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‘Law for further Facilitation of the Restructuring of Companies’: A Turning Point in the History of the German Insolvency Regime?
Ursula Schlegel, Rechtsanwältin and Solicitor (England & Wales), Kebekus et Zimmermann, Düsseldorf, Germany1Part 1 – More Input for Creditors and More Flexibility
This is the first article dealing with the new German insolvency regime to come into force in Spring 2012. Part 1 of this two part article covers the new provisions for more creditor involvement and some changes to debtor-in- possession procedures. Part 2 will cover the new provisions relating to debt for equity swaps and changes in the existing law on reorganisation plans in more detail, together with areas where the new regime can be compared to other jurisdictions, including input from UK practitioners. Part 2 will also deal with areas which may be considered for reform in future.
Current position
On 23 February 2011 the German Government issued a draft proposal for a new 'Law for further Facilitation of the Restructuring of Companies', the 'Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen' (referred to as 'ESUG') which was passed by the Bundestag, the German Parliament on 27 October 2011 and which – in amended form – will go to the Bundesrat, the German Federal Assembly, on 25 November 2011.
ESUG has the potential to be a historical turning point in the way Germany deals with insolvency and restructuring. It is widely expected to have a major impact on stakeholders’ and the courts’ future powers and on insolvency professionals’ future roles and workflows, including substantial changes regarding office-holder appointments, reminiscent of the UK regime. These changes will occur in an environment where, currently, more than 180 local insolvency courts have full discretion to choose and appoint officeholders under a regime that provides for strict statutory filing requirements for the management of insolvent limited liability companies. Accordingly, ESUG has triggered intense discussions across the insolvency profession since summer 2010, when a first draft of ESUG was leaked.
As a result of these discussions, ESUG went through various differing draft stages and parliamentary hearings before it was passed and will come into force in a rather different shape from its original versions. It is widely expected to come into force on 1 March 2012, but for this to occur it must still be ratified in December 2011.
Over the past months, there had been fears over delays if ESUG had had to be referred to the Vermittlungsausschuß (conciliation committee) of the Bundestag and Bundesrat. With Germany being a Federation of individual 'Länder', the German judicial system is largely administered on Länder-level, including financing, organisation and staffing of insolvency courts. ESUG in its draft version had aimed at creating designated specialised insolvency courts through a concentration of courts’ jurisdictions, which has not been well-received by certain Länder and has therefore been abandoned.
This two part article provides not only an overview of key elements of the ESUG as it has been passed but also highlights certain key areas of debate and how such debate amended the draft law. ESUG’s genesis is not only of historical interest: 'the proof lies in the pudding' and ESUG will have to be 'lived', i.e. its toolkit will have to be accepted and used by the insolvency industry and courts, where some players may initially have reservations which they have already expressed in the discussions.
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