Consequences of the grand coalition for insolvency law

In Germany, the Christian Democratic Union (CDU) and Social Democratic Party (SPD) have agreed to a continuation of the grand coaltion, and a majority in favour of this appears to be forming at grassroots level in the SPD. It is therefore useful to take an initial look at the insolvency law provisions of the Coalition Agreement, given that the potential new government has made it clear that a key objective is unrestricted compliance with the principle of equal treatment of all creditors.

Pre-insolvency restructuring proceedings

Under the heading “A successful economy for future prosperity”, the coalition parties undertake to agree, together with France, concrete steps to realise a Franco-German economic area with uniform regulations (above all) in the area of company and insolvency law and to strive for a harmonisation of the regulations for the completion of the European Single Market (lines 2491 to 2496). This potentially also covers the much discussed introduction of pre-insolvency restructuring proceedings. Following the adoption of a corresponding Directive of the European Union, the draft of which is currently being discussed by the Council and the European Parliament, Germany is obliged to introduce such proceedings (cf. see also our news article on a preventative restructuring framework (German language), but has to date taken no specific action. France has already introduced pre-insolvency restructuring proceedings. The Coalition Agreement means there is a hope that such proceedings will also be possible in Germany in this legislative period.

Obligation to file for insolvency

 

The CDU/CSU and the SPD intend to reform the debtor’s obligation to file for insolvency in light of the European requirements with respect to restructuring and insolvency law, and take into account the special conditions in the event of natural disasters (lines 6228 et seq.).

In the past, the obligation to file for insolvency set out in sec. 15a(1) German Insolvency Code was repeatedly suspended in the event of natural disasters so as not to force those concerned into proceedings too quickly before it is clear whether the State aid or payments made by their insurance companies are sufficient to eliminate the existing reasons for filing for insolvency. These individual decisions could now be standardised in the German Insolvency Code.

Digitalisation, licences and laws governing the profession of insolvency administrators

Under the heading “Legal consequences of digitalisation”, the future federal government wants to push ahead with digitalisation in the area of insolvency law and (above all) procedural insolvency law (lines 6223 et seq.). “Insolvency proceedings 4.0” is also on the agenda at many trade associations and working groups, so appropriate support for this is expected. The objective is to make procedures more efficient and simpler. This could lead to fewer staff being needed at insolvency courts to process insolvency proceedings and related cost savings. At the same time, information could be communicated to parties involved in the proceedings more easily, which would increase transparency.

Surprisingly, the planned changes relating to laws governing the professions of insolvency administrators and custodians (lines 6219 to 6223) can also be found under this heading. A framework for professional admission to, and practice of, these professions is to be created in order to guarantee a qualified and reliable performance of tasks and to ensure the quality of the supervision of debtors in possession.

According to the plans of the CDU/CSU and the SPD, licensees are to be better protected if a licensor files for insolvency (lines 6226 et seq.). There is currently the risk that a licence which has been acquired is no longer available due to insolvency proceedings over the assets of a licensor, if the insolvency administrator refuses performance of the contract. A new sec. 108a of the German Insolvency Code had already been under discussion in 2007 and 2012, but was not transposed into applicable law. It would appear that there is to be another attempt at reform in this area which is particularly important for internet companies.

Provisions on start-up promotion, insolvency-proof pension schemes for the self-employed and property developer insolvencies

The draft Coalition Agreement also provides for the reduction of hurdles to the incorporation process in this legislative period and the review of changes to insolvency law (lines 1855 et seq.).

The coalition parties plan that self-employed people should be provided with insolvency-proof and seizure-proof pension products as an alternative to the state pension scheme, which should lead to a pension above the minimum state pension (lines 4307 to 4311).

Finally, the future federal government wants to better protect buyers of properties constructed by developers in the event that the property developer files for insolvency (lines 5857 et seq.). This will provide more protection to consumers, who are particularly affected by such insolvencies. The changes to the provisions of the German Civil Code relating to property developer contracts (sections 650u and 650v German Civil Code) adopted in 2017 came into force on 1 January 2018. 

Conclusion: Insolvency law will continue to develop

Insolvency law was already comprehensively revised at German and European level during the last legislative period, which in some cases led to sweeping changes. The programme for the next four years suggests that changes will be made to insolvency law, triggered by the European Commission’s reform programme. The principle of equal treatment of all creditors, which also means the tax authorities, is to be complied with without restriction.

The following (German language) articles contain information regarding changes in the last legislative period:

• Changes to German claw back law
• Revision of European Regulation on insolvency proceedings
• Group insolvencies
• Draft of European Directive on preventive restructuring measures

The text of the Coalition Agreement (German language) can be accessed here or here.