Vol 9 (2012) - Issue 1

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‘Law for further Facilitation of the Restructuring of Companies’: A Turning Point in the History of the German Insolvency Regime? Part 2 – Improvements on the Existing Insolvency Plan, Comparison with English Arrangements; Outlook: Further Reforms

This is the second article in a series about the German insolvency law changes to come into force on 1 March 2012. The first article, published in the previous edition of this journal, dealt with the proposals to give creditors more input to the process and improvements to the debtor-in-possession process. This article compares various areas of the proposed law primarily with the existing provisions in the UK.


Improvements on the existing insolvency plan, comparison with English arrangements

The insolvency plan

Both Eigenverwaltung, debtor-in-possession proceedings, and the Insolvenzplan, insolvency plan, were introduced in 1999 following the US Chapter 11 model, with the difference that under German law although they can be (and are intended to be) combined, they are distinct restructuring tools and can be implemented independently. The ESUG improvements to the existing debtor-in-possession proceedings are also intended to encourage their combined use: ESUG introduces incentives for near insolvent debtors to apply for debtor-in-possession proceedings and a three month breathing space during which to prepare an insolvency plan (see Part 1 of this article in the previous issue). The insolvency plan can be used to settle the way in which the secured, unsecured, and equity rights are satisfied and the relative outcomes for each creditor class. It may be proposed by either the debtor (likely to be in conjunction with a request for the opening of insolvency proceedings: this resembles a pre-packaged Chapter 11 Plan) or by the office-holder, which might be seen as the equivalent of a UK administrator rescuing the company via a Company Voluntary Arrangement and/ or Companies Act Scheme of Arrangement. However, although in the UK the responsibility for preparing and presenting a CVA or Scheme lies with the office-holder, the German proposal envisages that other parties may also propose plans, which is more akin to the Chapter 11 situation. In practice, it will typically be an officeholder and/or other restructuring specialists drafting the insolvency plan.

As with a UK Scheme or CVA there is an explanatory part which describes how the debtor has been dealt with during the insolvency (as in the UK, this would include some background on the debtor, the circumstances leading to the insolvency, certain required statutory information, why the office-holder is recommending this particular plan and how it benefits the creditors) and how it is to be further dealt with to be able to establish the basis of the plan. The explanatory part should also contain all the necessary information in order that those affected by the plan can come to an informed decision.

There is then a constructive part which is equivalent