Chances for a new start despite the risk of insolvency

Chances for a new start despite the risk of insolvency - Secure assets with the Act for the Further Facilitation of the Restructuring of Enterprises

Hamburg: Now that the Act for the Further Facilitation of the Restructuring of Enterprises (ESUG) has come into force, the chances for companies in a crisis are improving as per March 01, 2012. Possibilities of restructuring and redevelopment are being considerably optimised.

With the ESUG, the possibility of preparing restructuring under a company’s own administration is being provided for the first time with a protective umbrella procedure. If there is a threat of a crisis, the indebted company is required to draw up an insolvency plan within three months. Making use of these changes of restructuring matches the “Principles of Proper Corporate Management” and the “Governance Codex for Family Businesses".

For the managing directors and other decision-makers in the company, it is a question of taking the following prerequisites into account:

The application for opening of the protective umbrella procedure is to be submitted to the competent Insolvency Court and is only admissible if an auditor, tax counsellor or attorney experienced in insolvency matters certifies that insolvency is impeding, but has not yet occurred, or that the company is excessively indebted. Likewise, the fact that the restructuring being aimed for is not obviously void of prospects is to be certified. This necessary certification for the principal capability of restructuring is to be produced on the basis of IDW S6 (directive S6 of the German Institute of Auditors) of the examination of capability of restructuring according to the guidelines of the German Institute of Auditors.

The Insolvency Court appoints a custodian for the three-month protective umbrella procedure. He may not have issued the certification of impeding insolvency, but is allowed to have advised the company in the run-up.
By application of the indebted company, the Insolvency Court must resolve that the company substantiates liabilities as insolvency law asset debts during the three-month period.

Securing assets by own administration and protective umbrella procedure? An essential advantage of this insolvency law reform is that the restructuring and redevelopment plan remains with the management.

The directive that new liabilities are substantiated as asset debts makes it easier for the company to undertake obligating transactions during the three-month period. In the following  insolvency plan procedure, the creditor’s receivables are to be settled with priority. As a result of these provisions, the company can continue its business activities.
Without the protective umbrella procedure, only simple insolvency claims can be substantiated as a rule. Business partners do not like entering into these risks. A further advantage for creditors is that liabilities can be converted into shares (debt equity swap). This opens up possibilities of improving the equity quota and of getting rid of excessive indebtedness. The management’s and the supervisory organs’ responsibility is of central importance in a corporate crisis. In the sense of the principles of proper corporate management, they are obliged to examine the suitability of the insolvency law restructuring measures in good time and to implement necessary measures without undue delay. According to the ESUG, managing directors and members of the board are liable for the costs of insolvency proceedings if they fail to make an application for insolvency proceedings in good time. In this way, excessive indebtedness, which small and medium-sized companies do not like taking seriously, is given new importance.
Rejection of opening due to insufficiency of funds is only to take place if the managing directors and members of the board themselves are not able to pay, says the insolvency expert. "Whereas assigning restructuring and compulsory liquidation mean destruction of assets, the EUSG secures assets with restructurings in the insolvency plan procedure”, is the central conclusion drawn by lawyer Frank Löwe.

Your contact:

Frank Löwe, Lawyer, Economic Mediator und Rating Advisor IHK
Mobile: 0173 4635284


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