Corporate restructuring through the insolvency plan procedure

Corona-induced wave of insolvencies expected

The Corona crisis is causing unbearable financial losses for many companies, and despite the “protective shield” that has been built up as a result, many have already reached the point of insolvency.

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

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

In principle, there is an obligation to file for insolvency pursuant to Section 15a of the German Insolvency Code (InsO). An application must be made immediately after the occurrence of insolvency or overindebtedness, but at the latest within three weeks. Insolvency exists if the debtor is no longer able to fulfil the due payment obligations (section 17 InsO). Overindebtedness exists if the assets no longer cover the existing liabilities (section 19 InsO). The following persons are entitled to file an application to open insolvency proceedings pursuant to § 15 para. 1 InsO in addition to the creditors, each representative body, or each personally liable partner, as well as each liquidator Applicants are generally granted a test period of 3 weeks. However, this is an individual decision.

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

Have insolvency plan proceedings checked!

One way to overcome the crisis is the insolvency plan procedure as a strategy for corporate restructuring.

Within this framework, the parties concerned can make individual arrangements compared to the regular procedure under the Insolvency Act in order to possibly secure their business. Thus, in addition to the reorganisation or the transferred reorganisation, the liquidation of the company or a mixed form of both can be aimed for. Restructuring under company law or a possible transfer of shares to the creditor are also possible with the implementation of an insolvency plan procedure.

When designing the plan, the creator has many different options available, 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 existing assets or from later income. As long as the affected creditors are not worse off by the insolvency plan than they would be in the 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 first be filed. As a matter of principle, the latter only has to meet the usual requirements mentioned above. Only to the extent that a protective shielding procedure is to be linked to the insolvency or the planning procedure is to be carried out under one’s own responsibility do other special requirements have to be met.

The plan procedure is then applied for at the competent court upon presentation of the insolvency plan. Such submission may be made by the insolvency administrator or the insolvency debtor. It is also possible to commission the insolvency administrator by the creditors’ meeting to draw up an insolvency plan.

How do you go about this?

The plan submitted shall, where required by law, contain a descriptive and a formative part.

The purpose of the former is to open and evaluate the consequences of the plan for those affected by the plan so that they can give their necessary consent. A comparative 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 on 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, such as capital increases or reductions, the payment of contributions in kind or the encroachment on shareholders’ interests. For example, a so-called “debt-equity-swap” can be considered, in which creditors’ claims are converted into shares. 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 is what legitimizes it. If the required majority is reached here, the court shall confirm the insolvency plan which was adopted by the creditors’ meeting. The subsequent confirmation order finally allows the insolvency plan to become effective. The planned regulations will be implemented. The effect shall also apply to such creditors who have not agreed to the insolvency plan or who have not filed their claims.

We advise you in all stages of the proceedings.

You are welcome to contact us if such insolvency plan proceedings are a possible solution for your company. Together with you, we will create an individual plan that is best suited to your needs.

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