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 In 2017, a couple of reforms 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.3 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 than other European and non-European insolvency legislation, and the tools for restructuring insolvent companies through an in-court proceeding have been successfully amended.4 According to the European Commission, Germany's insolvency regime ranks second among EU Member States when it comes to effectiveness.5

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 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.6 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,7 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,8 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 insolvency proceedings by the PIA or IA9 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.10 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.

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. In particular, when the contract parties had agreed on an instalment plan for payments, before the reform 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. Recent court rulings lead to the assumption that there is a change of direction for IAs when setting aside transactions. However, it is too early to tell if this is a permanent trend or just a coincidence.

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 (3 per cent of all corporate insolvency proceedings in 2017) 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 period of three to four years, whereas the main assets of the company that still have value are usually sold within two to six months to one or several investors.

Self-administration and insolvency plan

Although these features have been in place since 1999, they are rarely used in practice, with rates of approximately 3 per cent of all corporate insolvencies until 2017 but amounting to 64 percent for the top 50 corporate insolvencies in 2017.11

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

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

Instead of a PIA or an 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. 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 as a proceeding 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 happened to 22 per cent of proceedings that started in self-administration in 2017).12

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.13 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:

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

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, EU Regulation 2015/848 applies.14 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. However, the discussions regarding Niki Luftfahrt GmbH, a subsidiary of Air Berlin plc, brought the spotlight back to this topic. For more detail, see Section III.iii.

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, this procedure is not very common.

iv Starting proceedings

Essentially, the management of a company is obliged to file for insolvency in case of illiquidity or over-indebtedness. The criterion 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. 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. 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,15 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. 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.

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.

vii Cross-border issues

See Section I.iii.

German insolvency courts acknowledge foreign insolvency proceedings under EU Regulation No. 2015/848 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.16 This is because of a strong and stable domestic economy (2.2 per cent GDP growth in 2017) and cheap terms of financing. The unemployment rate is the lowest it has been for 27 years, and many regions of Germany profit from full employment.17

Some 20,200 companies filed for insolvency in 2017 (almost 1,400 lower than in 2016), which is the lowest rate of insolvencies in more than 20 years.18 In the first half of 2018, 9,900 corporations became insolvent, a decrease of 3.3 per cent compared to the same period last year. It is remarkable that most of the insolvent corporations are very small companies. Over 50 per cent of insolvent companies have an annual turnover of less than €250,000. Eighty-three per cent of insolvent companies employed less than five people, whereas most of them might have even been single-person companies. In 2017, there were 80 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 manufacturing sector (of 6.6 per cent). The service sector continues to have the most insolvencies (56.4 per cent of all corporate insolvencies). In contrast, the construction sector has the highest insolvency quota in comparison with the number of companies (79 out of 10,000). This is followed by commercial enterprises (71 out of 10,000), service industries (60 out of 10,000) and the manufacturing sector (33 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 63 to 62 insolvencies out of 10,000 companies in the first half of 2018.


Since mid-2017 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 Rickmers Holding AG

An industry in turmoil is the shipping industry (see also Section III.iv. regarding P&R container GmbH). 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.

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.19 Another competitor of Rickmers, the global shipping player Hanjin from Korea, experienced the same in 2015 and became insolvent.

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. The unsecured debtors expect to receive an insolvency quota of approximately 3 per cent.20

ii Air Berlin PLC & Co. Luftverkehrs KG

The most spectacular insolvency case in the past 12 months, is undoubtedly the case of Air Berlin and its subsidiary Niki Airline (see Section III.iii for more detail). Air Berlin was the second biggest airline in Germany after Lufthansa and the seventh biggest airline in Europe.

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. 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 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 safeguarded continuation of the flights until November 2017, but the money is now almost completely lost for the tax payer. Lufthansa acquired the local airline LGW and several aeroplanes while Easyjet took over a large part of the flight operation in Berlin. Apparently, over one million creditors filed claims with the insolvency custodian. According to Mr Flöther, the proceedings could last for 10 years.

iii Niki Luftfahrt GmbH

The insolvency of the Austrian/German airline Niki is a result of the insolvency of its parent company, Air Berlin. It was Air Berlin's insolvency custodian Mr Flöther's aim to sell Niki as a going concern when he started his position at Air Berlin. However, the contract negotiated between Air Berlin and Lufthansa did not come into force because the European Commission stated that it had serious antitrust concerns regarding Lufthansa taking over the business. Lufthansa then decided to withdraw its offer, and as a result Niki filed for insolvency in Berlin. The local court of Berlin appointed Mr Flöther as PIA, and in a second bidding process IAG won the prize. Still, this was not the end of the story. The Berlin court decision was appealed by a creditor, and the Regional Court of Berlin ruled that Niki's COMI is in Austria, and, therefore, the insolvency proceedings have to be carried out in Austria.21 Mr Flöther appealed this decision to the German Federal Court. An Austrian court came to the same decision as the Regional Court in Berlin, appointed an Austrian insolvency administrator, Ms Ulla Reisch, and opened main insolvency proceedings in Austria. This led to great uncertainty over which proceedings prevail. Mr Flöther and Ms Reisch decided to coordinate their efforts (applying the European rules of cooperation for secondary proceedings), although the legal basis for this procedure was uncertain.22 In the end, Niki Lauda, the original founder of Niki, was selected as best bidder in an Austrian bidding process. IAG's contract was nullified. Mr Flöther withdrew his appeal to the German Federal Court in Germany, and, therefore, no final court decision (neither on a German nor a European level) was given. Shortly after Niki Lauda had acquired Niki's assets, he sold 25 per cent of the buying company to Ryanair with an option for Ryanair to increase its share up to 75 per cent. The European Commission decided that the acquisition is in accordance with European anti-trust law on 12 July.

The Air Berlin/Niki case has filled the newspaper headlines in Germany and Austria for days and also started a discussion among European insolvency law experts over how the COMI of a company shall be defined. While in the past most courts applied a more business-centre approach (the location from which the company is operated and controlled), the Niki decisions took a more formal approach (where the statutory seat of the company is, where the flight licence was granted). This discussion is ongoing as the ECJ did not rule on this case.

Another result of the unplanned Niki insolvency is that the German taxpayer to a large extent will not be repaid for the guarantee in the amount of €150 million given by the German state for Air Berlin.

iv P&R Container Vertriebs- und Verwaltungs GmbH

Over decades, tens of thousands of private investors trusted in the business model of P&R containers, an investment fund company south of Munich founded by Mr Heinz Roth. The investors bought shares in containers that P&R acquired and rented out to international shipping companies. The investors had received a good return on their investment for many years, and P&R's reputation was good.

Quite surprisingly for many investors, P&R filed for insolvency in March 2018. Mr Michael Jaffé was appointed as PIA, and on July 24 the main proceedings were opened. Mr Jaffé resolved that P&R operated through a complex structure of companies, and it seems that many containers were never bought by the P&R group. Meanwhile, the Public Prosecution Office started investigations against current and former directors of P&R and its shareholders, accusing them of fraud.23 More than 54,000 investors could have lost up to €3.5 billion of their life savings, which makes the P&R case one of the biggest insolvency cases in German insolvency history with regard to economic loss.24


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.25 With regard to the Niki insolvency case, where the German insolvency proceedings ended as a secondary insolvency proceeding and the Austrian insolvency proceedings are regarded as a primary insolvency proceedings (see SectionIII.iii).


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 historic low level.

However, trends can be observed in other sectors.

i Uncertainty about tax relief of the restructuring profit

A 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 rapidly in order to reduce the turmoil and passed a law in June 2017 to reinstate the situation before the court ruling.

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 but has not been published yet. The outcome of the European decision is unclear. However, the ECJ ruled in June 2018 that a similar German tax advantage in restructuring situations (Section 8c(1a) KStG) is not prohibited European state aid.26 This ruling could influence the European Commission decision. For the interim period, the tax administration issued an order that the court ruling shall not have the effect of a general guideline but be reduced to the individual and single case that was decided by the court. However, this order was declared void by another Federal Tax Court decision in April 2018.27 Therefore, the uncertainty regarding tax relief of restructuring profits continues. Each individual case needs special attention and 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; this is now in the law-making process.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 The new German government that came into office in 2018 stated that it will accelerate the harmonisation of European insolvency law. This could mean that Germany will introduce an out-of-court-restructuring process soon.

iii Review of insolvency act reform (ESUG)

When the GIA was reformed in 2012, the law-makers included a compulsory review of the reform after fire years. This review was carried out by an expert group in 2017 and the beginning of 2018. The report has been finalised but has not been published by the German Department of Justice yet. It is expected that following the report further steps to facilitate the restructuring process and to eliminate certain deficiencies of the 2012 reform will be taken by the German government.32 Potentially, the rules for the umbrella protection proceedings (see Section I. iii) will be modified. A more general review of the 2012 reform comes to the conclusion that the overall trend to more specialised restructuring advice is accelerating: in three out of four cases of the Top 50 insolvencies in 2017, the managing director has been replaced by a restructuring specialist.33 Additionally, in one-third of these proceedings one of the Top 5 Insolvency law firms and their restructuring specialists have been instructed by the companies.


1 Andreas Dimmling is a local partner at GSK Stockmann. The author would like to thank Ms Sandra Krepler for her very valuable contribution to this article.

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

3 See Section V.ii.

4 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.

6 Sections 49 to 51 of the GIA.

7 Section 38 of the GIA.

8 Section 39 of the GIA.

9 Sections 53 to 55 of the GIA.

10 Section 129 et seq. of the GIA.

11 Boston Consulting Group Study, 6 years ESUG, March 2012–February 2017; April 2018: https://www.bcg.com/de-de/d/press/17may2018-ESUG-PM-192581; 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.

12 Boston Consulting Group Study, 6 years ESUG, March 2012–February 2017; April 2018: https://www.bcg.com/de-de/d/press/17may2018-ESUG-PM-192581.

13 Section 217 of the GIA.

14 In force since 26 June 2017, replacing EU Regulation 1346/2000/EC.

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

17 5 per cent of the workforce in June 2018, equalling 2.28 million individuals.

18 The total number of insolvency cases in Germany was 116,000 in 2017. Thus, more than 80 per cent are individual bankruptcy proceedings or similar cases.

25 BGH NZI 2014, 969.

33 Boston Consulting Group Study, 6 years ESUG, March 2012–February 2017; April 2018: https://www.bcg.com/de-de/d/press/17may2018-ESUG-PM-192581.