Insolvency Law at Germany
Germany's insolvency law is governed by the Insolvency Code (Insolvenzordnung – InsO), which provides a structured framework for addressing both corporate and individual insolvencies. The primary objective is to balance the interests of debtors and creditors, facilitating fair debt resolution and, where possible, business rehabilitation. (Insolvency Code (Insolvenzordnung – InsO))
⚖️ Grounds for Insolvency
Insolvency proceedings can be initiated under the following conditions:
Illiquidity (Zahlungsunfähigkeit): The debtor is unable to pay its debts as they fall due. (German Insolvency Law - Insolvency/Bankruptcy - Germany)
Over-indebtedness (Überschuldung): The debtor's liabilities exceed its assets, and there is no realistic prospect of recovery.
Corporate management is legally obligated to file for insolvency within three weeks of illiquidity or six weeks of over-indebtedness. Failure to do so can result in personal liability and potential criminal penalties. (German Insolvency Law - Insolvency/Bankruptcy - Germany, Restructuring and insolvency law in Germany| CMS Expert Guides)
🧑⚖️ Types of Insolvency Proceedings
Regular Insolvency Proceedings: The insolvency court appoints an administrator to manage the debtor's assets and operations, aiming to maximize creditor satisfaction.
Self-Administration (Eigenverwaltung): The debtor retains control over its business under the supervision of a court-appointed monitor (Sachwalter). This approach is often used for restructuring purposes. (Restructuring and insolvency law in Germany| CMS Expert Guides)
Restructuring Plan Proceedings (SanInsO): Introduced to facilitate out-of-court restructurings, this procedure allows companies to propose a restructuring plan to creditors and the court, aiming to avoid formal insolvency.
📋 Key Features
Creditors' Committee: In significant insolvency cases, a creditors' committee is established to advise and supervise the insolvency administrator. This body has the authority to approve certain actions and request the replacement of the administrator if necessary. (Restructuring & Insolvency Laws and Regulations Report 2024-2025 Germany, Germany Comes to Grips with Its Chapter 11 | ABI)
Challenge Rights: Transactions made before insolvency that disadvantage creditors can be challenged. For instance, transactions made within three months prior to insolvency that place creditors at a direct disadvantage can be reversed if the debtor was illiquid at the time and the counterparty was aware. (German Insolvency Law — Overview Of Insolvency Challenge Rights - Insolvency/Bankruptcy - Insolvency/Bankruptcy/Re-Structuring - Germany)
Employee Protections: Employees are entitled to an insolvency allowance (Insolvenzgeld) for up to three months. Additionally, if the business is sold, employees' contracts are typically transferred to the new owner. (Restructuring & Insolvency Laws and Regulations Report 2024-2025 Germany)
🧾 Recent Reforms
In response to economic challenges, Germany has implemented temporary measures to support businesses:
Shortened Forecast Period: The period for assessing a company's ability to continue as a going concern has been reduced from 12 months to 4 months, making it easier for companies to avoid insolvency proceedings. (German Insolvency Law - Insolvency/Bankruptcy - Germany)
Extended Filing Deadline: The deadline for filing for insolvency due to over-indebtedness was extended from six weeks to eight weeks, providing companies with more time to restructure. (German Insolvency Law - Insolvency/Bankruptcy - Germany)
📚 Resources
Insolvency Code (InsO): The full text of the German Insolvency Code is available here. (Insolvency Code (Insolvenzordnung – InsO))
Restructuring and Insolvency Laws and Regulations Report 2024-2025 Germany: An overview of current insolvency laws in Germany can be found here. (Restructuring & Insolvency Laws and Regulations Report 2024-2025 Germany)
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