Insolvency protection proceedings

The insolvency protection proceedings under section 270b of the Insolvency Statute (in Germany often referred to as the “Schutzschirmverfahren”) are a special procedure within the framework of insolvency application proceedings. Insolvency protection proceedings are part of (provisional) self-administration. These are based on the American Chapter 11 procedure. The aim here is to enable the reorganisation of the company or the legal entity in self-administration. The insolvency court will, upon request, set a corresponding deadline for the reorganisation, i.e. for the submission of a reorganisation plan (insolvency plan). During this period, the company is under special protection. This means that the company can continue to operate on the market under supervision and the board of management has powers of administration and disposition, but creditors are not able to pursue individual enforcement measures.

Instead of a (provisional) insolvency administrator, a (provisional) insolvency monitor is appointed to supervise the board of management (which maintains powers of administration and disposition) as well as its insolvency consultant. The main advantage of insolvency protection proceedings over other available proceedings is that it is possible to propose the person who monitors business operations (the insolvency monitor). The court may deviate from the proposal only in the event that this person has been previously involved in the matter or is not qualified.

In order to be able to initiate insolvency protection proceedings, it is not necessary that the company actually be insolvent, but rather that it is only facing imminent insolvency or over-indebtedness. This must be certified by an auditor, tax consultant or other person experienced in insolvency matters before insolvency protection proceedings can be initiated. It is also necessary to demonstrate that initiating the protection proceedings will not lead to disadvantages for creditors. In particular, it must be demonstrated here that the board of management has an expert report available to it that attests that the provisions of the Insolvency Statute are being complied with. If such an expert report is not available for the management, a chief restructuring director (CRO) may have to be appointed or a law firm experienced in insolvency matters may have to be commissioned to provide reorganisation consulting. Whether a reorganisation managing director is necessary or whether the appointment of an external reorganisation consultant is sufficient will be discussed with the responsible insolvency court in advance of the application for insolvency protection proceedings.

The implementation of insolvency protection proceedings (self-administration) presupposes that the insolvency estate will not be placed in a worse economic position by the proceedings than it would be under normal proceedings. Therefore, the implementation of insolvency protection proceedings must not be economically disadvantageous. In particular, the costs of the different paths of action must be compared here. 

Our lawyers and insolvency administrators at LEONHARDT RATTUNDE act both as mandated reorganisation consultants and as insolvency monitors appointed by the court in insolvency protection proceedings. Time is often a critical factor in situations where it is necessary to initiate insolvency protection proceedings. LEONHARDT RATTUNDE can draw upon a large team of specialists all over Germany that enable it to operate successfully nationwide and within a tight time frame.

This protective measure, which allows the preparation of a planned reorganisation, requires sound preparation and professional implementation by experienced experts.


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