Recently the German Federal Government introduced a reform of the German Insolvency Code by adopting a draft bill of an Act to Further Facilitate the Restructuring of Businesses (the “Bill”). The Bill primarily focuses on the facilitation of insolvency plans as a tool for restructurings and to eliminate certain obstacles of the German insolvency law. If enacted as proposed, the Bill would simplify the purchase of shares of an insolvent company and would give investors more influence and flexibility in in-solvency plan proceedings.

INSOLVENCY PLANS

On 23 February 2011, the Federal Government (Bundeskabinett) adopted the government draft (Regierungsentwurf) of an act (Entwurf eines Gesetzes zur weiteren Erleichterung der Sanierung von Unternehmen) that proposes material changes to the German Insolvency Act (Insolvenzordnung). The government's aim is to modify the economic terms for the restructuring of distressed companies .

On the bill of the Federal German Government for an Act Serving the Further Facilitation of the Reorganization of Enterprises (ESUG)

German Insolvency Law

The German Federal Civil Court (BGH) in its decision of 15 April 2010 (IX ZR 188/09) clarified the legal position of holders of preferred stock in insolvency plan proceedings.

As part of the German government’s costs savings package, a change in the German Insolvency Code may be implemented which will grant to the German fiscal authorities a preferred creditor status.

The impact of insolvency proceedings on arbitral proceedings is becoming an increasingly important consideration for parties. Two scenarios can be generally envisioned: (i) a company files for insolvency while it is engaged in arbitral proceedings; or (ii) arbitral proceedings are initiated after insolvency proceedings have commenced. In both scenarios, the parties need to assess how the insolvency proceeding affects the arbitral proceedings. This article assesses the impact of insolvency proceedings initiated in Germany on foreign arbitral proceedings.

Last month, the German Ministry for Justice and Legal Affairs (Bundesjustizministerium) published a draft law proposal aimed at further "facilitating the restructuring of businesses".

Tax treatment in the hands of the creditor

If a creditor waives an intra-group receivable, this leads to an accounting loss in the amount of the receivable. Such loss, however, is not automatically tax-deductible in the hands of the creditor.

Brian Bolin, Paul Weiss Rifkind Wharton & Garrison

This is an extract from the 2020 edition of the Americas Restructuring Review, published by Global Restructuring Review. The whole publication is available here.

In summary