Restructuring & Insolvency

On 1 January 2011 the German Restructuring Act (Restrukturierungsgesetz) came into force. The new law provides special rules to save ailing credit institutions and introduces:

• a special two-tier pre-insolvency restructuring reorganisation regime for credit institutions and
• supervisory powers to transfer assets and liabilities held by a system-relevant (meaning "too big or too connected to fail") credit institution to another bank (incl. special "bridge banks") in order to restructure the business of such bank and in order to prevent insolvency.

The Restructuring Act also sets up a new restructuring fund (Restrukturierungsfonds) to finance the measures under the Restructuring Act. The new restructuring fund has a target size of 70 billion € and is financed by a bank levy. The new bank levy is payable first time on 30 September 2011.

For more details on the new law read our previous article on the draft of the Restructuring Act.

On 1 January 2011 two amendments to the German Insolvency Code (Insolvenzordnung) will come into effect. They were only recently adopted by the German Bundestag as part of the Act Accompanying the Budget (Haushaltsbegleitgesetz).

The changes relate to:

• taxes payable by the debtor during preliminary insolvency proceedings and
• the possibility to continue insolvency proceedings despite payment of outstanding debts by the debtor.

In consequence, the continuation of the business during preliminary and main insolvency proceedings will become more challenging due to the increased liquidity needs. Another planned amendment that would have privileged German tax authorities by granting them better set-off rights was not implemented by the new law.

The German Federal Ministry of Justice (Bundesjustizministerium, "BMJ") recently released its first official draft legislation for reforming the German Insolvency Code (Diskussionsentwurf für ein Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen). According to the BMJ, a reform in three steps is planned, the now proposed legislation is part of the initial step. To allow for more effective restructuring of debtors and more influence of major creditors, in particular the creditors' influence on the appointment of the insolvency administrator is increased, the regulations on insolvency plans are modified and the debtor-in-possession insolvency (Eigenverwaltung) is made more accessible for debtors.

On 25 August 2010 the German government endorsed the Draft Restructuring Act (Restrukturierungsgesetz) aiming to provide special rules to save ailing credit institutions. The draft bill introduces:

• a special two-tier pre-insolvency restructuring & reorganisation regime for credit institutions and
• supervisory powers to transfer assets and liabilities held by a system-relevant (meaning "too big to fail") credit institution to another bank (incl. special "bridge banks") in order to restructure the business of such bank and in order to prevent insolvency.

The Restructuring Act will also set up a new restructuring fund (Restrukturierungsfonds) to finance the measures under the (draft) Restructuring Act. The restructuring fund shall be financed by a bank levy.