i Statutory framework and substantive law

Germany’s insolvency law can be considered as both old and new.

Insolvency legislation in Germany dates back to 1878, when the Bankruptcy Act established fundamental insolvency principles for the German empire, which was founded just eight years before.

However, it also considered modernised because today’s insolvency law is mainly determined by the German Insolvency Act (GIA), which came into force in 1999 and was substantially amended in 2012.2 2017 brought some new nuances that we will deal with in more detail later on in this chapter.

Although the GIA always aimed to provide possibilities for in-court restructuring including self-administration, besides general liquidation and post-sale creditor satisfaction, the prevailing principle was the liquidation of the insolvent company and sale of the assets. Thus, German insolvency practitioners felt that German insolvency law is not competitive to foreign insolvency laws that provide for better in-court and out-of-court restructurings.

Consequently, on 1 March 2012 the GIA was amended (ESUG-amendment). Since this amendment, the self-administration tools and influence on the appointment of the insolvency administrator for debtors and creditors have improved, and an umbrella protection proceeding as a special feature of self-administration aimed at an in-court restructuring has been established. However, calls for the introduction of an out-of-court restructuring regime were not heard, but the discussion is continuing, fuelled by the EU Commission initiative for harmonisation of European insolvency law. In 2017, the powers of the insolvency administrator to set aside transactions (clawback provisions) have been cut back, and completely new provisions for group insolvencies have been introduced. The general perception of insolvency practitioners in Germany is that German insolvency law is now more competitive to other European and non-European insolvency legislation and the tools for restructuring insolvent companies through an in-court proceeding have been successfully amended.3

Still, the general principle of German insolvency law is not the survival of the insolvent company at any cost, but to reach collective satisfaction of the debtor’s creditors on the most attractive terms – either by keeping the company running or by selling its assets (see Section 1 of the GIA).

General insolvency proceedings (liquidation)

The proceedings described in the following paragraphs cover the general insolvency proceedings. Special proceedings aimed at restructuring the debtor are discussed in Section I.iii.

Preliminary insolvency proceedings

After a filing for insolvency by the debtor or a creditor, the insolvency court starts to examine whether the company is actually insolvent and if there are sufficient assets to meet the expenses of the proceeding in a preliminary insolvency proceeding. The insolvency court appoints a preliminary insolvency administrator (PIA). The debtor and a preliminary creditors’ committee (if established by the court because of the fulfilment of certain thresholds) can suggest or – fulfilling certain requirements – even make a binding proposal for an individual person to be appointed. The PIA controls and limits the power of the management of the insolvent company or takes control of all actions of the debtor.

This ‘preliminary phase’ is unknown to many foreign creditors and debtors and is regularly the source of legal questions such as ‘who is representing the company now?’ and ‘can we continue trading with the company?’ Essentially, and on a very general note, the insolvent company continues its business with its current management but is controlled and limited by the PIA. The debtor can continue its business as long as transactions are confirmed or carried out by the PIA.

Preliminary proceedings do not usually exceed three months because for such period the German state pays the employee’s wages (up to a certain amount) and the debtor is released from paying such wages.

General insolvency proceedings

If the court is positive that the debtor is insolvent and enough assets are available regular insolvency proceedings start and the PIA is replaced by the (final) insolvency administrator (IA). The IA is usually the same person as the PIA.

As of the opening of the general insolvency proceedings, the IA takes full control of all assets of the debtor. The management is still in place, but it loses control of the debtor.

During the proceeding, all rights of taking decisions are with the IA who needs the consent of the creditors’ committee or the creditors’ assembly for material actions.

Creditors of the company who earned their claims before the opening of insolvency proceedings, file their claims against the insolvent estate with the IA and inform the IA about securities granted to them.

There are three classes of creditors: first, there are secured creditors (creditors entitled to separate satisfaction) such as those secured by mortgages or security assignments.4 They can demand priority of receipt of the money up to full satisfaction of their claim (minus a fee for the IA, which amounts to 9 per cent in many cases) when the asset is sold. If their claim is not fully satisfied, the remaining part will be treated as an unsecured claim.

Secondly, there are unsecured creditors,5 which are typically suppliers or customers who dealt with the debtor prior to the opening of insolvency proceedings. They only receive the general insolvency quota at the final distribution of the insolvent estate. The average quota in corporate insolvencies is approximately 4–7 per cent of the claim.

Finally, there are subordinated creditors,6 for example, creditors with subordination agreements by statute, such as lenders of shareholder loans or by individual contract. These creditors usually do not receive any payment on their claims.

Creditors, who have a right of segregation because they are the owner of the asset that only happens to be in the possession of the debtor, are not creditors of the insolvent estate. As a general rule, they can claim return of their assets from the IA. Typically, this can apply to suppliers with extended retention of title clauses – a concept often unknown to foreign suppliers outside of Germany.

A German characteristic of insolvency law is that claims against the insolvent estate that were established during the preliminary stage by consent of the PIA or during the general insolvency proceedings by the IA7 are preferential to all unsecured insolvency claims and have to be settled in full and first, together with the insolvency court fees and fees for the IA and creditors’ assembly.

With the exception of that peculiarity, there are no other preferential unsecured creditors, such as tax authorities.

After the IA realises the assets of the company, collects outstanding claims, gives back assets that do not belong to the insolvent estate, settles preferential claims and sets aside unlawful transactions, the unsecured creditors receive the general insolvency quota and the insolvency proceedings end.

The insolvency proceedings are always supervised and led by the insolvency court, and the IA constantly reports to the insolvency court as well as to the creditors’ assembly.

Right to set aside transactions (clawback)

Another special feature of German insolvency law is the broad power of the IA to set aside transactions of the insolvent estate carried out before filing for insolvency proceedings or during preliminary insolvency proceedings.8 It is a German peculiarity compared to other insolvency law systems that there always is a high risk of clawbacks for all contract partners of the insolvent estate that dealt with the insolvent estate years before the insolvency proceedings were initiated.

In the event of a successful clawback, the contractual party of the insolvent estate has to return what was received in full (e.g., purchase price) to the insolvent estate. This party in return only receives an unsecured counterclaim against the insolvent estate (e.g., value of the delivered goods), which will be satisfied with the regular insolvency quota.

After debate for many years between German insolvency practitioners, a reform of the GIA to limit the IA’s power in this regard came into force in April 2017.9

While the general intent of the clawback rules was not challenged, the reform restricts the IA’s rights in scope and time. There are three aspects of particular interest.

First, before the reform the IA could set aside transactions that were carried out for a period of up to 10 years before insolvency proceedings were initiated under Section 133 of the GIA. This period is now reduced to a maximum of four years for almost all transactions and contracts (save for some exceptions, in particular when the debtor took actions on purpose to harm creditors while the other party knew about that purpose).

Second, the burden of proof for the IA to set aside a transaction under Section 133 of the GIA has been increased. Before the reform, there was an assumption that under certain circumstances the insolvent estate had acted in bad faith and the creditor knew about this bad faith when carrying out the transaction. In particular, when the contract parties had agreed on an instalment plan for payments, it was assumed that the creditor knew about an assumed bad faith. Now, by regulation of law, instalment repayment plans are no indication for bad faith anymore, but – on the contrary – such instalment repayment plans are an indication that the creditor acted in good faith. This is an important swing for practitioners.

Third, transactions where both parties fulfil their obligations within a short time frame of a maximum of 30 days can only be set aside if the insolvent debtor acted in ‘an unfair manner’. This special variation of bad faith for such short-term transactions is new to German insolvency law, and it will be up to the insolvency courts to determine the boundaries of this concept. For contractual performances towards employees of the insolvent estate (in particular wages) an extended time period of 30 days applies.

ii Policy

Whenever insolvency proceedings over a business start, it is the IA’s prevailing goal and obligation to seek out the best satisfaction possible for all creditors and present it to the creditors’ assembly. It is this assembly that decides whether to liquidate, sell or restructure the debtor’s business.

Liquidation, including a sale of the business assets to a buyer who continues part or all of the business, is still the most likely outcome of such decision (approximately 90 per cent of all corporate insolvency proceedings).

In-court restructuring of the business through insolvency plans (up to 5 per cent) and self-management including umbrella protection proceedings (up to 5 per cent, though only 2 per cent in 2015) have become more popular and effective since 2012, and are regularly applied in big insolvency cases. Some features of these restructuring tools are outlined in Section I.iii.

iii Insolvency procedures

There are two main types of insolvency procedure: the general procedure, ending with liquidation and winding up of the company; and an in-court restructuring through self-administration and an insolvency plan.


See Section I.i. A general corporate insolvency proceeding over a German company typically lasts for a time period of three to four years.

Self-administration and insolvency plan

Although these features have been in place since 1999, they are rarely used in practice, with rates of approximately 1 per cent of all corporate insolvencies until 2012.10

In self-administration, the company’s management continues to manage the company when:

  • a the company applies for self-administration in its petition for insolvency proceedings; and
  • b there are no circumstances that lead to the conclusion that self-administration will be detrimental to creditors.

If a preliminary creditors’ committee supports the petition for self-administration by unanimous vote, the insolvency court must grant self-administration proceedings.

Instead of a PIA or IA, the insolvency court appoints an insolvency custodian. This person supervises the debtor and has, to some extent, limited rights similar to an IA (in particular to set aside transactions prior to filing for insolvency) but does not have a direct influence on the management or power of disposal over the assets.

A special type of self-administration is the umbrella protection proceeding that was introduced in 2012 (also called protective shield proceedings and, according to the law, ‘the preparation of a restructuring’). The company can apply for the umbrella protection when it is not likely that the company can be restructured.

Under the umbrella, the company is granted a grace period of up to three months by the insolvency court to present an insolvency plan to creditors. The insolvency court appoints an insolvency custodian as in general self-administration; however, the company is entitled to select the individual person if such person is qualified. During the grace period, creditors of the company cannot pursue their rights by legal enforcement.

When the insolvency plan is presented to creditors, a normal self-administration insolvency proceeding starts and this full insolvency proceeding can be finalised within a few weeks when everything is prepared well. The insolvent company can return from insolvency proceedings without a substantial flaw of having been insolvent as the time period can be very short, no IA was involved, management of the company continued business and the creditors consented to a restructuring result instead of an IA distributing the assets. Therefore, the umbrella protection proceeding has been highly marketed since 2012 and has become popular in prominent insolvency cases (such as Entertainment Distribution Company, involving a producer of CDs and DVDs) as a proceeding that that is not regarded as a ‘real’ insolvency by the public. From a legal viewpoint, however, it is an in-court insolvency proceeding.

Self-administration does not necessarily lead to a certain outcome of insolvency proceedings. Still, the assets of the company can be sold or the self-administration ends at some stage and is transformed into general insolvency proceedings (this happens with approximately one-third of proceedings that start in self-administration).11 Usually, however, self-administration is combined with an insolvency plan and for the umbrella protection an insolvency plan is mandatory.

An insolvency plan is an instrument that can be used in any of the described insolvency proceedings, thus in a general proceeding, in general self-administration and following the umbrella protection time period. As a general principle, the creditors decide, divided into certain group of creditors, on the distribution of the insolvent estate that may differ from statutory law in a general proceeding.12 The plan, drawn up by the IA or the insolvency custodian or the management of the company in cooperation with the insolvency custodian, displays the financial situation of the company and points out measures that should be taken and their expected effects. In particular, the plan can provide for a corporate restructuring of the debtor and conversion of debt into equity. The creditors who are affected by the plan are divided into voting groups. A negative vote from one group is irrelevant if there is proof that the insolvency plan is not worse for such group than a distribution under statutory law. After the court has confirmed the plan, too, the debtor supervised by the IA or insolvency custodian has to carry out the prescribed measures.

While self-administration and insolvency plans tend to lead to better satisfaction of creditors than ordinary insolvency proceedings, and tend to be faster and more acceptable to debtors and creditors, in practice they can only be applied to substantial insolvency cases. The reason for that is that they require:

    • a very professional advisers, which incurs substantial costs for the debtor;
    • b professional management who are experienced in insolvency; and
    • c substantial assets and a clear going-concern perspective that favours restructuring over liquidation.

Self-administration proceedings (in particular umbrella-protection proceedings combined with an insolvency plan) can be completed very swiftly compared to general proceedings. There have been cases where the proceedings ended four to six months after filing for umbrella protection.

Ancillary insolvency proceedings

If the centre of main interest (COMI) of a debtor is outside Germany but the debtor operates a branch office in Germany, rules on international insolvency apply. As far as the COMI of the debtor is in the EU, Regulation 1346/2000/EC applies.13 Under this regulation a secondary insolvency proceeding can be pursued in Germany if the debtor has a branch office in Germany regarding the assets in Germany. European secondary insolvency proceedings are not seen very often in Germany. The most popular example was BenQ in 2007.

If the COMI of the debtor is not within the EU, the GIA provides in Section 354 et seq. for the possibility of creditors to file for a secondary insolvency proceeding regarding the German assets. Again, such procedure is not very common.

The possibility of ancillary insolvency proceedings in Germany has not prevented trends for forum shopping, particularly within the EU. This is especially related to forum shopping to the UK in order to use a scheme of arrangement as an out-of-court restructuring instrument allowing for a cramdown of dissenting creditors – a concept that does not exist in Germany. However, since 2012 German insolvency experts have been of the opinion that the insolvency instruments introduced by the insolvency law (ESUG) reform have made forum shopping less attractive, taking into account the tremendous costs sometimes involved.

iv Starting proceedings

Essentially, the management of a company is obliged to file for insolvency in case of illiquidity or over-indebtedness. The criterium of over-indebtedness is not met on a pure balance sheet perspective but primarily depends on the question of whether the company is likely to be prosperous in the future. Thus, companies regularly instruct accounting firms and lawyers to examine if the company is over-indebted.

Illiquidity occurs if the company is – at a certain point in time – unable to pay more than 90 per cent of its debt when due and this situation will not improve over a period of three weeks following such date. If illiquidity or (insolvency) over-indebtedness occurs, the management is obliged to immediately (or at least within three weeks) file for insolvency. If the management does not adhere to such obligation, this is a criminal act and can lead to imprisonment for up to three years.

A company can opt to file for insolvency if the illiquidity is ‘threatening’ (impending illiquidity); in other words if it is likely that the company will be illiquid once the debts become due.

A creditor must have a legal interest in the opening of insolvency proceedings to be entitled to file for insolvency of a debtor. That is the case if the creditor can prove its claim, and it is likely that the debtor is insolvent because, for example, legal enforcement measures against the debtor have failed. The debtor will be heard by the court before preliminary proceedings are commenced.

The competent insolvency court is the local court where the company has its COMI, which is usually the place of its registered business seat.

v Control of insolvency proceedings

The power to make decisions during insolvency proceeding lies mainly with the creditors and the IA.

However, insolvency proceedings are started, supervised and ended by the insolvency court, which takes a more active role than in Anglo-Saxon countries.

Besides the basic obligation of the debtor’s management to file for insolvency when necessary, the management may also be personally liable for other violations of civil and criminal law before and during insolvency proceedings. Managing directors are more likely to be liable towards the insolvent company if they made payments out of the company even though the company was insolvent at that time from a legal perspective. After insolvency proceedings are opened, the management has to cooperate with the IA and provide necessary information to the IA. In self-administration the management stays in power but must coordinate certain actions with the insolvency custodian.

vi Special regimes

All entities are subject to the GIA. However, some peculiarities apply to financial institutions. Under the German Bank Reorganisation Act – a reaction to the financial crisis of 2008 – only the Federal Finance Supervisory Authority (BaFin) is entitled to file for insolvency proceedings over banks. Usually, before insolvency proceedings are started, BaFin tends to support a restructuring of the bank through a moratorium. BaFin also has the power to take measures for stabilisation of these banks if it is needed to stabilise the financial market. With regard to ‘important’ banks from a European point of view, EU Regulations 806/2014 and 1024/2013 and EU Directive 2014/59/EU apply too (Single Resolution Mechanism). In Germany, the Restructuring and Liquidation Act 2014, in particular, incorporates the European rules into national law. Under these laws, national and European institutions have specific rights to restructure or liquidate important banks outside of general insolvency law. This includes the power to sell assets of the bank or to order a compulsory bail-in of bank creditors.

Also, for insurance companies, the right to file for insolvency is limited. Again, only the supervising authority (usually BaFin) is entitled to file for insolvency. Although the proceedings are governed by the GIA, some special features of the insurance law apply,14 such as automatic termination of insurance agreements one month after the opening of insolvency proceedings.

With regard to group companies, the GIA was amended in 2017 and now provides for the first time for special group insolvency rules.

So far, when several companies that together form a corporate group file for insolvency, the insolvency court of each individual group company has power to appoint an individual IA. When group companies have different registered company seats, this leads to competences of different local courts, and completely different measures could be taken by such courts.

Now, under the reform, all insolvency proceedings of a ‘group of companies’ can be pooled at one court. Furthermore, the possibility of a uniform appointment of one IA is provided. Another variation is the application of a coordination procedure, which includes the choice of a coordination administrator out of one of the IAs when more than one IA’s were appointed. The main task of the coordination administrator is the coordination of the individual proceedings and, therefore, the development of a coordination plan as a group insolvency plan that serves to achieve an overall settlement of all creditors of the group companies.

The term ‘group of companies’ (Unternehmensgruppe) applies when one company has the possibility of exercising dominant influence on the others or when various companies are subject to an uniform management.

The new rules have not been tested in practice yet.

vii Cross-border issues

See Section I.iii.

German insolvency courts acknowledge foreign insolvency proceedings under EU Regulation No. 1346/2000 or under Section 343 of the GIA as being valid in Germany as well. However, the German Federal Court does not acknowledge an English scheme of arrangement as being an insolvency proceeding, while for instance the US Chapter 11 or the Italian amministrazione stradordinaria proceedings are recognised as being insolvency proceedings.


Corporate insolvencies are at a long-time low in Germany.15 This is because of a strong and stable domestic economy (1.9 GDP growth in 2016) and cheap terms of financing. The unemployment rate is the lowest it has been for 25 years, and many regions of Germany profit from full employment.16

21,700 companies filed for insolvency in 2016 (almost 1,500 lower than in 2015), which is the lowest rate of insolvencies in more than 20 years.17 In the first half of 2017, 10,300 corporations became insolvent, a decrease of 5.9 per cent compared to the same period last year. It is remarkable that most of the insolvent corporations are very small companies. Almost 50 per cent of insolvent companies have an annual turnover of less than €250,000. Eighty-two per cent of insolvent companies employed less than five people, whereas most of them might have even been single-person companies. In 2016, there were fewer than 90 insolvency cases involving a turnover of more than €50 million.

Although all industry sectors show decreasing numbers of insolvency cases, a significant drop can be seen in the service sector (of 7.5 per cent), although this sector continues to have the most insolvencies (55.3 per cent of all corporate insolvencies). In contrast, the construction sector has the highest insolvency quota in comparison with the number of companies (85 out of 10,000). This is followed by commercial enterprises (72 out of 10,000), service industries (63 out of 10,000) and the manufacturing sector (36 out of 10,000).

A person is most likely to be employed in an insolvent company if he or she works for household moving companies, a mail, courier or express service or in a bar. More secure professions include being an accountant or provider of kindergarten services.

The average insolvency quota was reduced from 72 to 67 insolvencies out of 10,000 companies in 2016.


Since mid-2016 several insolvency proceedings occurred that were significant or had substantial press coverage. The following cases are not exhaustive and shall only serve as an example for various peculiarities.

i Steilmann SE

Steilmann SE, a listed company from Bochum, is an apparel company producing womenswear, menswear and accessories, predominantly in the value segment of the market. The company, which was founded in 1958, was operating in 18 countries and had a work force of 7,000 employees of which 1,700 were based in Germany.

As a result of growing market pressure in the fashion sector and change of customers’ shopping preferences, the company accumulated losses. Several restructuring programmes were implemented over the past 10 years but none were successful.

In March 2016, only five months after going public and being listed on the Frankfurt Stock Exchange, Steilmann SE had to file for insolvency after negotiations with potential investors failed.18

Assets and some subsidiary companies of Steilmann SEhave been sold by the IA Frank Kebekus, but many subsidiaries with branches and shops were closed permanently.19

Steilmann is a prominent example of the difficulties the retail sector, and in particular traditional apparel companies that concentrate on high-street shops, are currently facing (see Section V.iii).

ii Rudolf Wöhrl AG

Another fashion company, which filed for insolvency in the end of 2016, is Rudolf Wöhrl AG. The traditional German fashion house existed for more than 80 years and had 1,900 employees in about 30 stores around Germany.20 During the restructuring process, the management decided in consultation with the restructuring adviser to close four of the 34 stores. But the good news was that the company could keep 30 stores and 95 per cent of its employees. In March 2017, Christian Greiner, the grandson of the founder Rudolf Wöhrl, took over Wöhrl AG, so the company remains in the hands of the family.21

iii Rickmers Holding AG

Another industry in turmoil is the shipping industry. Rickmers Holding AG, a shipping company from Bremen, Germany was one of the big players worldwide. However, the owner Bertram Rickmers had to file for insolvency in June 2017 after a planned restructuring concept failed at the last minute. In the evening before the bondholders were supposed to meet in order to decide about the concept, the biggest creditor HSH Nordbank withdrew the approval for the concept, which led to the insolvency of the company. Because of this cancellation at the very last minute, some of the bondholders did not hear of the short-term change of plans and arrived at the conference in Hamburg for nothing.22

The insolvency of Rickmers Holding AG is a result of the long-standing crisis of the shipping sector. It all started with the financial crisis 2008 – many companies invested in bigger ships that they did not need any more afterwards.23 Another competitor of Rickmers, the global shipping player Hanjin from Korea, experienced the same in 2015 and became insolvent.

The management board of Rickmers Holding AG strives for restructuring in self-administration, which means that the executive board remains capable of acting and will manage the holding company. The company will be advised by restructuring expert Dr Christoph Morgen, who is now a member of the executive board and chief insolvency officer. Furthermore, lawyer Dr Jens-Sören Schröder has been appointed as a temporary trustee by the Hamburg Insolvency Court. For the moment, business and shipping operations will be continued and subsidiaries are not affected.24 In September 2017, the Zech Group of Mr Kurt Zech, a prominent building contractor who specialises in investing in insolvent corporations, took over the main assets of Rickmers.

iv Kronenbrot GmbH

Also one of the largest bakeries in Germany, Kronenbrot GmbH, had to file insolvency last year. The company employs about 1,300 staff around Cologne in Germany and supplies products including breads, cakes and pastry products to bakery store chains including Oebel and food retailers such as Lidl and Aldi. As reasons for the insolvency, the company itself stated the price increase of raw materials like flour and high competitive pressure because of other firms.

In the beginning of 2017, the company was luckily saved from closure as a result of being sold to an investor for an undisclosed sum. For a three-year job and location guarantee, the employees waived part of their wage and made an important contribution for the restructuring of the company.25

v Air Berlin PLC & Co. Luftverkehrs KG

The most spectacular insolvency case in the last 12 months, is undoubtedly the case of Air Berlin. Air Berlin is the second biggest airline in Germany after Lufthansa and the seventh biggest airline in Europe. Air Berlin was founded by the US pilot Kim Lundgren in 1978 and started with some charter flights in and out of Berlin to holiday destinations such as Mallorca. After the fall of the Berlin Wall, the former baggage-handler Joachim Hunold invested in Air Berlin and made it into the biggest holiday airline in Germany. Air Berlin took over several other airlines and became the predominant competitor to Lufthansa also for business flights in Germany.

Following the going public in 2006, Etihad Airways took over the majority of shares in 2012. Although under Etihad management the airline offered even more international flights, Air Berlin increased its annual deficit. In 2016, Air Berlin had a deficit of almost €800 million. Air Berlin was not able to offer charter flights to international holiday destinations and business flights within Europe at the same quality level. Also, Etihad apparently was more interested in a German supply channel for its Etihad flight network than in a successful independent German player. Other market players, such as Ryanair, took market shares of Air Berlin in the low budget flight market, and Lufthansa increased its position in the business flight market.

Therefore, the filing for insolvency on 11 August 2017 was not a total surprise for the 8,500 employees and approximately 30 million customers.

The insolvency court of Berlin appointed Mr Lucas Flöther as preliminary insolvency custodian and approved Air Berlin’s application for self-administration. The insolvency expert Mr Frank Kebekus was appointed as chief insolvency officer by Air Berlin. Apart from the main company Air Berlin PLC & Co Luftverkehrs KG, several other group companies filed for insolvency the same day, and Mr Flöther was appointed as well.

The insolvency of Air Berlin was a major political topic in Germany in the summer and autumn of 2017. A bank guarantee by the German state (through the KfW-bank) of €150 million shall safeguard continuation of the flights until November 2017. Several other airlines are interested in taking over some or all flight slots and assets of Air Berlin. It seems that Lufthansa had been in negotiations with Air Berlin for some time before the insolvency started, and, therefore, Lufthansa could be the most valuable bidder. The creditors’ committee of Air Berlin shall make a first decision in September 2017.26


Generally, ancillary insolvency proceedings do not play an important role in Germany. There have been no significant recent proceedings although the German Federal Court published one recent decision. The Federal Court states that creditors can still pursue their claims in an ancillary proceeding in Germany even if the debtor has already been discharged in the main procedure in England.27


On a general note, it is not expected that insolvency metrics will change substantially within the next 12 months. As the German economy is stable, corporate insolvencies are expected to remain at a low level.

However, trends can be observed in other sectors.

i Tax relief of the restructuring profit

A new ruling of the German Federal Tax Court at the end of 2016 brought a lot of insecurity into the German restructuring scene. The court overturned the long-time practised tax concession for recapitalisation gains. Many restructuring and insolvency cases were brought to an abrupt halt as the insolvency practitioners were suddenly unsure if the reduction of debt in a restructuring scenario would create tax burden on the corporate estate to be restructured. The German parliament reacted very rapidly in order to reduce the turmoil.

First, a directive was given to all local tax administrations to provide assistance in the processing of the respective issues in the meantime and to continue the proven and tested practice as far as possible under the ruling.

A few months later, the German parliament adopted a new law that – in principal – continues the practice of the tax authorities of the past before the court ruling by grounding it on some new rules, which the court ruling claimed missing. The new law passed the parliament procedure in June 2017.

However, the law needs also clearance from the European Commission as it could possibly violate European state aid law. The law will not come into force before such clearance is obtained. The decision of the Commission is expected in 2018. For this interim period, restructuring proceedings can rely on the administration directive; however, still many questions are not answered, and tax relief of restructuring profits remains one of the major topics in insolvency law circles. Each individual case needs special attention, and restructuring cases are currently delayed and need more professional counsel.

ii Out-of-court restructuring initiative

On 12 March 2014 the European Commission published a recommendation calling for the implementation of a legal framework for efficient pre-insolvency restructurings as part of the general harmonisation of European insolvency law.28 According to the recommendation, national legislators should provide for out-of-court restructuring proceedings available to debtors that are likely to become insolvent. The European Commission pursued its goals by publishing an action plan in September 201529 and conducted a European consultation process in spring 2016.

This European initiative fuelled the long-existing discussion in Germany as to whether the country needs a special out-of-court restructuring regime. Many experts think that Germany is lacking an important restructuring tool because cramdown proceedings in out-of-court-restructurings are not possible under existent law. As a result some companies use foreign restructuring rules, in particular the English scheme of arrangement. Several pressure groups started initiatives in order to persuade the German government to present an out-of-court restructuring bill.

In November 2016, the European Commission published a proposed Directive containing suggestions for such tools.30 From this point, the question in Germany is no longer if, but when, a legal instrument for pre-insolvency restructurings will be introduced. However, it will take another two years before the Directive becomes binding for all Member States,31 so a reaction from the German government can be expected in this time frame.

iii Retail sector turmoil

Steilmann SE and the Rudolf Wöhrl group are not the only companies in the retail sector suffering from recent fundamental changes concerning customers’ preferences, sale channels and city developments over the years. A wave of bankruptcies happened to the fashion industry in the last year. Some 10 fashion companies are featured in the top 50 German corporate insolvencies in 2016, and more than 11,000 jobs are or were at stake.32 Further insolvencies in this sector occurred, inter alia, for SinnLeffers, Zero Clothing, Promod, Dress for Less and American Apparel Germany in 2016, which operated several retail shops in German cities.33 In addition, other companies such as Gerry Weber, Tom Tailor and Hugo Boss had to close stores and lay off part of their workforce.34

One reason for the crisis of the clothing retail sector is the change of consumer behaviour as people tend to spend less money on specific retail fashion chains. Furthermore, there is high competitive pressure in the clothing retail industry, and a lot of companies dominate the market with products from the low-price segment, such as Primark.

Also, a lot of companies in the medium-price segment ignored the online shopping trend and cannot survive through high-street shops alone.

1 Andreas Dimmling is a local partner at GSK Stockmann. The author would like to thank Franziska Poxleitner, law trainee, for her very valuable contribution to this publication.

2 An English version of the GIA is available at www.gesetze-im-internet.de/englisch_inso/.

3 For example, see InsO-Studie 2015 by McKinsey & Company and Noerr: www.noerr.com/~/media/Noerr/PressAndPublications/News/2015/insolvenzstudie/Insolvenz-Studie-DE_kurz.pdf.

4 Sections 49 to 51 of the GIA.

5 Section 38 of the GIA.

6 Section 39 of the GIA.

7 Sections 53 to 55 of the GIA.

8 Section 129 et seq. of the GIA.

9 An English version of the GIA is available at www.gesetze-im-internet.de/englisch_inso/.

10 Between 1999 and 2007 only in 0.5 per cent of all corporate insolvencies an insolvency plan was put in place; the same applies to self-management, although rates with regard to self-management increased between 2008 and 2012: Beck/Depré, Praxis der Insolvenz, p.1421, 1509; Münchener Kommentar, InsO, 3rd ed. 2014, Vor Sections 217–269, No. 64; Schultze&Braun Insolvenzplan-Index 1999–2012: www.schubra.de/de/veroeffentlichungen/insolvenzstatistiken/Insolvenzplanindex1999bis2012.pdf.

11 InsO-Studie 2015 by McKinsey & Company and Noerr: www.noerr.com/~/media/Noerr/PressAndPublications/News/2015/insolvenzstudie/Insolvenz-Studie-DE_kurz.pdf.

12 Section 217 of the GIA.

13 It should be noted that this EU Regulation will be replaced by EU Regulation 2015/848 as of 26 June 2017.

14 For example, Sections 16, 77b, 78, 88 and 88a of the Insurance Supervision Act, and Section 16 of the Insurance Contract Act.

15 For this and following figures, see Creditreform, Insolvenzen in Deutschland, Jahr 2016:https://www.creditreform.de/fileadmin/user_upload/crefo/download_de/news_termine/wirtschaftsforschung/insolvenzen-deutschland/Pressemitteilung_Insolvenzen_in_Deutschland_Jahr_2016.pdf, 1. Halbjahr 2017: https://www.creditreform.de/fileadmin/user_upload/crefo/download_de/news_termine/wirtschaftsforschung/insolvenzen-deutschland/Pressemitteilung_Insolvenzen_in_Deutschland_1._Halbjahr_2017.pdf.

16 5.5 per cent of the workforce in June 2017, equalling 2.47 million individuals.

17 The total number of insolvency cases in Germany was 123,800 in 2016. Thus, more than 80 per cent are individual bankruptcy proceedings or similar cases.

18 www.creditreform.de/fileadmin/user_upload/crefo/download_de/news_termine/wirtschaftsforschung/insolvenzen-deutschland/Analyse_Insolvenzen_in_Deutschland_1._Halbjahr_2016.pdf.

27 BGH NZI 2014, 969.

28 http://ec.europa.eu/justice/civil/files/insolvency/01_insolvency_recommendation_en.pdf.

29 http://ec.europa.eu/justice/civil/files/insolvency/01a_action_plan_cmu_en.pdf.

30 http://ec.europa.eu/information_society/newsroom/image/document/2016-48/proposal_40046.pdf.

31 http://blog.handelsblatt.com/rechtsboard/2016/12/09/7718/.

32 www.juve.de/nachrichten/namenundnachrichten/2016/12/aus-der-mode-gekommen-die-groessten-