof nor to an obligation incumbent upon the party against whom a claim is being made, beyond the procedural obligation to tell the truth and the burden of demonstration, to provide the claimant with all the information needed to win the lawsuit. If the party against whom a claim is being made does not comply with its secondary burden of demonstration, the claimant’s submissions must be deemed acknowledged, according to Section 138 German Code of Civil Procedure.

A secondary burden of demonstration regarding occurrences outside the other party’s sphere of knowledge may be imposed if the party with whom the burdens of demonstration and proof lie provides concrete evidence indicating that its statement is correct. This was the case in the matter at issue.

The claimants had claimed that the defendants had not actually paid the purchase prices agreed in the purchase agreements, and they had made submissions containing sufficiently concrete evidence to this effect, including, for example, that the debtor had declared in another lawsuit in 2021 that she no longer owned any significant assets, which raises doubts about whether the properties were actually sold for a valuable consideration only a few years earlier. The claimants thus claimed, in substance, that there had been a gratuitous transfer, which – in particular from the point of view of a sham transaction between different parties – could be an indication that the subjective requirements for contestation under Section 3 (1) German Contestation Act are fulfilled. Where contracts are entered into between the debtor and a person with a close relationship to the debtor, there is a particular risk that these contracts constitute mere sham transactions carried out to protect assets from creditors. Against this background, it would not have been unreasonable to require the defendants to provide more detailed information on the payments actually made and to demonstrate whether and to what extent the agreed purchase prices had been paid.

Conclusion

Asset transfers to persons with a close relationship to the debtor are always “especially suspicious”. There are high standards under substantive and procedural law for the defence against rights to contest.

In a corporate context, people often fail to see that (even indirect) shareholders and acting members of corporate bodies can be subject to a risk of contestation, as “persons with a close relationship to the debtor”. This risk can, however, be reduced by strict compliance with the requirements for cash transactions. This means that the exchange must be at arms’ length and take place within a short period of time. This must be demonstrated and proven in the event of a dispute.