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.

On 27 August 2006, the PRC National People’s Congress passed a new Enterprise Insolvency Law (the “Law”) after more than a decade’s preparation and debate. The Law, which will become effective on 1 June 2007, introduces a formal insolvency process applying to a wide range of legal entities. The Law only contains general principles which in practice are unlikely to provide sufficient protection to creditors’ interests.

Scope of application