On 13 July 2010 Germany's Federal Ministry of Justice and Finance published a discussion draft of an Act for the Restructuring and Orderly Liquidation of Credit Institutions, for the Establishment of a Restructuring Fund for Credit Institutions and for the Extension of the Limitation (Restructuring Act).

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.

The German parliament (Deutscher Bundestag) has recently passed a law on the restructuring and dissolution of distressed financial institutions, establishing a sector-wide restructuring fund and extending the statute of limitations for the liability board members (Restructuring Act).

Generally, financial services firms in Germany (Finanzdienstleistungsinstitute) are mandatory members of a protection scheme (Entschädigungseinrichtung der Wertpapierhandelsunternehmen - EdW). Members of this protection scheme are obliged to make regular financial contributions.

In 2005 Phoenix Kapitaldienst GmbH became insolvent and the EdW is due to pay out to Phoenix investors compensation which totals more than 100 million Euros. However, the EdW has insufficient funds to cover the entire amount due.

the recent equitable life case, decided by the higher regional court of celle (the olg celle), is the first example of a german court considering the recognition of a uk creditors' scheme of arrangement.

In a decision which has not yet been confirmed by the German Federal Court, the Higher Regional Court of Celle (an appellate court) has decided that a German policyholder of UK life insurer Equitable Life is not protected by a scheme of arrangement which had been approved by the London High Court in February 2002 (OLG Celle 8 U 46/09 from 8 September 2009). The claimant had challenged that, following the scheme of arrangement, he would have had received lesser profit payments. A final decision of the German Federal Court is expected at the end of 2010.

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.