The Insolvency Procedure in Germany
Insolvency proceedings aim at preventing creditors from realising their claims through an individual compulsory enforcement procedure if the debtor is insolvent (§17ff. InsO). Therefore, the joint satisfaction of all creditors is sought by dividing the debtor’s assets in a particular procedure (§1 InsO). The proceedings are intended to release the debtor from their residual debts. Various parties are involved in the insolvency proceedings, such as the debtor, the creditors, the insolvency court and the insolvency administrator (hereinafter “the Administrator”). The German Insolvency Regulation distinguishes between two types of proceedings, regular insolvency proceedings (corporate insolvency) and consumer insolvency proceedings (private insolvency). While the former governs the insolvency of legal entities, the latter regulates those of natural persons.
Entry into Proceedings: Filing for Insolvency
Before the German insolvency proceedings begin, the debtor (via their own application) or the creditor (in the form of an external application) must file an application for insolvency (§13 I InsO). Such an application must include one of the valid grounds for the commencement of proceedings of imminent or already occurring insolvency (§16 InsO). The competent court will examine the application and check all other conditions for the opening of proceedings.
Opening of the Application: Expert Opinion Phase
If there is a valid reason for the claim and the procedural costs are covered, the court will open the proceedings. Reasons for the claim may be insolvency, the threat of it or the over-indebtedness of the debtor. An expert will be consulted to assess the debtor’s financial situation.
The Creditors’ Meeting
The insolvency court may order a creditors ‘ meeting at the debtor, the administrator or the creditor’s request. This meeting will be tasked with the support, as well as with the supervision of the administrator.
Security measures in Provisional Proceedings
Since the court’s decision to open the proceedings takes time, it may already order measures on a provisional basis to prevent a deterioration of the debtor’s assets (§21 I InsO). For this purpose, a provisional insolvency administrator will be appointed. This measure is intended to ensure that the business concerned will continue until the decision to open proceedings is taken. Security measures can, for example, be imposed in the form of prohibiting the debtor from disposing of their assets or preventing enforcement measures initiated against the debtor. Additionally, the debtor will require the administrator’s consent for any business transactions. The court must publish the security measures imposed (§23 InsO) for transparency reasons.
Opening of the Insolvency Proceedings and Reporting
If the court issues an opening order, proceedings will be opened. The debtor’s power of disposition over their assets is transferred to the administrator for the duration of the proceedings. During the report meeting, the administrator will inform the creditors about the debtor’s economic situation and the reasons for their financial situation. The essential question is whether the company can be kept in operation and in which form the insolvency plan will succeed. Additionally, the prospects of a financial recovery will be presented. Within the meeting, the creditors are given the possibility of assisting in shaping the progress of the proceedings. They also have a say in whether it will be fruitful to keep the business going or close it down.
Examination Date and Liquidation Phase
During the examination date, the court will examine the claims filed by the creditors, which the administrator has confirmed. The administrator will inform the creditors of the final invoices at the closing meeting. The administrator will distribute the assets in the liquidation phase and implement the creditors’ meeting resolutions. They will also inform the creditors about the relevant developments of the debtor’s financial situation during this period.