Debtor-In-Possession Management

Debtor-In-Possession Management and Insolvency Protection Proceedings

Previously, debtor-in-possession management has been rarely used in practice and became popular only when insolvency law was amended and the German Act on Further Facilitation of the Restructuring of Companies (ESUG) was enacted on 01.03.2012. The aim of the legislator was to enable company management to continue to apply their know-how in the best possible way and in consultation with the creditors, and thus to avoid time-consuming induction of the insolvency practitioner into the company's business. While in the past courts rather refrained from ordering debtor-in-possession management, the ESUG has now relaxed requirements in this respect.

Thus, already at the stage prior to opening insolvency proceedings, a provisional creditors' committee (representing the company's creditors) can vote that the so-called provisional debtor-in-possession management be ordered as early as in the phase between filing for insolvency and opening of the insolvency proceedings (§ 270a InsO).

Insolvency Protection Proceedings

The introduction of the new so-called insolvency protection proceedings (“Schutzschirmverfahren” as per Article 270b of the German Insolvency Statute, or InsO) offers debtors the opportunity to conduct their own restructuring process in the period between filing for insolvency and opening of the insolvency proceedings. For a period of up to three months, the debtor can apply "insolvency protection proceedings" within the framework of debtor-in-possession management (i.e. in cases where the debtor is allowed to continue to manage their business without an appointed trustee), supervised by a provisional custodian, while enjoying protection from enforcement measures on the part of creditors. In this period, the debt-ridden company must develop a reorganisation plan that can be implemented later on as an insolvency plan.

For the said insolvency protection proceedings to be instituted, the debtor must submit a certificate issued by a tax consultant, chartered accountant / auditor, lawyer or another person with comparable qualifications (all with expertise in insolvency related matters), along with a statement of reasons, to confirm the debtor's imminent inability to pay debts or over-indebtedness only and to affirm that the pursued restructuring process has a reasonable prospect of success. If a company is already insolvent (incapable of paying debts), it cannot use the option of the insolvency protection proceedings.

Rödl & Partner's Operational Excellence & Restructuring Team

The Operational Excellence & Restructuring team possesses special expertise in handling and assisting in debtor-in-possession management and insolvency protection proceedings. Our specialists in handling this kind of situations have successfully assisted our clients in debtor-in-possession management even before the insolvency law was amended.