A so-called “group insolvency law” is before parliament which the government expects will make the restructuring of groups of companies easier. 

ESUG, the German Law on Further Facilitating the Reorganisation of Companies, is the most recent change to German insolvency law since implementation of the German Insolvency Code (“InsO”). CDU and FDP agreed to amend the InsO in three steps. ESUG came into force on 1 March 2012. This was the first step of necessary reform to German insolvency law, planned and implemented by the CDU / FDP governing coalition after it was elected in 2009. In addition to fixing antiquated and ineffective rules, the reform aimed to introduce more of a “rescue culture” to Germany.  

After ESUG came into force, the German Federal Ministry of Justice in October 2012 proposed to overhaul the rules on private insolvencies. This bill is currently being discussed in parliament and will hopefully be adopted in a few weeks. 

A “group insolvency law” is also before parliament. The government aims to make the restructuring of groups of companies easier.  Until now, German insolvency law was based on the principle “one company, one estate, one insolvency”, without any possibility of connecting different proceedings. With the new law one day in place, it would be possible to restructure the whole group in one piece. Nevertheless, the Ministry of Justice still prefers separate proceedings so that each company can be judged on its own merits, without being impacted by the financial standing of the other companies in the group. This way, according to the Ministry of Justice, creditors can be treated more fairly. 

The bill`s goal is to harmonise the different proceedings. With the new law it would be possible to pool proceedings in the same court, independent of the companies` places of business. If the companies did not exercise this option, the bill defines the legal basis for cooperation among the different administrators and courts.

Included in the bill is a coordinated proceeding which allows the restructuring of the whole group, to be controlled by a newly created “coordination administrator” whose job would be to ensure a smooth process among the different proceedings. He would be entitled to submit a coordination plan which would include all proposals necessary for rebuilding the group. The coordination plan would define a unified restructuring goal which would be binding for all separate proceedings. The plan would not limit creditors` rights.

The coordination plan would be useful for liquidation as well. Sometimes it is better to realise the value of the whole group together rather than through an uncoordinated sell-off of the different companies` assets. 

Revisions to private and group insolvencies – the second and third steps in the current government`s reform of the German Insolvency Code – are as necessary as ESUG. However, implementation is uncertain. Germany faces national elections in September 2013 which may not provide enough time to implement the new rules before a possible change of government.

Ansgar Hain