Reorganisation of a company through the insolvency plan procedure


Corona-related wave of insolvencies expected

The Corona crisis is causing unbearable financial losses for many companies, which, despite the “protective umbrella” that has been set up as a result, has already led many to the point of insolvency.

Nevertheless, the numbers of insolvency applications are surprisingly low so far: the reason for this is the law introduced in March to mitigate the consequences of the COVID 19 pandemic in civil, insolvency and criminal procedure law.

This has suspended the obligation to file for insolvency until 30 September 2020.

In principle, there is a duty to file for insolvency pursuant to § 15a Insolvency Code (InsO). An application must be filed immediately after the occurrence of insolvency or overindebtedness, but within three weeks at the latest. Insolvency exists if the debtor is no longer able to meet the payment obligations due (section 17 InsO). Over-indebtedness is given if the assets no longer cover the existing liabilities (§ 19 InsO). Pursuant to section 15 (1), the following persons are entitled to file an application for commencement of proceedings 1 InsO, in addition to the creditors, each representative body, or each personally liable partner, as well as each liquidator. As a rule, a review period of 3 weeks is granted to those subject to the application. However, this is a case-by-case decision.

As a result, the new law means that countless companies will delay their insolvency until the autumn, even though they have long been insolvent. As a consequence, the debt mountain of these companies only grows. The courts therefore expect an extreme wave of insolvency petitions in autumn.

Have insolvency plan proceedings examined!

One way of overcoming the crisis is the insolvency plan procedure as a strategy for restructuring a company.

Within the framework of this, those affected can make individual arrangements compared to the regular procedure under the Insolvency Code in order to potentially safeguard their business. Thus, in addition to reorganisation or transferring reorganisation, liquidation of the company or a mixture of both can be sought. Restructuring under company law or a possible transfer of shares to the creditor are also possible with the implementation of insolvency plan proceedings and can help through the crisis.

When designing the plan, many different options are open to the creator, so that an individual solution can be created for each company. Among other things, creditors can be satisfied in various ways, for example by a quota payment from the existing assets or one from later proceeds. As long as the affected creditors are not worse off as a result of the insolvency plan than they would be in regular insolvency proceedings, the structuring options are free and can also be combined.

Because the insolvency plan is part of the regular insolvency proceedings, an insolvency petition must have been filed first. In principle, this only has to fulfil the usual requirements mentioned above. Only insofar as a protective shield procedure is to be linked to the insolvency or the plan procedure is to be carried out on one’s own responsibility must further special requirements be fulfilled.

The plan proceedings are then filed with the competent court upon submission of the insolvency plan. The submission may be made by the insolvency administrator or the insolvency debtor. It is also possible for the creditors’ meeting to commission the insolvency administrator to draw up an insolvency plan.

How do you approach the process?

The submitted plan shall contain, according to the law, a representational and a formative part.

The purpose of the former is to make the consequences of the plan known to those affected by it and to assess them so that they can give their necessary consent. A settlement calculation shows the creditors to what extent their chances of satisfaction are improved by the plan. In the end, the descriptive part thus contains all the necessary information about the planned measures.

The formative part then shows in a precise manner how the changes, i.e. the deviations from the regular insolvency proceedings, are to be made in concrete terms. Various measures under company law are possible, for example capital increases or decreases, the payment of contributions in kind or also the intervention in shareholders’ share rights. This could lead to a so-called “debt-equity-swap”, in which creditor claims are converted into share rights. Conversion measures or the change of legal form are also possible, among other things.

After a preliminary examination by the insolvency court, the creditors vote on the insolvency plan. This legitimises it. If the required majority is reached here, the court confirms the insolvency plan that was adopted by the creditors’ meeting. The subsequent confirmation order finally makes the insolvency plan effective. The envisaged regulations will be implemented. The effect also applies to those creditors who have not agreed to the insolvency plan or who have not filed their claims.

We advise you on all aspects of the proceedings.

You are welcome to contact us if such an insolvency plan procedure comes into consideration as a solution for your company during the crisis. Together with you, we create an individual plan that is best tailored to your needs.

UPDATE!


Partially extended suspension of the obligation to file for insolvency

Following the suspension of the insolvency filing requirement as a result of the Corona crisis until 30 September 2020, many expected a significant wave of insolvencies in the autumn.

Now the suspension has been partially extended even further. For the insolvency ground of over-indebtedness, the obligation to file for insolvency is now suspended until 31 December 2020.

However, this does not apply to the reason for insolvency: Here, it remains the case that the insolvency application must be filed by 30 September at the latest. The reason for this is that the chances of permanently averting insolvency are lower for insolvent companies than for those that are merely over-indebted. In this way, the necessary confidence in economic transactions should be maintained.

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