In a situation where the survival of a German company depends on restructuring measures by third parties (mainly lenders) who fear that the shareholders may use their hold-out position in a potential subsequent exit by sale of the shares, it is an option for the lenders to demand from the shareholders that the shares are transferred to a trustee to be held in a “double-sided trust” (doppelnützige Treuhand).
The German Federal Constitutional Court (BVerfG) will soon issue a decision on the constitutionality of Sec. 56 of the German Insolvency Statute. According to Sec. 56, only independent natural persons can be appointed as insolvency administrators. Thus, accounting firms, law firms, and tax consulting firms cannot act as insolvency administrators. In 2013, a German law firm lodged a constitutional complaint asserting that this provision infringed its right of equality before law as well as its right of occupational freedom.
With a recent draft act to amend the German Insolvency Code (Insolvenzordnung – InsO), the German Federal Ministry of Justice and Consumer Protection intends to reduce uncertainty regarding insolvency claw-back, in particular regarding Sec. 133 InsO. The result may be that restructuring opinions that are now market standard when (re)financing financially troubled companies in Germany become redundant.
Current legal status
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 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. Further modifications were implemented in a second reform which came into force on 1 July 2014.There is only one primary uniform insolvency procedure which applies to both individuals and companies. In the following, we focus on companies.
Foreign suppliers are often not familiar with the legal framework applying in an insolvency of their German customers. That lack of familiarity may leave them ill-prepared to deal with distressed customers. In many cases, the foreign suppliers have not taken the measures necessary to protect themselves.
I plan to provide readers throughout the following months, with information that suppliers may find helpful to better protect their position in case of an insolvency of their German customer. Questions and comments are welcome!
Banking & Finance
Aktuelle Informationen des
Geschäftsbereichs Banking & Finance
News from the Banking & Finance practice
Dezember / December 2014
German insolvency law, unlike US insolvency law, only recently introduced (in 2012) the so-called protective shield proceedings (Schutzschirmverfahren) to enable potentially illiquid and/or over-indebted debtors to restructure the company on the basis of a so-called insolvency plan. Thereby, the liquidation of a company by a future insolvency administrator can be avoided.
This article looks at ways to restructure debt taken up by a German company. First it discusses financings governed by English law and then moves on to look at options where German law-governs the debt.
Financings governed by English law (restructuring through schemes of arrangement)
In recent years a number of German companies such as Tele Columbus, Rodenstock and Primacom have used English law scheme of arrangements to restructure their debt.
An element of the restructuring toolbox