Vol 7 (2010) - Issue 4

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Main Insolvency Proceedings in UK and Secondary Proceedings with Self-Administration in Germany

Introduction
Cross-border insolvency proceedings are a difficult challenge for all parties involved. If the debtor has his centre of main interests (COMI) in the UK, possesses an establishment in the territory of Germany, and a court in the UK opens the main insolvency proceedings, then the administrator will regularly try to avoid secondary insolvency proceedings in Germany. There are several options to achieve this, but nevertheless if only one creditor files for such proceedings (art. 29 lit b Council Regulation No 1346/2000, hereinafter 'EIR'; s. 14 (1) German Insolvency Code (Insolvenzordnung, hereinafter InsO)), the court will examine the requirements and possibly agree to the application filed. In that case, the UK administrator can try to use a special feature of German law. The German Insolvency Code knows as a further proceeding the self-administration pursuant to ss. 270 et seq. InsO.

The combination of secondary insolvency proceedings with self-administration is extensively discussed in the German literature but judicial decisions on this topic are rare. This article discusses some of the objections which have been raised, and gives recommendations on how to prepare a successful self-administration in secondary insolvency proceedings. Furthermore, the rules on self-administration in Germany are currently being reformed. The paper gives a short overview of the intended changes.

Avoiding secondary insolvency proceedings
In most cases, the UK administrator wishes to avoid secondary insolvency proceedings taking place in another Member State, and would sooner use all the powers art. 18 EIR gives him: the administrator may also exercise all the powers conferred on him by the law of the State of the opening of proceedings in another Member State, as long as no other insolvency proceedings have been opened there nor any preservation measure to the contrary has been taken there further to a request for the opening of insolvency proceedings in that State. One of the most important powers regarding liquidation or restructuring is the administrator’s right to remove the debtor’s assets from the territory of the Member State. Finally, the UK administrator would want to avoid German secondary proceedings because secondary proceedings must be winding-up proceedings and cannot be reorganisation proceedings even if the German establishment in principle requires reorganisation.

However, there is a considerable risk that secondary insolvency proceedings cannot be avoided. The UK administrator or any creditor can make a filing with the respective German insolvency court where the debtor has a German establishment.