Update on German Restructuring Law
New Draft Proposal of the German Government for a Law for the further Facilitation of Enterprises' or 'A change in Mentality for a new Insolvency Culture'
The German government has issued on 23 February 2011 a draft proposal for a new “Law for the further Facilitation of the Restructuring of Enterprises” (“Draft Proposal"). In a press statement of the German government such Draft Proposal is stated to be "a change in mentality for a new insolvency culture". The new law is expected to come into force in the last quarter of this year.
The Draft Proposal responds to a number of prominent cases of COMI-migration of Germany-domiciled companies to the UK: Companies like Deutsche Nickel and Schefenacker were restructured under the legal restructuring framework of the UK, because the debtors and creditors involved viewed the current German insolvency law as insufficient to achieve the desired restructuring result. In particular, is has been viewed as a disadvantage of German insolvency law that while a cramdown with regard to the rights of the creditors was possible the position of the shareholders of the debtor could not be affected by an insolvency plan against the will of the shareholders. The Draft Proposal now provides for the integration of the shareholders in the insolvency plan and generally increases the influence of the creditors in German insolvency proceedings.
The main changes provided for by the Draft Proposal can be summarized in a nutshell as follows:
- insolvency plan can provide for a cram-down of shareholdings in the debtor,
- reduction of hold-up potential of individual creditors exercising legal remedies against an insolvency plan,
- increased influence of the main creditors at an early stage of the insolvency proceedings by allowing / obliging courts to establish a "preliminary creditors’ committee" and strengthening the position of the creditors vis-à-vis the court regarding the appointment of the administrator,
- introduction of a new preliminary self-administration proceeding.
Lawyers Dr. Hendrik Boss, Nick Moser, Claire Martin-Royle, Neil Smyth, Harald Bechteler, Ingo Gerdes, Dr. Matthias Kampshoff, Dr. Michael Malitz, Dr. Andreas Schrettl
