An Interview With...
from one of the leading law firms in Germany, Leonhardt Rechtsanwälte.
becomes centrally important because right after the filing it can suggest who the administrator shall be. It can also block DIP- proceedings if they are unpopular with the creditors. Its formation is required if the turnover of the debtor is €9.68 million or larger, its balance sheet sum is €4.84 million or larger and average employment was 50 employees or more (two out of three are sufficient).
requirements are not met its formation is not required but suggested. The court must follow a unanimous recommendation unless the appointment would have detrimental effects for the insolvency estate. It has to justify a divergent choice by a written and reasoned decision. Thus the creditors now have substantial influence over the most important decision in insolvency cases, the appointment of the administrator.
The aim of the new law is to both increase the influence of the creditors and to create new possibilities for the
decision. If the enterprise is not yet illiquid – which, however, has to be determined by an independent expert opinion – proceedings are speeded up to be finished and the restructuring completed after three months.
the ESUG reduces
individual creditors’ rights to appeal against an insolvency plan. Appeals require that the creditor voted against the plan and proves that the plan causes him a significant economic disadvantage. Even then the appeal will not delay the implementation of the
plan, provided that the plan provides for a specific sum used as damages should the appeal succeed.
How will it affect the German economy?
In insolvency plan proceedings creditors are now given the option of swapping their debt for equity if they so wish. For this the ESUG abolishes the strict separation of insolvency and companies law, permitting any measure possible under companies law to be made through majority vote in a plan and supplanting many formalities which companies law normally requires.
However, debtors are also given additional rights. If a debtor files with the intent to stay in possession this can be rejected by the court only under much more narrow preconditions than before. No administrator is then appointed but instead there is only some supervision of the debtor who remains in control of his business, and if debtor and creditors’ committee agree on the person of the supervisor the court is bound by this
The amendments make German insolvency law much more competitive and creditor-friendly while encouraging management to file early when a restructuring is needed. Both measures combined should lead to more professional and speedier restructurings which would reduce losses for creditors and protect the remaining value in the businesses concerned.
What are German law firms doing to prepare for the new rules?
I expect that the major firms which do restructuring work will use the new self- administration and insolvency plan procedures quite extensively. Administrators will have to focus more on the interests of
creditors who in important cases can now call the shots.
could the reforms have gone further? If so, how?
Quite remarkably, the German legislature has listened to the criticism of German and international creditors alike and has made changes which must be called revolutionary, moving the German insolvency system away from court- determined liquidation to business-oriented restructuring. In the face of this we should not pick bones. Of course there are some details which will have to be ironed out in practice, and the required unanimity in the creditors’ committee is a bit too cautious when a majority vote might have been more appropriate. Still as it stands the new law represents a major achievement which is to be greeted and used. LM