Germany

A look at corporate, personal and, where relevant, partnership insolvency proceedings in Germany, with a brief description to explain key features, as part of our Dictionary of Insolvency Terms in EU Member States. In particular, we highlight who controls the procedure and whether it is likely to be accompanied by a moratorium to prevent enforcement.


Insolvenzvefahren

(Ordinary) insolvency proceeding

  • An insolvency procedure that can be opened by petition of the debtor or a creditor in relation to a legal entity (juristische Person), all forms of German partnerships or a natural person (except consumers).
  • The insolvency court appoints a preliminary insolvency administrator (vorläufigen Insolvenzverwalter, selected/appointed by the court and creditors' committee) and orders that any enforcement action against the debtor during the insolvency proceeding, including secured creditor enforcement, is prohibited (except for enforcement against real property).
  • The moratorium applies during both the preliminary insolvency proceeding and once the formal insolvency proceeding is opened by the court.
  • The court will open an insolvency proceeding if the debtor is facing (impending) illiquidity and/or, for companies only, is over-indebted (überschuldet) and where the costs of the insolvency proceeding are covered.
  • The (preliminary) administrator (vorläufigen Insolvenzverwalter) takes control of the debtor's assets to achieve a going-concern sale or to liquidate the company.
  • After the insolvency administrator has paid creditors or distributed the available assets/proceeds to creditors, the insolvency court will conclude the insolvency proceeding.

Eigenverwaltung

Debtor-in-possession (DIP) proceeding

  • An insolvency procedure in which a debtor (being a legal entity, juristische Person), all forms of German partnerships or a natural person (except consumers) applies to court for permission to manage and dispose of its insolvent estate itself under the supervision of a supervisor (Sachwalter).
  • Often but not necessarily combined with an insolvency plan proceeding.
  • Management remains in place, normally supported by a restructuring officer. The debtor retains control of its assets, subject to the supervision of the court-appointed (preliminary) supervisor (vorläufiger Sachwalter). The person proposed to be appointed as (preliminary) supervisor is put forward by the debtor and examined by the court.
  • There is a stay on enforcement action during DIP proceedings (and insolvency plan proceeding, if any) including any enforcement action by secured creditors.
  • Self-employed persons are entitled to apply to be released from their debts (Restschuldbefreiungsverfahren), which does not apply to company/partnership debtors.

Insolvenzplanverfahren

Insolvency plan proceeding

  • A special type of insolvency procedure available to companies, all forms of German partnerships and natural persons aimed at restructuring the debtor with the support of its creditors outside of the constraints of the German Insolvency Code.
  • The proceeding provides a flexible mechanism for debtors to regulate repayment of debts due to secured and unsecured creditors to realise and distribute assets.
  • Commenced when the debtor or an insolvency administrator (in case of DIP proceedings the court-appointed supervisor, Sachwalter) submits a draft restructuring or insolvency plan to the insolvency court. Only the legality of an insolvency plan is reviewed by the court.
  • Classes of creditors vote to approve the plan, which must also be approved by the court. A simple majority by value and by number in each class must vote in favour of the plan for it to be approved. If any class of creditors votes against the plan, the court may override that decision, if it concludes that those creditors would not be prejudiced by the plan. Once approved, the plan binds all creditors.
  • Creditors cannot enforce their security during the procedure but may do so once an insolvency plan has been confirmed by the court.
  • Self-employed persons are entitled to apply to be released from their debts (Restschuldbefreiungsverfahren), which does not apply to company/partnership debtors.

Schutzschirmverfahren

Protective shield proceeding

  • An insolvency procedure that creates a moratorium to give a debtor (being a legal entity, juristische Person), all forms of German partnerships or a natural person an opportunity to develop an insolvency plan to be implemented in a subsequent insolvency plan proceeding, while enjoying protection from enforcement by its creditors.
  • The debtor continues to manage and dispose of its assets while preparing an insolvency plan under the supervision of a preliminary supervisor (vorläufiger Sachwalter), supervised by the insolvency court.
  • The court may order a stay on all creditor enforcement action for up to three months, at the debtor’s request.
  • Among the prerequisites for protective shield proceedings, the debtor must demonstrate that creditors will not be prejudiced by the proceeding.
  • Self-employed persons are entitled to apply to be released from their debts (Restschuldbefreiungsverfahren), which does not apply to company/partnership debtors.

Verbraucherinsolvenzverfahren

Consumer insolvency proceeding

  • The only insolvency procedure available to consumers.
  • Before instigating a consumer insolvency proceeding, the consumer must try to reach a compulsory out-of-court settlement (außergerichtlicher Einigungsversuch) and has the option of pursuing a judicial debt settlement plan (gerichtlicher Schuldenbereinigungsplan), or residual debt exemption proceedings (Restschuldbefreiungsverfahren).
  • During attempts to reach a settlement, a moratorium protects the debtor from creditor action.
  • The court appoints an administrator (Insolvenzverwalter) to take over control of the debtor's assets/income with the aim of repaying creditors. The moratorium continues while the administrator is in control of the assets.
  • Among the prerequisites for the court to appoint an administrator, the consumer must not benefit from any receivables arising from employment relationships and must be insolvent, i.e. facing (impending) illiquidity.

Zwangsverwaltung

Forced sequestration

  • A creditor holding security over real property belonging to a company, any type of partnership or individual may apply for a forced sequestration. The property is administered by an administrator appointed by the court following the creditor's application.
  • The secured creditor's debt is satisfied out of any income deriving from the property, such as rents from tenants, after deducting ongoing costs including public charges and enforcement costs. This form of foreclosure is often costly.

Zwangsversteigerung

Forced public auction

  • The judicial sale of real property. The procedure entails the local court effecting a compulsory sale of real property owned by a company, any type of partnership or individual by way of public auction following an application for foreclosure by a creditor holding security over the property.
  • The secured creditor's debt is satisfied from the sale proceeds. The secured creditor may not reject bids of at least 70% of the determined market value in the first auction and 50% in the second auction (to the extent that the property does not sell at the first auction, or if a bid of less than 70% was rejected in the first auction). As auction sales tend to generate lower proceeds, it is possible for a debtor and security holder to agree to sell the property out of court. However, a creditor cannot do this without debtor consent.

Verwertung verpfändeter Geschäftsanteile

Enforcement of share pledge

  • A share pledge granted by a company is enforced by way of a sale of the shares in a public auction run by a court or an auctioneer.
  • Shares may be sold in a private sale if a price for the pledged shares is determined on a stock exchange or the parties agree otherwise. As a share pledge enforcement always requires a due and payable claim in favour of the holder of the share pledge to have arisen, the company is technically insolvent on the day that the shares are sold and this affects value.

Anticipated changes in the next two years

The EU Directive on Restructuring and Insolvency1 requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021. The intention of the Directive is to reduce barriers to the free flow of capital stemming from differences in Member States' restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.

Notable features required to be included in Member States' national laws include:

  • An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
  • A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
  • An ability to cram down dissenting classes of creditors.
  • Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
  • Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.

Contact: Dietmar Schulz


Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.