Insolvency of the debtor in Germany

The insolvency procedure in Germany is governed by the German Insolvency Code (Insolvenzordnung) in force since 1999.

Main Objectives

The objective of the insolvency procedure is a collective satisfaction of creditors on a pro rata basis. German Insolvency Law generally targets a liquidation of the insolvent debtor – insolvency plan options will only be applicable in exceptional cases.

Insolvency Steps

The insolvency proceeding can be divided into three main sections

• the initial financial crisis of the debtor,
• the preliminary insolvency proceeding administrated and supervised by the Insolvency Court,
• the final insolvency proceedings administrated and supervised also by the Insolvency Court.

Initiating Insolvency Proceedings

Any creditor or the insolvent company can file for insolvency of the company at the competent Insolvency Court and ititiate insolvency proceedings.

Insolvency proceedings are to be opened in the following main cases:

• the debtor is illiquid, i.e. unable to pay its debts at the due dates (incapacity to pay) or
• Over-indebtednessin case a legal entity it is over-indebted, i.e. if the debtor’s assets will not cover its liabilities,
• Imminent illiquidity.

Creditor Groups

• Unsecured creditors
• Secured creditors
• Preferential creditors