Vol 8 (2011) - Issue 3

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On to Pastures New? Some Observations of Germany’s Intended Insolvency Law Reforms

It is well known that Germans love cars. German lawyers at least, love codified law. The pleasures of driving are sometimes constrained by speed limits and heavy traffic, not to mention the limitations of other drivers. But what the Germans really love about cars is the way in which they are made, repaired and even washed rather than the actual driving. Some of the same considerations apply to law reform.

In October 2009, there was a coalition agreement published by the then incoming German government. It contained a number of substantial declarations with regard to yet another attempt to reorganise insolvency law. In particular it addressed the need to promote the restructuring of businesses capable of being saved and with it, the much more important consideration of keeping people in employment. These aims were to be effected by improving the framework for out of court solutions in the case of companies and enterprises facing imminent insolvency and also by the related means of simplifying proceedings regarding what is called the insolvency plan procedure. Next, it was thought necessary to inhibit the assaults on insolvency legislation made by the finance ministries as well as the social security institutions insofar as such attacks impeded a proper and equal distribution among creditors. In addition there was felt a need to tighten up the regulations regarding the appointment and conduct of insolvency administrators as a whole. Finally, particular attention was concentrated upon the need to create some mechanism whereby there could be an effective restructuring of banks that might otherwise be facing financial difficulties at a relatively early stage. With regard to this last intention a new Restructuring Code came into force on 9 December 2010 dealing with the restructuring of financial institutions. This article, however, will not deal with that particular development but instead will attempt to provide an overview with regard to the contents of a draft bill which the German Government has recently put forward in an attempt to address the other matters which are listed above. These intended changes may well have a considerable impact upon German insolvency law and indeed European insolvency law as a whole.



Appointment of insolvency administrators

This topic will be taken first given its overall importance. Once upon a time and indeed as late as the second half of the 20th century, when insolvency cases were relatively few, lawyers would often work as administrators no doubt reflecting the fact that it was probably easier for them to take the job given their ability to access the courts more efficiently and more easily than their financial counterparts such as accountants. By the end of the 20th century, however, and certainly at the beginning of this century the number of insolvency cases and their size vastly increased. The insolvency market became more and more crowded. Quite apart from the need for administrators (whether they be lawyers or otherwise) to become more 'professional', the issue arose as to how to chose the right administrator and in particular how to regulate access to such appointments and the profession as a whole. Many insolvency courts developed their own and indeed sometimes quite diverse practices. For a long time the legislature did not step in to impose its own regulatory system. There remains even today no formal régime with regard to the licensing of practitioners. The only statutory requirements with regard to the appointment of an administrator in insolvency proceedings are that the administrator must be an individual who is experienced in business affairs, qualified for the case in question and who is independent of the creditors and of the debtor.