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.

In the wake of the recent turmoil in the financial markets the German government has agreed on a package of measures to stabilise the financial markets and to avoid adverse effects on the real economy. The draft bill as introduced on 15 October 2008 has been passed already and comes into force as from 18 October 2008.

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.

An insolvency administrator may lose their right to restitution arising from an insolvency avoidance if they are prevented from exercising the right in good faith by their conduct in the context of the conclusion of a redemption agreement, by which the creditor (and opposing party) waives rights to separate satisfaction.

Decision

Background