Under German insolvency law, a company is over-indebted when its existing assets do not fully cover its debts and there is no positive going concern prognosis. A positive going concern prognosis is assumed if the company has sufficient liquid funds available for a certain period to satisfy all liabilities at maturity and its profitability will be restored in accordance with a business plan.

Recent court decisions and legislative clarification

Over-indebtedness remains a ground for insolvency

The German Act on the Stabilisation and Restructuring Framework for Business (StaRUG) came into force on 1 January 2021, incorporating the EU Restructuring Directive into German law. It provides the first pre-insolvency restructuring framework for the reorganisation of companies facing "imminent illiquidity" and the possibility of involving dissenting creditors. The restructuring plan – which is very similar to the English Scheme of Arrangement and the German insolvency plan – is the central instrument.

Section 1 StaRUG

The High Court recently considered whether a creditor can be a victim to, and obtain relief for, a transaction which is reversed before the claim is even brought and the creditor is put back to the position they were in before the transaction took place.

Timeline

In Arlington v Woolrych, the failure by a junior creditor to gain the prior written consent of senior creditors pursuant to a Deed of Priority rendered the appointment of administrators invalid.

Facts

High Street Rooftop Holdings Limited (the Company) was part of a group of companies known as the High Street Group, which carried on real estate activities such as the development of residential apartments and construction, and the ownership of hotels, bars and restaurants.

On 13 June 2018, the Company entered into a secured term loan facility agreement with Strategic Advantage SPC as lender (the Lender) (the Facility Agreement). Under the Facility Agreement, the Applicant made funding of approximately £100 million available to the Company in tranches.

Facts

Centenary Homes Limited (C) was a property development company which acquired two blocks of flats: one in Enfield and the other in Bloomsbury. The Bank of Scotland (BOS) extended secured finance to C for the development of the two properties.

C defaulted on its repayment obligations in 2012 and fixed charge receivers were appointed in March, when the balance outstanding was approximately £4.4 million.

The receivers were able to sell the Enfield flats in July 2012, for £3,250,000.