Introduction

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.  

Last year, the German government came forward with a ministerial bill for the reform of the German insolvency regulations with regard to licenses. The bill will most likely be enacted in the year 2009.  

Summary  

The international banking crisis has hit hard. German banks and companies are also affected. This briefing provides an insight on questions that are typically raised when persons are exposed to insolvency situations which involve proceedings initiated in Germany or abroad but have a connection to Germany in certain aspects.  

When does German Insolvency Law apply?  

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.

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.

In a judgment of November 29, 2007 that is of particular interest to financial institutions involved in asset-based lending, the German Federal Supreme Court (Bundesgerichtshof) allayed concerns that a global assignment (Globalzession)—the assignment of all existing and future trade receivables to a lender to secure loans—would not survive the insolvency of the respective originator.[1] This decision was eagerly awaited because various judgments of German Higher Regional Courts (Oberlandesgerichte) had raised concerns lately that the security interest over receivables created in the last th

On 14 February 2008 the German Federal Parliament deliberated a draft bill submitted by the Federal Ministry of Justice concerning the reform of Germany’s insolvency law. The draft bill envisions, in particular, regulation for stability against insolvency (Insolvenzfestigkeit) for licence agreements.

A main focus of the anticipated reform of the law governing limited liability companies by the draft Act on the Modernization of the Law on Limited Liability Companies and the Prevention of Abuse (generally referred to as the “MoMiG” or “Modernization Act”) is the new set of rules relating to shareholder debt financings.

During a public hearing concerning the draft circular of the German regulator dealing with “Regulatory minimum requirements of risk management” BaFin has reiterated that the principles of the circular which implement parts of the Solvency II regime will not be used to control the business decisions of German insurers. BaFin reacted to some of the concerns raised by insurers but did warn German insurers to prepare ahead for Solvency II and not wait until 2012.