Vol 3 (2006) - Issue 6

Article preview

Creditor’s Rights in German Insolvency Proceedings – How Effective Are the Procedural Rules?

1. Introduction
It is common practice in international comparative law to categorise the various insolvency systems according to whether they are ‘debtor-friendly’ or ‘creditor-friendly’. The insolvency system of the United States is frequently cited as debtor-friendly system because,
by way of example, under Chapter 11 of the U.S. Bankruptcy Code the managing directors of the debtor enterprise fundamentally manage the enterprise even during the rehabilitation phase. Also considered to be debtor-friendly is France due, for instance, to the short period of time until discharge. On the contrary, countries like in England and like insolvency law is classified as extremely creditor-friendly.
The question is how creditor-friendly German insolvency law really is. When reading the text of the German Insolvenzordnung (Insolvency Act, InsO), the impression that at least a creditor-friendly intention is associated with the law comes to mind. Thus § 1 InsO grants a right to rescue and restructure an enterprise in insolvency proceedings only if it serves the common satisfaction of the creditors. Rescue, therefore, is not for its own sake or for the sake of the debtor.
Also the motives to the InsO show such a creditor-
friendly intention: ‘The insolvency procedure is dominated by the principle of creditor autonomy. The only task of the court is to supervise the lawfulness of the process and to exert a mediating and conciliating influence in the actions of the parties involved and thus to promote an understanding among the parties.’1
This article will review – illustrated on selected aspects – this thesis of creditor-friendliness of the German insolvency proceedings on the basis of the procedural possibilities of the creditors.
2. Petitioning
Insolvency proceedings are petition-triggered proceedings;
thus they are commenced only upon petition and not ex officio by the court. In addition to the debtor’s own petition, that of a creditor is also admissible2 if the creditor proves a legal interest in having proceedings opened and is able to make credible his claim and the existing illiquidity or over-indebtedness of the debtor.
Over the course of time, case law has in particular defined the indefinite legal concept of ‘legal interest’ in greater detail. Thus legal interest will not be denied even in the case of only minor receivables, on the other hand it will be denied in the event of the pursuit of purposes foreign to insolvency, such as the creditor wanting to collect an alleged existing receivable or even trying to eliminate a competitor.
Furthermore, the claim must be made credible, whereby the petition for insolvency may also be based on a claim which has not yet been declared enforceable through e.g. a court judgment.3 The requirement to only ‘make credible’ the respective claim represents a fundamental relief compared to the ordinary burden of proof.4 Case law nevertheless, at least in cases in which the grounds for opening proceedings are derived from that single claim of the creditor filing the petition, has demanded that, at least if this claim is disputed, it must be proven to the satisfaction of the court as a precondition for the opening of insolvency proceedings (the ‘merits’ of the petition).5 This full proof of the claim, however, is not required if the grounds for insolvency (illiquidity/over indebtedness) are derived from other liabilities of the debtor.