§ 103 InsO (administrator's election right)

§ 103 InsO applies when, at the time proceedings open, a mutual contract has not been fully performed by either party — e.g. ongoing supply, lease or service agreements. The administrator has an election right: demand performance, in which case the counter-performance becomes a preferentially-paid estate liability (§ 55 InsO); or refuse performance, leaving the counterparty with only an ordinary — usually only fractionally satisfied — insolvency claim for non-performance.

For distressed M&A buyers this matters twice over: in an asset deal, the buyer does not automatically step into the target's contracts — ongoing supplier, lease or licence agreements must be individually renegotiated or transferred by contract assignment (with the counterparty's consent), regardless of how the administrator previously exercised the election. For the purchase agreement with the administrator itself, the election right typically no longer applies, since the administrator there acts as the fully-performing party.

Special rules exist for lease and employment contracts (§§ 108 et seq. InsO), which continue by operation of law with effect for the estate, and for financing agreements with termination-on-insolvency clauses, whose enforceability can be disputed. Buyers should review the target's contract list early in due diligence for ongoing, not-yet-fully-performed contracts to gauge realistic assumption and renegotiation effort.