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German Insolvency Law

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					German Insolvency Law

     A brief outline of the process and
  proceedings, the parties involved and the
                creditors‘ rights

             Detlef Specovius
                  Lawyer

            Annerose Tashiro
                Lawyer                        1
I. The course of insolvency
proceedings
      • Steps in the proceedings under
        the InsO (Insolvency Code):
      • Filing for Insolvency
      • Opening proceedings
      • Order opening the insolvency
        proceedings
      • First meeting of creditors
      • Creditors‘ review
      • Final meeting of creditors
                                         2
Decision-making options of the Court
after filing for insolvency

• Appointing an expert
• Immediate opening of the procedings
  (very rare)
• Immediate refusal of opening for lack of
  assets
• Appointing a provisional insolvency
  administrator
                                             3
Protection measures open to the
Insolvency Court (§ 21 InsO)

• Appointing a provisional insolvency
  administrator
• Asset disposal prohibition
• Prohibiting or discontinuing executionary
  measures in movable property


                                              4
Refusal for lack of assets
(§ 26 InsO)
• Reasons for refusal:
  –   assets are not expected to cover the costs of
      the proceedings, and
  –   no sufficient amount of money is advanced
• Consequences of refusal:
  –   the debtor is entered in the record of debtors

                                                       5
Opening order (§§ 27 et seq
InsO)
• Includes: the request addressed to creditors
   – to file their claim(s) with the insolvency
     administrator within a certain specified period
   – to give immediate notice of their security rights
• Includes: Request addressed to creditor to pay to the
  administrator (not to the debtor)
• Includes: Determination of date of hearing
   – Date of first meeting of creditors
   – Date of creditors‘ review
                                                          6
Effects of insolvency opening
-1-
• Right to transfer and manage assets
•    - §§ 80 - 82 InsO
• Retrocession of attachment order obtained by
  judgment creditor
•    - §§ 88, 139 InsO
• Ineffectiveness of earlier disposals of tenancy or
  lease fees and/or of employee earnings
•    - §§ 110, 114 InsO
• Prohibition of execution
•    - §§ 89, 90 InsO
                                                       7
•
Effects of insolvency opening
-2-
• Prohibition of set-off
   - § 96 InsO
• Options open to the insolvency administrator
   - §§ 103, 107 Abs. 2 InsO
   Administrator‘s special privilege to give notice of
  termination, § 109 InsO
  Prohibition to terminate tenancies or leases
   - § 112 InsO
• Expiry of mandates, management contracts, proxies
   - § § 115, 116, 117 InsO
                                                         8
First meeting of creditors
(§ 156 InsO)
• The first meeting of creditors is intended
  to allow the various options for
  continuing the proceedings to be
  discussed, based on the insolvency
  administrator‘s report.



                                               9
Content of the insolvency administrator‘s
report § 156 para. 1 InsO)

•   Debtor‘s financial situation
•   Causes of the financial situation
•   Survival prospects of the debtor‘s business
•   Options for an insolvency plan
•   Effects of potential measures on creditor
    satisfaction
                                                  10
Filing the claims (§§ 174, 175
InsO)
• Claims are filed with the insolvency
  administrator (§ 174 para. 1 InsO)
  –   in writing
  –   stating the reason and the amount
• Claims by deferred (non-preferred) creditors to
  be filed only if requested by the Insolvency
  Court to do so (§ 174 para. 3 InsO)
• Insolvency administrator keeps a schedule (§
  175 InsO)
                                                    11
Creditors‘ review (§ 176 InsO)
• Reviewing the claims
   –   The filed claims are reviewed in terms of rank and amount
   –   Disputed claims are discussed separately
   –   Special regulations applying to claims filed after expiry of the
       period allowed for filing (§ 177 InsO)
• Claims are determined by entering them in the
  schedule (§ 178 para. 1, para. 2 InsO)
• Effects of the entry (§ 178 para. 3 InsO)
   –   same as a final judgment
   –   effective in relation to the insolvency administrator and all
       insolvency creditors
   –   for amount and ranking of the claim                                12
Final distribution (§ 196 InsO)

• The final distribution is made as soon as
  the realisation of the insolvent estate has
  been completed and the agreement by
  the Insolvency Court has been obtained.
• Payments are made in settlement of the
  recognised claims; all debts of the
  insolvent estate must first be paid.
                                                13
II. Creditor categories

• Insolvency creditors (§ 38 InsO)

• Creditors entitled to separation (§ 47 InsO)

• Secured creditors with rights of separate
  satisfaction (§ 49 InsO)

• Insolvent asset creditors (§ 53 InsO)
                                                 14
Creditors entitled to separation
(§ 47 InsO)

• Legal definition: Creditors who, by virtue of a right in rem
  or in personam, are capable of asserting that an item
  does not belong to the insolvent estate.
• Example:
• Real property (Owner may claim the return of items in
  the debtor‘s possession)



                                                                 15
Secured creditors with rights of separate
satisfaction (§§ 49 et seq InsO)

• Legal definition: None given; enumeration of
  entities entitled
• Individual entities entitled to separate
  satisfaction
  –   Creditors with rights of satisfaction from immovables
      (§ 49 InsO)
  –   Creditors holding a contractual pledge, a statutory lien
      or a right of lien obtained by pledging (§ 50 InsO)

                                                                 16
Separation

• Examples:
• Chattel mortgage
• Prolonged or extended reservation of
  ownership title
• Mortgage creditor
• Commercial right of retention under §
  369 HGB (Commercial Code)
                                          17
Cost contribution by secured
creditors




                      Quelle: Dr. Manfred Obermüller, Referat "Einbindung der   18
                      Waren- und Geldkreditgeber", Seminar "Gläubigerschutz
                      nach dem neuen Insolvenzrecht"
Potential issues faced by the
NPL purchaser
• Have the collaterals been realised by the
  administrator or have they been released from
  insolvency attachment?
• Have the collaterals been recognised or are
  they disputed?
• Which realisation proceeds can be obtained
  from the collaterals?
• Does the administrator realise the collaterals ?
                                                     19
Potential issues faced by the
NPL purchaser
• If yes, has a realisation agreement been made
  with the administrator (which share for the
  administrator, which share for the insolvent
  estate) ?
• Have the claims been filed and recognised?
• Is action for a declaratory judgment
  necessary?
• What will the quota be?
• How long will proceedings last?
                                                  20
Potential issues faced by the
NPL purchaser
• Is the seller a member of the creditors‘
  committee?
• Has a payment on account been made?

• Thank you for your patience.


                                             21
   Schultze & Braun GmbH

• Lawyers Certified Public Accountants
            Tax Advisors

          • Eisenbahnstr 19 – 23
              • 77855 Achern
          • Telefon: 07841/708-0
         • Telefax: 07841/708301
          • http:www.schubra.de
            • Achern Frankfurt
                                         22

				
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