Vol 12 (2015) - Issue 2

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Developments, Decisions and Strategies: Reforms in German Insolvency Plan Proceedings and Its Meaning for Investors

Introduction
As a means of restructuring, the German Insolvency Code (Insolvenzordnung, hereinafter InsO) contains the so-called insolvency plan proceeding. Since March 2012, the insolvency plan proceeding can be combined with the insolvency protection proceeding under debtors own administration (Schutzschirmverfahren, s. 270b InsO). The main purpose of this procedure is to allow companies to remain self-determined to a higher extent and to have more influence on the insolvency strategy that is applied. In a protective shield proceeding with a maximum length of three months during which the debtor is protected from foreclosure from creditors, the debtor and insolvency administrator develop an insolvency plan, describing the methods that shall be applied, and submit it to the insolvency court. The court then dockets a discussion and voting meeting with all parties involved. For approval of the plan, it must have a majority within each group.
After the German insolvency plan proceeding experienced a reform in 2012 by the implementation of the Law for the Further Facilitation of the Restructuring of Enterprises (Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen – hereinafter ESUG), it enjoyed great popularity, especially when it comes to rather complex insolvency cases. However, the reform also opened up the possibility to affect the corporate structure of the company (ss. 217 sentence 2, 225a InsO), and it therefore raised the risks for the shareholders with no majority within the voting for the insolvency plan (compare esp. s. 238a (1) sentence 2 InsO – see below).
Until few weeks ago, there were no cases illustrating the possibilities of the newly reformed insolvency plan proceedings and the grade of acceptance within the jurisdiction. Neither was there experience of how to defend one's interests and – on the other hand – push forward the insolvency plan proceedings in spite of a strenuous opposition.
First decisions in second and third instances have now been made so that it is easier to give recommendations about what (foreign) shareholders/creditors are able to do and what they should keep an eye on.

Modifications of corporate structure by the insolvency plan
S. 225a InsO explains the rights of shareholders, stating that the share and membership rights of those with a participating interest in the debtor remain unaffected by the insolvency plan, unless otherwise provided in the plan. However, s. 238a InsO indicates that the voting rights of the debtor's shareholders shall be determined solely by their participating interest in the debtor's subscribed capital or assets. No account shall be taken of any limitations on voting rights, or of special or multiple voting rights. What might have been negotiated in a company agreement could therefore lose its meaning when it comes to keeping (or losing) special rights according to the shareholders' agreement.
First decisions concerning this topic can now be examined, showing that indeed a change of the corporate structure within the insolvency plan is a possibility even if shareholders do not support the plan or even vote against it. The Suhrkamp case – involving a famous German publishing house – is a good example in which the change from a private limited partnership (Kommanditgesellschaft) to an incorporated company (Aktiengesellschaft) took place while it additionally shows that the special rights of a shareholder, even those of a minority shareholder, can be reduced or removed.