Last Friday, in response to the outbreak of the coronavirus pandemic (COVID-19), the German government announced various measures described as a big "bazooka" to avert a crisis in the Eurozone's largest economy. The German development bank KfW will play a key role in the context of the announced measures and has been tasked to provide liquidity assistance to German companies hit by the pandemic.
On 28 November 2016 the German Federal Fiscal Court (FFC) (GrS BFH 1/15, published on 8 February 2017) held that the guidance on a reorganisation tax privilege (Reorganization Decree (Sanierungserlass)) issued by the German Federal Ministry of Finance (FMF) in 2003 was invalid. The ruling has created great uncertainty for the restructuring practice in Germany regarding the proper tax treatment of restructuring gains.
An extract from GRR The European, Middle Eastern and African Restructuring Review 2018
Brief overview of insolvency proceedings
Enhanced by no less than five reforms over the past 10 years, French insolvency law now provides a comprehensive set of tools designed to efficiently handle the legal, economic and financial difficulties that companies are facing. The whole insolvency architecture hinges on the key concept of cessation of payments (ie, inability of the debtor to pay its debts as they fall due with its available assets).
In its April 2018 decision, the BGH ruled on the question whether the directors of a company that has been granted debtor in possession status by the respective insolvency court can become personally liable for a breach of a duty of care vis-à-vis the creditors like an insolvency administrator. The underlying legal question was the subject of a controversial academic discussion in the past.
A recent judgment of the German Federal Fiscal Court (FFC) will have significant impact on the restructuring tool kit afforded under German law. The FFC has found that the existing practice of permitting a tax liability arising from restructuring gains to be deferred and (eventually) waived violates fundamental principles of German law. The ruling has created uncertainty regarding the proper tax treatment of restructuring gains, which may have the effect of diminishing the prospect of success of a restructuring for a company in financial distress.
During its 44th congress in Toronto, on September 17, 2014, the International Association for the Protection of Intellectual Property (AIPPI) adopted a resolution on "IP Licensing and Insolvency". The resolution regarding "Question Q241" can be accessed via AIPPI's website using the following link:https://www.aippi.org/download/commitees/241/RS241English.pdf.
The Resolution
German Insolvency Law – a Leap Forward
Creditors have often complained that German insolvency law does not give them sufficient influence in insolvency proceedings. On 1 March 2012 new amendments to the German bankruptcy code came into force which go some way towards ameliorating this concern and make a host of changes which should improve German insolvency law to facilitate an insolvency culture which facilitates reorganisation rather than liquidation of assets.
On the bill of the Federal German Government for an Act Serving the Further Facilitation of the Reorganization of Enterprises (ESUG)
1. Introduction
On 25 August 2010, the German government published a draft of an Act for the Restructuring and Orderly Liquidation of Credit Institutions, for the Establishment of Restructuring Fund for Credit Institutions and for the Extension of the Limitation Period of Corporate Law Management Liability (Restrukturierungsgesetz, the “German Restructuring Act”). It is anticipated that the German Restructuring Act will soon be introduced to the German parliament and be passed quickly.
Due to the ongoing financial crisis and the economic downturn accompanied therewith, many German companies are or will be struggling with default and insolvency problems.