Vol 3 (2006) - Issue 3

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The German Self-Reorganisation Systems in Insolvency Proceedings

Introductory remarks
Recent insolvency proceedings of the drugstore chain Ihr Platz and its ‘brand-new’ self-administration procedure have attracted a great deal of interest amongst insolvency practitioners in Germany.
Judging by the debate prompted by the case, there are a few misunderstandings that need to be resolved. First, Ihr Platz is not the first example of either self-administration or of an insolvency plan procedure. Secondly, there is no mandatory connection or condition between self-administration and an insolvency plan. Finally, self-administration and an insolvency plan may stand alone as distinct instruments (yet the combination becomes a strong force for reorganisation under German insolvency law). Following Ihr Platz, these instruments have become more widespread so that the number of cases may be expected to grow. Reorganisation by an insolvency plan within a self-administration procedure is known as self-reorganisation.


I. Introduction to self-reorganisation in German insolvency law

As the term ‘self-reorganisation’ implies, an enterprise is assumed to be capable of reorganising itself. Although the option of process control must be available, external assistance is not compulsory.
The former bankruptcy and total judicial execution law operated differently. For instance, the 30-year period of limitation was maintained even after bankruptcy or total judicial execution proceedings had been completed,meaning that claims for liabilities could be filed virtually ‘in perpetuity’. The idea of self-reorganisation led a shadow existence.
Conversely, the insolvency law detailed at §§ 217 to 269 of the German Insolvency Code (Insolvenzordnung, InsO) and the insolvency plan defined therein, provides a tool which, in insolvency proceedings, offers a reasonable alternative to the debtor’s asset utilisation and distribution of the proceeds. Analogous to US insolvency law, the legislation provides for the utilisation of the insolvency plan as an option in insolvency proceedings, permitting the debtor to handle the insolvency without – initially – being subject to any restrictions in terms of content. The legislator intended that the insolvency plan procedure should be amenable to the debtor, so allowing for self-reorganisation with the appropriate reduction of indebtedness.