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German Insolvency Law

German Insolvency Law. A brief outline of the process and proceedings, the parties involved and the creditors‘ rights Detlef Specovius Lawyer Annerose Tashiro Lawyer. I. The course of insolvency proceedings. Steps in the proceedings under the InsO (Insolvency Code): Filing for Insolvency

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German Insolvency Law

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  1. German Insolvency Law A brief outline of the process and proceedings, the parties involved and the creditors‘ rights Detlef Specovius Lawyer Annerose Tashiro Lawyer

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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.

  10. 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

  11. 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)

  12. 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

  13. 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.

  14. 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)

  15. 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)

  16. 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)

  17. Separation • Examples: • Chattel mortgage • Prolonged or extended reservation of ownership title • Mortgage creditor • Commercial right of retention under § 369 HGB (Commercial Code)

  18. Cost contribution by secured creditors Quelle: Dr. Manfred Obermüller, Referat "Einbindung der Waren- und Geldkreditgeber", Seminar "Gläubigerschutz nach dem neuen Insolvenzrecht"

  19. 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 ?

  20. 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?

  21. 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.

  22. 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

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