Introduction This briefing complements our other publications on corporate restructuring and the sale or purchase of distressed assets.
What are the options for companies in financial difficulty in the PRC?
Key points
The ‘qualified subordination’ tool is a useful device for a German company that may be balance-sheet insolvent.
Background
German insolvency law requires the directors of a company to file for insolvency when the company is over-indebted pursuant to sec. 19 German Insolvency Code (‘InsO’). The failure to comply with this obligation is a criminal offence, and can also trigger directors’ liabilities under German corporate law.
‘Qualified Subordination’
The German Insolvency Code requires the management of German limited liability companies (GmbH), stock corporations (AG) and other entities without personal liability to file for the commencement of insolvency proceedings no later than three weeks after the entity has become illiquid (zahlungsunfähig) or overindebted (überschuldet).
German Parliament passes “Act for the Further Facilitation of the Restructuring of Companies“ (Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen, ESUG)
As part of an intended comprehensive amendment of German insolvency law, the German Federal Ministry of Justice has prepared a draft of a new law to facilitate the reorganization of enterprises (“Reorganization Facilitation Act”). The new law will curtail the rights of shareholders of insolvent companies and allow capital measures and other corporate measures to be taken in the insolvency of a company without the participation of the shareholders. The new regulation is of interest to investors because it will significantly simplify the purchase of the shares of an insolvent company.
On the bill of the Federal German Government for an Act Serving the Further Facilitation of the Reorganization of Enterprises (ESUG)
On 26 January 2011 the European Commission declared the so-called Restructuring Clause (Sanierungsklausel) (Sec. 8c (1a) of the German Corporate Income Tax Act (CTA)) as inconsistent with EU funding guidelines. The decision of the European Commission is criticized by national experts and stresses the German economy with a hardly tolerable uncertainty as regards tax issues in restructurings.
German Insolvency Law
In the wake of the recent turmoil in the financial markets the German government has agreed on a package of measures to stabilise the financial markets and to avoid adverse effects on the real economy. The draft bill as introduced on 15 October 2008 has been passed already and comes into force as from 18 October 2008.
In September 2012, Grant Thornton were appointed by the Royal Court of Guernsey as joint administrators of a Guernsey company called Montenegro investments limited (MIL) - a Guernsey property Investment Fund.. The joint administrators then appointed Ogier.
Current Status of MIL