German Court lowers threshold for approval of an insolvency plan

The Federal Court of Justice has lowered the threshold for the approval of an insolvency plan by the insolvency court.

Background

The German Insolvency Code governs the order of payment of creditors in both insolvency proceedings and debtor in possession proceedings.  An insolvency plan may contain provisions deviating from the prescribed order. This must be accepted by both the creditors and the insolvency court. The insolvency court has the right to reject the plan before the creditors can vote on its acceptance. An overview must be submitted to the court with the insolvency plan showing the assets available to meet the liabilities under the plan.

Decision

In this case, it was disputed whether this meant that proof of the solvency of a third-party funder had to be submitted with the plan. The Federal Court of Justice ruled that this was not necessary, a declaration of solvency by the third party is sufficient. The court must examine the declaration to determine whether it is legally binding and sufficiently definite and may reject the plan if it is clear from the declaration itself that it is worthless. 

Key takeaways

This decision of the Federal Court of Justice has made it easier for the insolvency plan to be approved by the insolvency court making it more likely that the creditors will have an opportunity to vote to adopt any deviations from the statutory payment provisions and approve the plan.

Find out more

To discuss the issues raised in this article in more detail, please reach out to a member of our Restructuring & Insolvency team.

Ruling BGH, 22 June 2023, IX ZB 15/21