Vol 10 (2013) - 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?

I. German insolvency law reforms accomplished in 2012

In two recent articles published in ICR, we set out the significant changes brought about by the recent major German insolvency law reform, dubbed 'ESUG', which came into force in March 2012. In part 2 of those articles we also described potential further law reforms that the German legislator then still had or might have in the pipeline, namely: the sunset provision on balance sheet insolvency, dealing with groups of companies, legal entities being permitted to be appointed as office-holders and out-of-court composition proceedings. On 8 November 2012 the Bundestag, the German Parliament, passed a law dealing with the first and most pressing point on the above list, the sunset provision on balance sheet insolvency. This is the main subject of this article, but we will also explore how the German legislature might be expected to deal with the other items on the list in the short, medium and long term.

II. The future of balance sheet insolvency in Germany

II.1. German insolvency tests and filing requirements
The first thing that usually comes to the minds of foreign stakeholders when asked about the German insolvency regime are the rigid filing requirements for the management of corporates. Once a company is unable to pay its debts as and when due, or is balance sheet insolvent, management must file for formal insolvency proceedings to be opened, with a short grace-period of 3 weeks. This can be made use of only where there is a likely chance of the company recovering a solvent position. Non-compliance can have severe consequences, for example management can be held personally liable for payments made during a period after an insolvency filing should have been made and/or be subject to criminal charges. Before the changes brought about by ESUG, filings were often considered as embarking on the unknown and as being rescue-unfriendly, due to the choice of selection and appointment of an office-holder being at the full discretion of the court. The new law has changed this situation substantially.