In Germany security is granted over specific assets. The formalities to be satisfied vary depending on the respective asset class. The validity of the security may be impacted if these formalities are not fulfilled. Germany does not permit the grant of a general security interest over all of the assets of a debtor, such as a floating charge. Specific security rights are as follows:

a) Accounts Receivables and General Intangibles (Contractual Rights):

Security over accounts receivables can be taken by way of a security assignment or by way of a pledge. A security assignment is the more common form of security for receivables because it can be granted without notifying the third party debtor. In cases where account receivables are factored (which is often the case in Germany), the factored accounts are either not included in the assignment or the party granting the security has been authorized to factor the accounts. A claim for re-assignment against the factoring provider can be assigned for security purposes.

Security over contractual rights other than accounts receivables can also be obtained by way of an assignment. Typically, such assignments focus on rights arising under – present and future – share purchase agreements, purchase contracts, insurance policies, leases etc.

b) Inventory and Equipment:

Security over inventory, equipment and other moveable assets is typically granted by way of a transfer of title for security purposes rather than by a pledge for practical reasons. The main advantage of transferring title rather than granting a pledge is that the security provider does not have to deliver the assets physically to the secured party as compared to a pledge which is only validly created if the secured party acquires physical possession of the assets given as security; i.e. those assets would not be readily available for the going-concern of the debtor.

When transferring title for the purposes of granting security, the grantor transfers full title to the asset to the secured party. In order to be valid, the agreement between the party granting security and the secured party has to specify the assets exactly. Typically, inventory is specified by location (e.g. “all present and future inventory located in a specific warehouse”) or enumerated in lists or labelled. In each case, it is important that one can distinguish the collateral from other assets which belong to the debtor or other parties. Occasionally, more valuable assets are marked by the bank. In Germany, there are no official/court registers in which a transfer of title for security purposes could be registered.

In this regard it should be noted that inventory in the hands of the borrower is often subject to superior retention of title agreements with inventory suppliers securing their unpaid claims.

c) Intellectual Property Rights:

Security over intellectual property rights registered in Germany may be created by way of a pledge or by way of assignment for security purposes, with the pledge more commonly used for IP rights

It is common practice not to register the secured party as the (legal) owner of the respective rights prior to an event of default in order to avoid the administrative burden and costs that accompany registration. However, registration of the pledge might be advisable in particular cases in order to prevent the IP rights from being acquired bona fide and free of any security interest.

d) Land charge/mortgage:

Security over real estate (including on full ownership or hereditary building rights) is most commonly created by way of an independent land charge. A land charge is created by notarial deed which must be governed by German law. It needs to be registered with the land register (Grundbuch) of the place where the land is located. Less common is collateralization by way of a mortgage, whose existence is directly linked to the existence of the underlying claim.

e) Deposit Accounts:

Security interests over deposit accounts can be created by way of an account pledge. In order to create a valid account pledge, the grantor of the pledge is required to notify the bank where the account is held that the pledge is being granted.

f) Share Pledge:

A security interest can also be obtained in all sorts of German equity interests by a pledge. Requirements for creation of a valid share pledge are similar to those governing the transfer of shares (e.g., notarial deed and registration). Share pledges play an important role in granting security over shares in limited liability companies (GmbH), stock corporations (AG), limited partnerships (KG) and general partnerships (OHG).

If a debtor is facing enforcement action due to a lack of payment, this often indicates that the debtor is in distress and on the brink of insolvency. In insolvency proceedings, certain enforcement actions are stayed and the right to realize security can shift to the insolvency administrator who will then distribute the proceeds to the secured creditors. This applies specifically to the realization of movable assets and claims.

Outside formal insolvency proceedings, the most common enforcements are those of share pledges and land charges:

a) Share Pledges:

Recent case law indicates that secured creditors continue to be entitled to enforce their share pledges in uncertified shares even though the debtor has entered insolvency. Such share pledges need to be realized by way of a public auction which is usually run by a public notary. An alternative way to realize a share pledge is via a private sale, although this requires the debtor’s or insolvency administrator’s (as applicable) approval. The public auction is run via a competitive process which requires security documentation with rather wide enforcement terms and conditions. Well prepared and run auction processes may be run within a period of two to three weeks. Credit-bidding is possible, which means that creditors may initiate a loan-to-own by using their secured claims.

b) Land Charges:

While the enforcement of land charges is common and well-tried in the German market, the process is rather time-consuming. In total, the process takes at least 12 months from the termination of the land charge until a sale of the corresponding real estate. However, this timeframe can be significantly higher if the debtor takes any court action. It is not uncommon for the whole process to take up to 2-3 years.

The German Act on the Stabilization and Restructuring Framework for Businesses (StaRUG) is a statutory pre-insolvency restructuring proceeding that came into force on 1 January 2021. StaRUG proceedings need to be initiated by the management of the debtor and require the debtor to be in a situation of imminent illiquidity (drohende Zahlungsunfähigkeit). Imminent illiquidity is considered to have occurred if the debtor will presumably not be able to meet the existing payment obligations at the time they fall due. In this respect, a forecast period of 24 months is generally used as a basis for determining this. The StaRUG proceedings are generally not available for debtors who are already (i) unable to pay their debts or (ii) over-indebted (both being mandatory insolvency reasons, see question 7 below).

As a reorganization under StaRUG is a process implemented by the debtor, management remains in control throughout the restructuring and steers the process. However, it is quite common for a restructuring officer (Restrukturierungsbeauftrager) to be appointed either at the request of the debtor or ex officio, depending on the individual case. The role of the restructuring officer is primarily a supervisory and supportive one and aims to coordinate and mediate between the different stakeholders.

A core part of the StaRUG is the restructuring plan, which enables the debtor to implement various restructuring measures, including, inter alia, corporate measures regarding the shares of the shareholders and debt-to-equity swaps. The restructuring plan does not need to involve all creditors and claims. Instead the debtor can decide which creditors and claims it wants to be addressed. Creditors and shareholders – if affected – vote in classes whose composition is based on their legal (and economic) position. In order to approve the plan, a minimum threshold of 75% of each class must vote in favor. However, even if a class does not approve the restructuring plan, a cross-class cram down is possible if (i) the majority of the classes vote in favor of the plan, (ii) the crammed class is not worse off than without the restructuring plan, and (iii) the crammed class receives appropriate economic value (i.e., the modified absolute priority rule applies).

Court involvement in the restructuring is not mandatory. To avoid legal uncertainty, the debtor often seeks court involvement nonetheless. Court confirmation of the restructuring plan is required in order to take effect against the creditors that voted against the plan.

Yes, new financing can be obtained by the debtor. The new financing is privileged in regards of potential liability risks of the new money provider and potential challenges from an insolvency administrator, but there is no automatic priority to other claims. In most cases however, the restructuring plan and/or an intercreditor agreement will entail provisions that prioritize the new financing because new money providers will only be willing to contribute such financing if it is offered a senior ranking.

Yes, claims against intra-group non-debtor parties can be released to enable the restructuring of groups without the need to initiate restructuring proceedings at the level of each group company providing the security. Secured creditors need to be fairly compensated for the release of their security.

Larger groups of creditors generally form a creditor committee, which does the ground work for the implementation of a lender-led solution. Advisory fees may be covered by the debtor as costs coverage if so agreed between the parties.

Directors of a distressed debtor without a natural person as a personally liable shareholder are obliged to file for insolvency if the debtor is illiquid (Zahlungsunfähigkeit) or over-indebted (Überschuldung) (mandatory insolvency reasons). Illiquidity is assumed if the debtor is unable to meet its payment obligations when due within three weeks which amount to 10% or more of all due payment liabilities. Over-indebtedness occurs if (i) the debtor has more liabilities than assets (based on liquidation values) and (ii) it is unlikely that the debtor will be able to meet all due payment obligations over the next twelve months.

In case of imminent illiquidity (drohende Zahlungsunfähigkeit), directors can file for insolvency but are not obliged to do so (see above question 3). Creditors can only file for insolvency proceedings in case of illiquidity and over-indebtedness.

If the directors are filing for insolvency due to mandatory insolvency reasons, they have to do so without undue delay and in any case, within three weeks (if the debtor is illiquid) or six weeks (if the debtor is over-indebted). If the directors fail to do so, they face criminal sanctions and personal liability, including for any payments made by the debtor after the debtor became insolvent (with limited exceptions).

Preliminary insolvency proceedings apply between the period of filing for insolvency to the actual opening of insolvency proceedings by the court. Typically, a preliminary insolvency administrator will be appointed. The court may appoint a so-called “strong” preliminary administrator who takes full control of the business from the opening of insolvency proceedings of the debtor. However, it is more likely and standard for the court to appoint a so-called “weak” preliminary administrator whose approval is typically required for the debtor’s transactions while the management remains in charge of the debtor’s business. With the opening of the insolvency proceeding, an insolvency administrator is appointed (typically the party who was previously the preliminary insolvency administrator of the debtor) and obtains authority of management and disposal.

Insolvency proceedings can also be conducted in self-administration at the debtor’s request. In such cases, the debtor remains authorized to manage and dispose of the assets and no insolvency administrator is appointed. Instead a custodian is appointed, a role with weaker legal powers and whose job is to primarily monitor the debtor’s operative business. The insolvency court will typically approve the debtor’s request for self-administration as a going-concern business if it considers the debtor’s self-administration plan to be sufficient with no disadvantage to the creditors to be expected.

Ordinary insolvency procedures are aimed at the liquidation of the debtor and distribution of its assets, though the business may not necessarily be liquidated if it is sold in an asset deal. The primary aim of insolvency plan procedures is for the continuation of the debtor (i.e. the legal entity). The debtor and/or the insolvency administrator can propose a plan. The custodian can also propose a plan if instructed by the creditors to make a proposal. However, it is common to have a pre-packaged plan which is negotiated and agreed upon between the debtor, administrator and debtor’s major creditors. The plan often consists of various corporate and restructuring measures, and needs to be voted on by the debtor’s creditors and shareholders. They vote in classes, similar to the StaRUG procedure. The plan will need to be approved by all classes with a simple majority by head count and by nominal amount of the claims. However, a cross-class cram down is possible if (i) the majority of the classes vote in favor of the plan, (ii) the crammed class is not worse off than without the insolvency plan, and (iii) the crammed class receives appropriate economic value (i.e., the modified absolute priority rule applies).

Further, the protective shield proceedings (Schutzschirmverfahren) are available for debtors which are not already unable to pay their debts. These proceedings provide the debtor with a three month period to prepare an insolvency plan during the opening procedure. During the period of these proceedings, the debtor benefits from a stay of any enforcement proceedings and can make a (binding) proposal for a custodian.

Any other legal proceedings or enforcement of creditors’ claims are suspended upon the formal opening of insolvency proceedings by the court, with the power to run the proceeding passing to the insolvency administrator. If the debtor pursues a claim for the benefit of the estate, the administrator has the right to choose to continue the proceedings. If the administrator rejects the continuation of the proceedings, the debtor and/or the other party may continue the proceedings. However, this bears some risk for the other party to recover litigation costs from the debtor even if the other party wins.

It is generally not possible for single insolvency creditors to enforce insolvency claims during insolvency proceedings as such enforcement would undermine the principle of equal treatment of creditors. Estate creditors (see question 12) are suspended from enforcing their claims in the first six months of the insolvency proceedings. Certain secured creditors with collateral on the estate like a land charge are exempted from the general principle and can enforce their collateral.

The enforcement ban does generally not apply to preliminary proceedings, although the court can order respective protection measures depending on circumstances.

Creditors are organized in two different bodies which enable them to influence the insolvency proceedings.

• Creditors Assembly (Gläubigerversammlung):

The creditors assembly is a meeting held by the insolvency court where all of the insolvency creditors and those with a right of separate satisfaction (see question 11) can attend and vote. Resolutions need to be adopted by simple majority, while voting rights are proportionate to the creditors’ respective claims, not by head. The debtor and the insolvency administrator are also allowed to attend the meeting but do not have any voting rights. The assembly convenes several times during the proceedings with a mandatory reporting hearing (Berichtstermin) shortly after the opening of the insolvency proceedings.

The main task of the creditors assembly is the coordination of the creditors’ interests. It is therefore supplied with extensive competencies and can inter alia re-elect a new insolvency administrator, decide if the debtors company shall be liquidated or continued or instruct the administrator to prepare an insolvency plan. Important transactions require the approval of the creditor assembly.

• Creditors Committee (Gläubigerausschuss):

The creditors’ committee is only mandatory if certain pre-requisites (size of the company, number of employees etc.) are met. Further, it can be established by the insolvency court if deemed necessary or by the creditors assembly.

The composition of the committee should represent the creditors as a whole. The committee typically includes a representative of (i) the secured creditors, (ii) the largest ordinary insolvency creditors, (iii) the small creditors, and (iv) the employees. The committee’s decisions, which are made by a simple majority on a per capita basis, are made on the basis of obtaining the best outcome for all creditors and in particular, to protect the insolvency estate from disadvantageous dispositions by the administrator. Unlike the creditors’ assembly, the committee primarily has a supervisory and supportive function and thus has no right to issue instructions to the administrator. The committee acts mainly through approvals and authorizations, and in particular, for the approving and authorizing of the administrators’ important transactions (e.g. important legal proceedings, disposal of essential assets etc.).

The creditors’ committee can also be established before the opening of insolvency proceedings as a preliminary committee at the request of the debtor, a creditor, or the preliminary administrator. If the debtor fulfills any two of the following criteria – (i) balance sheet total of at least EUR 6 million, (ii) revenue of at least EUR 12 million in the last year, or (iii) annual average of at least 50 employees, a preliminary creditors committee is mandatory.

The fundamental principle is equal treatment of all creditors. However, there are certain exemptions resulting in mainly five different categories of creditors in German insolvency law.

Firstly, certain parties may have a right of separation. The logic behind providing certain parties with this right of separation is to filter out those goods and rights that do not belong to the insolvency estate. This applies mainly to creditors who have leased items or property to the debtor and to suppliers with retention of title who can request their goods to be returned, if the administrator does not decide to fulfill the purchase agreement (see question 13 below).

Secondly, creditors who do not have a right of separation but of separate satisfaction (in particular those creditors holding collateral rights) are also treated in a preferred way. As the administrator realizes the assets of the debtor, they are satisfied from the proceeds of the collateral (minus certain cost, by default typically 9%). However, there is no obligation for the administrator to actually realize the secured assets. It is also conceivable that the administrator leaves the realization to the creditor or refrains from realization altogether.

Thirdly, estate creditors with a claim incumbent on the assets of the estate are primarily creditors which have contracted with the administrator of the company after the opening of insolvency proceedings or continued trading with the administrator after the opening of the insolvency proceedings. The preferential treatment of estate creditors enables the debtor to continue its business in distress.

Fourthly, all creditors, who do not fall under the aforementioned categories (primarily creditors with claims from transactions conducted before the opening of insolvency proceedings) can file their claims to the insolvency table as mere insolvency creditors. Final net proceedings (after settling claims of preferred creditors) will be distributed equally between the insolvency creditors.

Lastly, certain creditors are subordinated by law (an important class of creditors who fall in this category are creditors of shareholder loans, with limited exceptions) while others are subordinated by contract to be satisfied only in case all other creditors including those subordinated by law receive full satisfaction.

Employees’ salary claims for the last three months prior to the opening of proceedings are protected because the Employment Agency covers the salary with the so-called insolvency payments (Insolvenzgeld). Employee claims for salaries and benefits beyond this arising from before the opening of insolvency proceedings need to be filed to the insolvency table.

Yes, under certain circumstances transactions can (and will) be challenged by the insolvency administrator. Those challenges are likely as they are one of the main tools for the administrator to enlarge the insolvency estate. The general prerequisite for challenging a transaction is that the transaction resulted in the creditors being disadvantaged as a whole. There are also additional special grounds for contesting transactions, each of which has its own requirements and challenge periods.

• Transactions (including the granting of security) carried out in the last three months prior to the filing for insolvency or thereafter are particularly vulnerable to become subject to claw-back. This is particularly the case when the transaction counterparty had knowledge of facts that indicate the debtor’s illiquidity, of the debtor’s filing for insolvency, or in case the other party had no right to request such performance from the debtor (regarding time, manner, etc.).
• Repayment of shareholder loans in any form can be challenged if they occurred within one year prior to filing . These claims are then subordinated in insolvency proceedings and therefore effectively worthless for the shareholders.
• A challenge period of four years applies to all gratuitous benefits granted by the debtor.
• If the debtor intents to disadvantage other creditors and a counterparty is aware of such intent, the transactions can be challenged for up to ten years. Various individual factors are considered when determining if the debtor had intent to disadvantage other creditors including the debtor’s (imminent) illiquidity, whether the debtor had a reasonable prospect to recover and repay its creditors, or whether the transaction is directly detrimental to creditors.

If a transaction is successfully challenged, the obtained benefit must be returned to the insolvency estate.

In case of executory contracts, the insolvency administrator can choose if the contract shall be performed or not. If he decides not to fulfill the contract, the creditor can only demand repayment of damages as an insolvency creditor. This also applies to retention of title where the administrator can choose to fulfill the payment obligations under the purchase agreement. If he decides not to fulfill the obligation, the creditor can demand separation of the good (see question 11).

Certain contracts are exempt from the above rule. For example, special provisions apply to rental and lease agreements. With regards to outstanding claims prior to the opening of insolvency proceedings, the landlord is treated as a normal insolvency creditor (see question 11). The landlord’s right to terminate the contract due to such arrears is limited. The debtor in turn has a special right of termination and can terminate the contract (regardless of the contractual provision) with a notice period of 3 months. Further, employment contracts can be terminated with a notice period of 3 months even if the contractual provisions state there to be a longer notice period or an exclusion of the dismissal.

The aforementioned provisions are mandatory law. Contractual stipulations that grant a termination right if insolvency proceedings are opened or any other reason closely linked to insolvency, which are so-called ipso facto clauses, are therefore void to the extent that they violate the administrator’s right to choose performance, unless they merely mirror another statutory termination right.

Statutory or contractual set-off rights of insolvency creditors are generally not affected by the opening of the insolvency proceedings, if the set-off situation has already existed before.

Pre-packaged sales are not formally part of a formal legal process in Germany yet. However, while there is no such formal legal process yet, it is very common in Germany for a pre-packed sale to be agreed between the company and an investor and/or creditor prior to filing for insolvency. Such a solution may also be introduced via the German restructuring scheme.

Currently, there are two primary ways for implementing a pre-packed sale via a German insolvency process:

• Sale via an asset deal shortly after the opening of insolvency proceedings.
• Sale of the debtors’ company via an insolvency plan. This is the more complex transaction structure, which can be used when transaction parties want to implement a debt-to-equity swap via credit-bidding.

The release of collateral in general requires the consent of the affected creditors.

Loan-to-own via credit bidding may also be implemented through pre-insolvency share pledge enforcements.

Section 1 of StaRUG obliges the management of a distressed company to continuously monitor developments which could endanger the existence of the debtor. Therefore, the management has to establish a system for early crisis detection. If such developments are discovered, appropriate countermeasures need to be initiated. As the company gets increasingly distressed, the range for appropriate countermeasures narrows down. Breach of such duty can lead to (internal) claims for damages. In case restructuring proceedings are initiated, the management needs to explicitly consider the interests of the rights of the creditors (shift of fiduciary duties).

If a state of illiquidity or over-indebtedness is reached, the management is generally obliged to file for insolvency (see question 7). The management incurs liability if (i) it fails to comply with the filing obligation or (ii) if payments are made that are not consistent with the due care of a prudent businessman. There is a legal presumption that payments after the occurrence of the relevant date for the filing are not conducted with such due care.

Lenders may also be exposed to liability risks under German case law. If a positive credit decision (re-opening of credit lines or new money) is taken with regards to a distressed company and such decision only delays the debtor’s insolvency, other creditors can claim damages if they endure shortfalls. However, such liability is excluded if the lender has taken its decision in order to enable a turnaround and the success of such turnaround is more likely than not.

In practice, during an initial standstill phase, only a short-term bridge loan is granted to the debtor in order to mitigate such liability risks. During this initial standstill phase a restructuring concept is prepared and a restructuring opinion, typically according to IDW S6-standard, is obtained. The restructuring opinion is regularly seen as a requirement for a long-term restructuring involving financing.

Under German law, there is no concept of releasing directors and other stakeholders from liability for previous actions. In insolvency proceedings, it is the administrator’s duty to assess any potential liability of directors and to litigate in that regard.

Under German law, foreign restructuring or insolvency proceedings will generally be recognized depending on the debtor’s COMI. However, the applicable and relevant provisions differ between restructuring and insolvency proceedings and between proceedings in EU-member states and in non-member states.

Insolvency proceedings:

• For EU member states the European Regulation on Insolvency Proceedings 1346/2000 applies (the “Regulation“). Under the Regulation, courts are able to assume jurisdiction over the proceedings if the courts are located in the same jurisdiction where the debtor has its COMI. It is presumed that the debtor’s COMI is in the member state where it has its registered office. Once proceedings have been filed in one member state, any other proceedings will be “blocked” from being filed in another member state due the principle of general judicial cooperation between member states. Any COMI shifts which take place after the filing of proceedings have no effects (lex fori). If insolvency proceedings are opened by a court in one member state, such opening is automatically recognized in other member states with no separate recognition process required in Germany. The one exception to this rule is Denmark since it did not ratify the Regulation. Annex A of the Regulation includes a full list of proceedings in the different member states which are defined as “insolvency proceedings” within the meaning of the Regulation. An exemption is made if the recognition of the foreign proceedings would not be compatible with essential principles of German proceedings and thus violate German ordre public. However, this exception is interpreted restrictively.
• Outside of the EU, foreign insolvency proceedings are typically automatically recognized as well. Such recognition is based on Sec 343 of the German Insolvency Code (InsO). Exemptions apply, such as if the court of the foreign state would not have jurisdiction under German law (which depends on COMI) or if such recognition would violate German ordre public (see above). For the foreign proceeding to be recognized as “insolvency proceedings”, it is crucial that it is substantially comparable to the German proceedings in terms of its objectives. In the past, US Chapter 11 proceedings have been recognized as insolvency proceedings whereas the UK scheme of arrangement was not recognized as insolvency proceedings within the meaning of Sec. 343 InsO.

Restructuring Proceedings:

• Most EU restructuring proceedings are listed in Annex A of the Regulation and are therefore treated as insolvency proceedings. Besides that, recognition may be based on the European Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.
• Restructuring proceedings which do not qualify as insolvency proceedings within the meaning of sec. 343 InsO can also primarily be recognized via the rules of international civil procedure (international treaties or Sec. 328 of the German Code of Civil Procedure).

UNCITRAL Model Law has not been adopted by Germany nor is it under consideration.

As of today, we do not know of creditors who have successfully challenged the recognition of Scheme of Arrangements and UK Restructuring Plans in Germany post Brexit, even though there have been prominent cases where debtors have elected to use English proceedings despite having a substantial link to and/or substantial assets in Germany (e.g. Adler, Aggregate, Löwenplay, plusserver). The question of recognition in Germany has been explicitly addressed by the court and expert opinions in Aggregate’s Part 26A restructuring plan, where the judge relied on one of the expert opinions to conclude that recognition under Sec. 343 InsO seems conceivable as the proceedings are comparable to StaRUG which is defined as insolvency proceedings under Annex A of the Regulation (see question 17).

The incorporation of the debtor itself would not be an obstacle to entering into restructuring or insolvency proceedings in Germany and entities incorporated abroad can technically take advantage of such proceedings. However, the challenge in such cases under German restructuring and insolvency law would be for the relevant debtor to establish that it has a COMI in Germany. For recognition of English proceedings see question 18.

One of the fundamental principles in German insolvency law is that there are separate insolvency proceedings for each entity. However, Germany insolvency law has since instituted reforms through the introduction of some key instruments which support the restructuring of group companies in distress:

• It is possible for a group entity to request for a concentration of the proceedings involving all other group entities into one single court. This results in the initial court having jurisdiction over all of the relevant insolvency proceedings. A similar provision exists for StaRUG proceedings.
• An insolvency administrator can be appointed for all group-related proceedings if it is in the interest of the creditors.
• The insolvency courts, administrators, and creditor committees are obliged to cooperate. There may also be a coordination plan.

The goal of such provisions is to facilitate cooperation and coordination.

Since the reforms mentioned above (see question 20) that help to facilitate coordination in cases involving different entities within a group becoming insolvent was passed in 2017 (which was shortly before the UNCITRAL Model Law on Enterprise Group Insolvency), most of the significant provisions in the UNCITRAL Model Law have are already been adopted under German law.

The most important reform process can be seen on a European level. On 7 December 2022 the European Commission proposed a directive to further harmonize certain aspects of insolvency law, strengthen the capital market union and thus encourage cross border investments. The proposal targets three different areas: (i) the recovery of assets from the liquidated insolvency estate; (ii) the efficiency of procedures; and (iii) the predictable and fair distribution of recovered value among creditors. Proposed measures are, inter alia, (i) minimum requirements for challenges of transactions by the insolvency administrator, (ii) introduction of pre-pack liquidations, and (iii) simplified proceedings for very small companies.

The guiding principle of German insolvency law is the best possible satisfaction of creditor claims which has resulted in German insolvency law being traditionally considered as creditor rather than debtor-friendly.

However, developments over the last few years, have resulted in the strengthening of the debtors’ position, although they may also be used by larger groups of creditors to implement solutions at the same time. Self-administration and tools of the insolvency plan were especially strengthened with the so-called ESUG reforms in 2012. The introduction of StaRUG in 2021 was another major milestone in this development. The restructuring proceedings are totally driven by the debtor, but at the same time may be used by specific creditors to find solutions as dissenting individual creditors as well as whole classes of creditors may be crammed down.

State support was provided during Covid through enormous bailout packages accompanied by temporary adjustments of the insolvency law. In particular, the obligation of managers to file for insolvency was suspended and several planning periods and deadlines were adjusted. Most importantly, government subsidies were rolled out to bridge liquidity gaps.

In recent years, subsidies have become an increasingly popular tool to support struggling businesses. Continuous support for employees is possible through insolvency payments for a period of up to three months (see question 11) and the pension insurance association.

One of the major problems is the uncertainty around the question if shareholders, who are out of money, need to approve the initiation of restructuring proceedings. Such a requirement could critically limit the restructuring proceedings. Therefore, restructuring literature, which traditionally plays an important role in Germany, has developed a clear opinion against the need of such approvals. Currently, there have been different decisions by the lower courts on this matter. However, the German Federal Court of Justice (Bundesgerichtshof) did not decide on this matter yet, nor is it expected that a decision will be issued soon.