The Insolvency Review: Germany

Insolvency law, policy and procedure

i Statutory framework and substantive law

Germany's insolvency law can be considered both old and new. It 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 can also be said to be modern because current 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 2021 the GIA got a little brother, the Act on the Stabilisation and Restructuring Framework for Companies (StaRUG) which allows for an out-of-court restructuring using measures of majority voting and cross class cramdown for the first time in German insolvency law history. We will deal with this development in more detail in Section V of this chapter. According to the European Commission, Germany's insolvency regime ranks second among EU Member States as regards effectiveness.3

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 is not the survival of the insolvent company at any cost, but – either by keeping the company running or by selling its assets – to reach collective satisfaction of the debtor's creditors on the most attractive terms.4 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, the GIA was amended (ESUG amendment)5 as of 1 March 2012. Since this amendment, the self-administration tools and influence on the appointment of insolvency administrators 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. In 2017, the powers of the insolvency administrator to set aside transactions (clawback provisions) were cut back, and completely new provisions for group insolvencies were introduced. In October 2018, a review of the new regulations that was initiated by the German government concluded that the reform was successful and the overall goal to simplify in-court restructuring procedures has been reached.6

As a result of the covid-19 pandemic and aiming to mitigate its economic effects, certain obligations to file for insolvency had been suspended in 2020, but these reliefs ended as of 30 April 2021.7 Currently, identical reliefs are put in place for companies suffering from the heavy floods in Germany in 2021.8

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 a debtor or 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 subject to 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 in very general terms, the insolvent company continues its business with its existing 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 during this time the debtor is released from paying its employees' wages – instead, they are paid by the German state (up to a certain amount).9

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.

Once the general insolvency proceedings are open, the IA takes full control of all assets of the debtor. The management is still in place, but it loses control of the entity.

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, as follows.

  1. Secured creditors10 are entitled to separate satisfaction, including from those secured by mortgages or security assignments. 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.
  2. Unsecured creditors11 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 between 4 and 7 per cent of the claim.
  3. Subordinated creditors12 include those 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 – it 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 Germany.

A characteristic of German insolvency law is that claims against an insolvent estate that are established during the insolvency proceedings by the PIA or IA13 are preferential to all unsecured insolvency claims and have to be settled first, and in full, with the insolvency court fees and fees for the IA and creditors' assembly.

With the exception of this particular feature, there are no other preferential unsecured creditors, such as tax authorities.

Once the IA has realised 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 and 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 a filing for insolvency proceedings or during preliminary insolvency proceedings.14 It is a German peculiarity as compared with other insolvency law systems that there always is a high risk of clawbacks for all contract partners of an insolvent estate that dealt with that 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. In return, this party receives only an unsecured counterclaim against the insolvent estate (e.g., the value of the delivered goods), which will be satisfied with the regular insolvency quota.

After much debate for many years between German insolvency practitioners, a reform of the GIA to limit the power of IAs in this regard came into force in April 2017.

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

First, before the reform, an 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 a debtor has taken actions deliberately to harm creditors while the other party knew of that purpose).

Second, transactions in which both parties fulfil their obligations within a short time – 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 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.

The German Federal Court of Justice very recently published a new ruling aiming to further reducing the powers of IAs to set aside transactions that were carried out in good faith.15 According to the Court, the German law on clawback rules needs certain 'realignment'. It is up to be reviewed if this judgment is a fundamental shift to clawback rulings in Germany.16

ii Policy

Whenever insolvency proceedings start, it is the IA's prevailing goal and obligation to seek out the best possible outcome 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 a 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 large-scale insolvency cases. Some features of these restructuring tools are outlined in Section I.iii.

iii Insolvency procedures

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

Liquidation

A general corporate insolvency proceeding over a German company typically lasts for 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.

See also Section I.i.

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 per cent for the top 50 corporate insolvencies in 2017.17

In self-administration, a company's management remains in control 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. A 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 that individual, if the chosen 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 timescale can be very short, no IA was involved, the company's management continued the 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 in 22 per cent of proceedings that started in self-administration in 2017).18

An insolvency plan is an instrument that can be used in any of the described insolvency proceedings – in a general proceeding, in general self-administration and following the umbrella protection period. As a general principle, the creditors (divided into certain groups) decide on a distribution of the insolvent estate that may differ from an outcome under statutory law in a general proceeding.19 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 that 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 for 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 this 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 European Union, Regulation (EU) 2015/848 applies.20 Under this Regulation, a secondary insolvency proceeding can be pursued in Germany if a 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. A German court ruled that NIKI Luftfahrt's COMI was in Germany. However, the appeal court and, at the same time, a court in Austria came to the conclusion that the COMI was in Austria. In the end, the insolvency proceedings in Germany came to a halt and new proceedings in Austria had to be initiated. This produced some chaos as the PIA in Germany had already signed a sale contract for major assets of NIKI Luftfahrt and was then forced to unwind this contract.21

If the COMI of a debtor is not within the European Union, the GIA provides in Section 354 et seq. for the possibility for 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 the event of illiquidity or over-indebtedness. At present, this obligation does not apply under certain circumstances to companies that have suffered from the floods in Germany in July 2021. The criteria for over-indebtedness are not met on a pure balance sheet perspective but primarily depend on the question of whether a company is likely to be prosperous in the future. Thus, companies regularly instruct accounting firms and lawyers to examine whether they are over-indebted.

Illiquidity occurs if a 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 during the three weeks following that 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 an 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 proceedings 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 a debtor's management to file for insolvency when necessary, the members of 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 him or her with the necessary information. 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, Regulation (EU) No. 806/2014, Council Regulation (EU) No. 1024/2013 and Directive 2014/59/EU apply too (Single Resolution Mechanism). In Germany, the Restructuring and Liquidation Act 2014, in particular, incorporates the EU rules into national law. This includes the power to sell the assets of a 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 insurance law apply,22 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' applies when one company has the possibility of exercising a dominant influence on the others or when various companies are subject to a uniform management.

vii Cross-border issues

German insolvency courts acknowledge foreign insolvency proceedings under Regulation (EU) 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, whereas, for instance, the US Chapter 11 or amministrazione stradordinaria proceedings in Italy are recognised as being insolvency proceedings. As regards Brexit, the Regulation (EU) 2015/848 will apply towards the UK until the end of the transition period on 31 December 2020 if no subsequent agreement is passed. Currently, it seems that no follow-up agreement will be concluded.

See also Section I.iii.

viii The new German out-of-court restructuring law

It is a pinnacle of German restructuring and insolvency law, that if insolvency is at the doorstep and not all creditors are on the same page for a restructuring plan, the only option is a formal in-court insolvency proceeding. As a consequence of insolvency, market trust of the company was usually destroyed, and 9.5 out of 10 corporate insolvencies ended with the liquidation of the insolvent company (often paired with a sale of the assets). Thus, German insolvency practitioners felt that German insolvency law is not competitive compared to foreign insolvency laws that provide for better out-of-court restructurings such as the English scheme of arrangement. Following the conversion of the EU Directive (Directive (EU) 2019/1023 of 20 June 2019) for the harmonisation of restructuring frameworks in Europe23 into German national law (StaRUG Act), a completely new framework for out-of-court restructuring measures was introduced as of 1 January 2021. The StaRUG framework is available for all companies that are not insolvent but are facing illiquidity. This means that it is likely that illiquidity will occur within the next 24 months.

The basic principle of the StaRUG is that a company offers a restructuring plan to creditors that is accepted by a majority of creditors within certain creditor groups. The company can choose which creditors shall take part in the plan. The plan is drawn up by the company and presented to all involved creditors. If a majority of 75 per cent of the debts to be restructured vote in favour of the plan, even dissenting creditors or dissenting groups shall have no power to prevent the plan from becoming effective (cross-class cramdown effect).

The company can seek certain standstill measurements through court order. As a consequence, creditors cannot take legal action against the company for immediate enforcement of debts.

The restructuring plan will in most cases be drawn up under the supervision of a restructuring expert who shall be appointed by the court. The restructuring expert can be a lawyer experienced in restructuring cases. He or she may have also monitoring and moderating tasks between the company and creditors. Therefore, this out-of-court restructuring measure still requires some court involvement.

Basically, all existing debts of the company save for debts towards employees can be restructured. Additionally, also shareholders' rights can be restructured, and debt-to-equity swaps are possible. Existing agreements cannot be terminated against the will of the creditor. Furthermore, the restructuring plan cannot change the principle obligations of the debtor under existing agreements (i.e., in a lease contract the lease payments cannot be lowered for the future). However, financial covenants or similar conditions in financial agreements that lead to certain rights of the creditor can be remodelled under the restructuring plan. However, if certain effects of the plan shall have effect also against dissenting creditors, some level of court involvement will be necessary. Therefore, out-of-court restructurings will show some court-involvement in most cases.

The StaRUG framework is still so new that not many companies have been restructured under it. As at 30 April 2021, seven notified restructuring procedures could be verified. All these proceedings were indicated in February and March 2021.

At the end of April 2021, one proceeding ended in regular insolvency proceedings. In one case, the restructuring plan was withdrawn by the company, and in two other cases the plan was confirmed.24

A peculiarity of the new law is that the cases are not published in any federal gazette, making it difficult to review the effectiveness of the new tool. We assume the new framework will predominantly used by larger companies that have sufficient financial measures and professional expertise to follow the steps.

Insolvency metrics

Due to the covid-19 pandemic, the domestic economy declined by 4.8 per cent in 2020, but it already increased by 3.2 per cent in the first half of 2021 and is expected to continue to grow in 2022.25 Although corporate insolvencies had declined for almost 10 years, this number has reached a new low in 2020, when only 15,841 companies filed for insolvency (about 15.51 per cent fewer than in 2019).26 In the first half of 2021 some 8,800 companies filed for insolvency, which is again a decrease of 1.7 per cent in comparison to the first half of 2020.27 The unemployment rate has risen in 2020 by 18.9 per cent in comparison to 201928 but declined by nearly 239,000 individuals again in the first two quarters of 2021. A total of about 332,000 employees were affected by insolvency proceedings in 2020; a significantly higher number than in the previous year (2019: 218,000 employees).29 In the first half of 2021, about 90,000 employees were affected by insolvency proceedings, in comparison to 125,000 employees in the first half of 2020.30

Microenterprises and small companies dominate the insolvency procedures. Eight out of 10 insolvent companies employed no more than five people.31 More than half the insolvent companies in Germany in the first half of 2021 were older than 10 years. Only one-fifth of the insolvencies until June 2021 (19.5 percent) were founded no more than four years ago.32

In 2020, there were significant declines in insolvencies in the construction sector (a decrease of 16.4 per cent) and in the retail sector (a decrease of 16.3 per cent). While the construction industry continues to enjoy a good economic situation, government aid measures are likely to be responsible for the significant decline, especially in the trade and leisure sector. In the first half of 2021, the economic sectors that were more strongly affected by the lockdown, trade and services, showed an increasing insolvency volume in the first six months.

Plenary insolvency proceedings

Since mid-2020, several of the insolvency proceedings that have occurred were significant or had substantial press coverage. The following cases are not exhaustive and serve only as an example for various peculiarities.

i Wirecard AG

The insolvency of Wirecard is the biggest financial scandal in Germany in 2020. In 1999, the company started its services by processing financial transactions for some dubious service providers (e.g,. gambling sites) in the internet but, over the years, Wirecard has seemed to become the symbol for modern, tech-oriented digital companies in Germany, which outnumbered many classic financial institutions.33 Wirecard ascended into the best German stock index DAX at the end of 2018 with a market value of more than €21 billion.34 By June 2020, its value had dropped below €260 million. In June 2020, Wirecard admitted that approximately €1.9 billion in its accounts did not exist and filed for insolvency shortly after. EY, the auditors of Wirecard, believe it to be fraud and refused to sign off Wirecard's annual financial statement for 2019.35 This is not the first time Wirecard has been involved in rumours around market manipulations, money laundering or even fraud accusations. Back in January 2019, accounting irregularities were reported by the Financial Times, but any wrongdoings were denied by Wirecard.36

Now, Michael Jaffé, as insolvency administrator of Wirecard, is attempting to shed some light on this scandal and sell as many assets as possible. Wirecard will be broken up. The former managers of Wirecard are being held on remand by German prosecutors or are on the run.

ii Adler Modemärkte AG

The fashion chain with headquarters in the district of Aschaffenburg (Bavaria) filed for insolvency at the beginning of 2021. Adler had received a loan of €10 million from the federal government's Economic Stabilisation Fund before during the covid-19 pandemic. Adler has a total of 171 shops across Europe, and 142 of these are located in Germany.37

The insolvency proceedings in self-management proceedings were declared open in July 2021. In total, Adler has 3,100 employees, out of which 2,600 jobs shall be saved, resulting in a reduction of 500 employees. The business shall continue with 100 German and 29 foreign subsidiaries in Austria, Luxembourg and Switzerland. A new investor is the Berlin conglomerate Zeitfracht, which wants to take Adler off the stock exchange.38

iii Greensill Bank

It has been a while since a German bank had to file for insolvency in the financial crisis in 2008/2009. Greensill Bank AG, based in Bremen, was forced into insolvency by the German Federal Financial Supervisory Authority (BaFin) on 15 March 2021. The bank sunk in the maelstrom of the Australian investor Lex Greensill and his Greensill Capital group. Outstanding receivables amount in total to €1.14 billion, most of it within the Greensill companies group. Most of the bank customers have not suffered from the insolvency. The Deposit Protection Fund of the Association of German Banks and the Compensation Scheme of German Banks (EdB) have paid out more than €2.7 billion to over 20,500 savers.

However, for quite a few German municipalities, the insolvency did not end so well because these municipalities have not been covered by the Protection Fund since 2017. Hessian municipalities had invested a total of €82 million with Greensill, and most of it is now gone.39

The insolvency court appointed Mr Michael Frege as IA. He has extensive experience with bank insolvencies also being the IA of Lehman Brothers branch in Germany.

iv Escada SE

In the 1990s, Escada was one of the world's biggest brands for luxury women's fashion and made billions in sales. It operated eight stores in Germany in first-class locations. Escada is a prominent example of the decline of fashion stores in Germany, suffering from international competitors, online-shopping and increasing rents in prime locations. The company explained that the consequences of the covid-19 pandemic had further exacerbated the situation.

Escada SE filed for insolvency with the Local Court of Munich on 1 September 2020. More than 180 employees are affected.

Christian Gerloff (Gerloff Liebler law firm, Munich) was appointed as insolvency administrator. This is the second time he has held this position at Escada. The brand had already experienced insolvency in 2009. At that time, the company was sold to the Indian entrepreneur Megha Mittal, who handed it over to the US financial investor Regent in autumn 2019.40

Ancillary insolvency proceedings

Generally, ancillary insolvency proceedings do not have an important role in Germany. There have been no significant proceedings recently, although the German Federal Court has published one 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 a main procedure in England.41

Trends

i Covid-19

Obviously, almost no country report worldwide can spare the trend that the covid-19 pandemic brings into the insolvency sector.

The German lawmaker passed a law titled Act on Mitigation of the consequences of the covid-19 pandemic in civil, insolvency and criminal proceedings on 27 March 2020, which came into force retroactively on 1 March 2020. Under this Act, the directors' obligation to file for insolvency immediately after over-indebtedness or illiquidity occurs was temporarily suspended. The suspension ended on 30 April 2021.

Economic experts expected insolvency filings to rise exponentially once the suspension of the obligation to file for insolvency ends.42 However, insolvencies rose in March 2021 but declined in April 2021 when the suspension ended, and until end of June 2021 fewer insolvencies than in 2019 and 2020 occurred.43

The covid-19 crisis also serves as a catalyst to speed up transformation processes towards more digitalisation and away from old traditions in the German industry. This will have an impact on insolvency figures in the coming year.

ii StaRUG

We have already covered the details of the new out-of-court restructuring regime under the StaRUG law (see Section V.viii). A lot if insolvency experts expected that this bill will be a game-changer in the German restructuring market in 2021. However, until now cases under the new law are very rare.

It is to be expected that more cases will be filed, and restructuring practitioners will find more ideas where the new law can be used properly. For instance, the funds sector can pass as tailor-made to be subject to the new law: in funds' structures, there are usually no employees in the specific special purpose funds companies, there are no lease agreements and other service agreements to be restructured and the passive side of the balance sheet (which can be easily restructured under StaRUG) usually reveals the problem of the company. Also, an out-of-court regime can more easily be aligned with the requirements of the supervising authority of BaFin.

Footnotes

1 Andreas Dimmling is a partner at GSK Stockmann. The author would like to thank Sandra Krepler and Berit Nelke-Schneider for their invaluable support updating this article.

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

4 Section 1 of the GIA.

5 Law for the Further Facilitation of Corporate Restructurings – Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen [ESUG]).

6 See Section V.iii for more details.

7 See Section V.i for more details.

9 German Insolvency Act [GIA], Sections 165 to 172.

10 ibid., at Sections 49 to 51.

11 ibid., at Section 38.

12 ibid., at Section 39A.

13 ibid., at Sections 53 to 55.

14 ibid., at Section 129 et seq.

17 Boston Consulting Group Study, '6 years of ESUG, March 2012–February 2017', April 2018 <http://image-src.bcg.com/Images/Focus-ESUG-study_tcm108-190947.pdf&gt;; Münchener Kommentar, InsO, 3rd ed. 2014, Vor Sections 217 to 269, No. 64.

18 Boston Consulting Group Study, '6 years ESUG, March 2012 to February 2017', April 2018 <http://image-src.bcg.com/Images/Focus-ESUG-study_tcm108-190947.pdf&gt;.

19 GIA, Section 217.

20 In force since 26 June 2017, replacing Council Regulation (EC) No. 1346/2000.

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

23 See Section V.ii for more details.

24 See Fiebig, Silvia 'StaRUG – eine Auswertung der ersten praktischen Fälle' in ZRI, 2. Jahrgang, Heft 13, page 561 to 569, 8 July 2021.

32 ibid.

38 See https://www.handelsblatt.com/unternehmen/handel-konsumgueter/einzelhandel-insolvente-adler-
modemaerkte-wollen-500-stellen-streichen/27386286.html?ticket=ST-519313-
4ilcI7OybMNVFrmn7tH9-ap3.

41 BGH NZI 2014, 969.

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