The discretionary facility is separately agreed in the insurance contract and allows the policy holder to receive cover for customers with receivables below the discretionary limit without the need for them to be checked by the insurer. The policy holder acts as its own small-scale credit insurer and itself checks whether the conditions for insurance cover are met. The precise rules are set out in the supplementary clause on “insurance cover under the discretionary facility”.
The discretionary limit is specified in the policy holder’s insurance policy. The policy holder must apply for a credit limit for receivables exceeding that amount. Receivables below the discretionary limit are insured under the discretionary facility providing such an agreement is reached with the policy holder and the relevant conditions are met.
The domino effect refers to a situation in which a company itself has payment difficulties owing to the insolvency of a buyer.
Insolvency refers to the inability to pay or over-indebtedness of the debtor. The debtor can no longer make its due payments. If the customer is insolvent, insolvency proceedings are opened on petition (e.g. in Austria bankruptcy proceedings, restructuring proceedings with or without self-administration). Upon the opening of insolvency proceedings, an insolvency administrator is appointed by the insolvency court and supervised by that court. The aim of insolvency proceedings is the liquidation or restructuring of the company.
Voiding of pre-insolvency transactions
This refers to the right of the insolvency administrator to void certain transactions (legal acts) of the debtor that were made before the opening of the insolvency proceedings. See also preferential payment insurance.