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Focus Abroad: Corporate Insolvency In Germany.

Article Excerpt
Five years after the new German Insolvency Code ( Insolvenzordnung) came into Insolvenzordnung force, German insolvency law is of considerable interest to both the national and international business communities. This is mainly due to the record number of corporate bankruptcies in recent years, including such spectacular cases as Kirch Media, Philipp Holzmann, Herlitz, Fairchild Dornier & Babcock Borsig. Corporate bankruptcies amounted to 26,600 cases in 1999. The number has increased to almost 39,500 cases in 2003 and amounts to about 19,300 in the first half of 2004. While stakeholders face the special challenges associated with corporate bankruptcy, investors in distressed assets are presented with unique opportunities. The following article provides an overview of German insolvency proceedings with a special emphasis on the restructuring instruments introduced by the Insolvency Code such as the plan of reorganization ("Insolvency Plan", Insolvenzplan) and self-admin- Insolvenzplan istration ( Eigenverwaltung). Eigenverwaltung

The Stages Of Insolvency Proceedings

Insolvency proceedings pursuant to the Insolvency Code are the only judicial proceedings available in Germany for the bankruptcy of corporations. The Insolvency Code came into force on January 1, 1999 and replaced the three separate legislative regimes previously in force, the Bankruptcy Act and the Composition Act for debtors situated in former West Germany and the Joint Execution Act for debtors located in former East Germany.

Insolvency proceedings commence upon a petition by the insolvent corporation or a creditor to the competent court, the "Insolvency Court" ( Insolvenzgericht). The German Insolvenzgericht Insolvency Code contains an insolvency prerequisite. The petition must show that the corporation is either unable to meet its payment obligations that have become due (illiquidity) or that its liabilities exceed the value of its assets (overindebtedness). The management of a corporation that meets either of these criteria is obliged to file for insolvency...