EMCC European Monitoring Centre on Change

Germany: Rescue procedures in insolvency

Germany
Phase: Management
Type:
Rescue procedures in insolvency
Last modified: 28 September, 2021
Native name:

Insolvenzordnung (InsO); Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen (ESUG); Gesetz zur weiteren Erleichterung von Konzerninsolvenzen

English name:

Insolvency statute; Act to further facilitate the restructuring of companies; Act to facilitate the insolvency procedure of large companies (holdings)

Article

270b (Insolvency Statute); 67 (2) ESUG; Act to facilitate the insolvency procedure of large companies (holdings) whole regulation

Description

Under certain conditions a company which can no longer pay its creditors and is deemed illiquid can be granted three months' time for developing a restructuring plan. During these three months the company does not have to pay its creditors; rather the creditors shall be involved in the process leading up to the restructuring plan.

The legal requirements are:

  • the company makes its request for the opening of insolvency proceedings with the insolvency court on grounds of imminent insolvency or over indebtedness,
  • it requests debtor-in-possession management which implies that the management of the insolvency process is not handled by a foreign agency or consultant,
  • the company provides certification by a tax advisor, accountant or lawyer with experience in insolvency matters or a person with comparable qualifications which gives evidence of the imminent insolvency or over indebtedness but also shows that the debtor is not already insolvent and that the intended restructuring does not manifestly lack the prospect of success.

The insolvency court, without external inputs from the creditors, takes a decision depending on the prospect of success to save the business. A positive decision implies the allowance not to pay the creditors' demands for three months and to develop a plan on how to restructure the business. The insolvency court appoints an insolvency observer, an independent expert who monitors the process of developing the plan. The debtor as well as the creditors have a right to suggest a person to take the position of the insolvency observer.

Under the act on the further facilitation of the insolvency procedure (ESUG), communication and cooperation between the debtor and the creditors shall be improved by the establishment of a committee gathering all creditors. Better communication between the two sides and the insolvency monitor shall speed up the drafting of a plan aimed at rescuing the business. The insolvency ordinance (article 67,2) respectively to the ESUG stipulates that a  worker representative shall be member of the creditors' committee  (Gläubigerausschuss). In case a works council is in place, the worker representative typically is a works council member. There is no legal provision on how the worker representative shall be appointed in other cases. 

The law also institutes a 'debt-to-equity-swap' whereby liabilities can be transformed into company shares. Early assessments have largely shown that the new measures are successful.

Comments

The ESUG has been in force since 1 December 2012; in spring 2017 another act for facilitating the insolvency procedures of large companies (Gesetz zur Bewältigung von Konzerninsolvenzen) was passed which also stipulates the establishment of a joint committee of creditors for large companies (holdings). 

In August 2018, the federal government released its report on the usage of the ESUG based on an evaluation conducted at Bielefeld University (Jacoby et al, 2018). The evaluation is positive but finds that the establishment of the committee of creditors and the debt-to-equity-swaps are less often used than expected. The ESUG has no negative impact neither on companies nor on workers (Jacoby et al, 2018). 

Consultant group Roland Berger together with HgGUR, a non-profit group of consultants, runs non-representative surveys on ESUG on a regular basis. In 2018, the ESUG study was published based on about 2,300 responses by management and insolvency experts. It finds that ESUG is by now widely known and accepted.

Cost covered by
Not applicable
Involved actors other than national government
  • Works council
  • Other
Involvement others
Court; creditors; consultants; insolvency monitor
Thresholds
No, applicable in all circumstances
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