The German Parliament has, in response to the ongoing crisis in the financial markets, extended a legislation, which originally came into force on October 18, 2008, amending, inter alia, parts of the German Insolvency Code. These amendments, which had in certain cases lead to a relaxation of the obligation to file for insolvency, will now be valid without limitation in time. It can be expected that it will be published and come into force already this year.

Obligation to File for Insolvency

Introduction

German insolvency law is governed by a comprehensive Insolvency Code which entered into force on January 1, 1999 and has been amended from time to time, the last major reform being the Act for the Further Facilitation of the Restructuring of Companies (ESUG) which largely came into force as of 1 March 2012. There is only one primary uniform insolvency procedure which applies to both individuals and companies. In the following, we focus on companies.

Einleitung

On December 13, 2011, the Act for the Further Facilitation of the Restructuring of Companies (ESUG), whose material provisions will come into force on March 1, 2012, was announced in the Federal Gazette. The ESUG bundles several reformatory efforts with regard to German insolvency law and will likely have significant effects on the daily practice. Generally, the restructuring of companies in financial crisis will be made easier. The creditors’ influence on the proceedings, including the selection of the person of the insolvency administrator, is increased.

Im deutschen Vertragsrecht gilt das Prinzip der Vertragstreue (pacta sunt servanda), welches die Verpflichtung zur Erfüllung von Verträgen zum Gegenstand hat. Hiervon werden im Falle der Insolvenz einer Vertragspartei Ausnahmen gemacht. Mit Eröffnung des Insolvenzverfahrens wird das Prinzip der Vertragstreue modifiziert. 

The EU Decision

The EU Commission has held on January 26, 2011 that the so called restructuring privilege offered by German corporate tax law, which allows corporations in a distressed financial situation to continue to set off tax loss carry forwards against future profits even if their shareholder structure has substantially changed, is incompatible with EU State Aid provisions.

The recipients, which have applied the restructuring privilege, are now threatened with the reclaim of the tax benefits.

Within German contract law, the principle of being bound by a contract (pacta sunt servanda), i.e. the obligation to fulfill agreements, applies. In case of the insolvency of one of the contractual parties, however, exceptions are made. Upon the opening of the insolvency proceedings, the principle of being bound by a contract is modified. 

Crises of credit and financial institutions are currently the order of the day.

mayer brown 1 März | March 2018 Deutsches Insolvenzrecht Die Aufrechnung in der Insolvenz German Insolvency Law The right to set-off during insolvency proceedings 2 Deutsches Insolvenzrecht | German Insolvency Law Nach dem deutschen Insolvenzrecht besteht das Recht zur Aufrechnung des Insolvenzgläubigers auch in der Insolvenz des Schuldners fort, wenn er zur Zeit der Eröffnung des Insolvenzverfahrens kraft Gesetzes oder auf Grund einer Vereinbarung zur Aufrechnung berechtigt war. Zum Zeitpunkt der Insolvenzeröffnung bestehende Aufrechnungslagen sind somit „insolvenzfest“.