|
The New German Insolvency Statute |
|
|
|
The reform of the law on insolvency serves not only
to reharmonise the law as it stands within Germany in the area of
insolvency, but especially implements the results of a
long and
intensive discussion which subjected the practicability of the two-tier
law on bankruptcy and settlements to a critical examination.
1. Entry into force of the new Insolvency Statute
In 1994, the German Bundestag (Federal Parliament)
adopted the new Insolvency Statute (Federal Law Gazette [BGBI.] Part I,
1994, pp. 2866 et seqq.) which entered into force on 1 January
1999. The Insolvency Statute has replaced the previous Bankruptcy and
Settlement Codes (Konkursordnung and Vergleichsordnung) as well as the
Act on Collective Enforcement (Gesamtvollstreckungsordnung) in the new
Länder, and has created a uniform insolvency statute for all of Germany.
2. Objectives pursued by the new insolvency procedure
The reform of the law on insolvency serves not only
to reharmonise the law as it stands within Germany in the area of
insolvency, but especially implements the results of a Now that
the German Insolvency Statute has come into force, there is only one
insolvency procedure. This is adapted towards settling creditors'
claims in the best way possible. The procedure may lead to either the
reorganisation or the liquidation of an insolvent enterprise. If the
debtor is a natural person, he/she may be discharged from his/her
remaining obligations on the basis of a special consumer insolvency
procedure; this kind of discharge from residual debt was previously
unknown under German law.
3. Course of the insolvency procedure in the case of insolvent enterprises
a) The procedure is initiated at the request of the
debtor or of a creditor if the debtor is insolvent. If the debtor
him/herself applies, the procedure may already be initiated if there is
only a risk of insolvency. In the case of legal entities,
over-indebtedness also constitutes grounds for initiation.
b) An insolvency administrator is generally
appointed when the proceedings are initiated. The court may, however,
also leave the power of disposal with the debtor, who is then placed
under the supervision of a creditors' trustee.
c) At the latest three months after proceedings have
been initiated, the creditors' meeting decides on the basis of a report
prepared by the insolvency administrator whether the enterprise is to
be liquidated or continued for the purpose of reorganisation.
d) The new legal tool of the "insolvency plan" is
available for the reorganisation of the debtor, which in many respects
is modelled on the reorganisation plan under U.S. law ("Chapter Xl").
The insolvency plan can be submitted either by the debtor or by the
insolvency administrator; the creditors vote on the plan in groups.
e) The secured creditors are involved in the new
insolvency procedure. Moveables supplied whilst retaining title may not
be removed from the enterprise during the first stage of the
proceedings. Moveables which have been assigned for security reasons
are realised by the insolvency administrator; the administrator takes
the cost of determining the securities, the realisation costs and the
turnover tax from the proceeds of the realisation. The rights of the
secured creditors may be restricted by an insolvency plan.
f) In cases of the liquidation of the insolvent
enterprise, all unsecured creditors are settled with the same quota.
The rights giving a prior claim to settlement under the law as it
previously stood have ceased to apply. Employees retain the protection
afforded them by insolvency money, which covers wages lost for the
period of three months. Furthermore, as a rule employees must be given
a lump sum when works are closed ("redundancy payment scheme").
4. The consumer insolvency procedure
The consumer insolvency procedure consists of three phases:
a) The debtor must initially seek an out-of-court
settlement with his/her creditors. He/she is supported in this by a
debtors' advice centre, a solicitor, a notary, tax advisor or
comparable suitable individual.
b) If this attempt to reach an agreement is
unsuccessful, the court insolvency proceedings follow. In a first step,
the court attempts once more to arrive at an agreement between the
creditors and the debtors on the basis of a debt reorganisation plan
submitted by the debtor. Here, it may also substitute the approval of
individual creditors under certain preconditions if the content of the
plan is suitable.
c) If no debt reorganisation plan is prepared, a
simplified insolvency procedure is carried out. If the debtor then
settles with his/her creditors to the best of his/her ability for
another seven years, he/she is discharged from his/her remaining
obligations.
5. International insolvency law
International insolvency law has not been regulated
in detail by the reform. Important principles of international
insolvency law are however contained In Article 102 of the Introductory
Act to the Insolvency Statute (Einführungsgesetz zur Insolvenzordnung)
corresponding to the European Convention on Insolvency Proceedings,
which Germany has already signed, but which still needs to be
transposed into domestic law:
a) Foreign insolvency proceedings also cover the
debtor's domestic assets if the courts of the state in which the
proceedings were initiated have international jurisdiction (this is the
case if the debtor has his/her headquarters or the centre of his/her
main interests in the foreign state), and no breach of public policy
has been committed.
b) In spite of the recognition of foreign
proceedings, special insolvency proceedings may be initiated in Germany
relating to the debtor's domestic assets.
|
Business 
