6.


Insolvency proceedings

6.1. General information

Insolvency proceedings – whether regular insolvency, insolvency plan, or individual insolvency – are a kind of collective enforcement by all the creditors to the debtor. With the start of preliminary proceedings, all the individual enforcement is suspended, and only when the insolvency proceedings do not start will individual enforcement continue.


The aim of the insolvency proceedings is to pay out all the creditors with the same quotas by liquidating the assets of the debtor company, or by collecting the enforceable income of the individual who is declared bankrupt.

6.2. Proceedings

After the debtor or a creditor files for the insolvency of the debtor, a preliminary liquidator is appointed to check if sufficient assets are available to cover the costs of the proceedings (court costs and costs of liquidators). If these costs are deemed to be covered, then the insolvency proceedings start and a liquidator will be appointed; usually this is the preliminary liquidator. If any other route is followed, the court will reject the declaration of bankruptcy due to insufficient assets.


The creditors can then lodge their claims and take back any goods delivered under ROT clauses. For goods in stock, the liquidator can choose either to pay the original prices to the creditors or to return the goods. For the extended ROT, the insolvency practitioner liquidates the goods or claims and pays out the creditors the retaining VAT and a commission of 9% of the revenue.


After the proceedings start, lodging claims is possible within a given deadline. All the claims lodged are checked before the filing hearing, usually within three months after the start of the proceedings. If the lodging is done after the deadline, the claim cannot be checked before the filing hearing and a second hearing near the end of the proceedings (in general after two to four years) has to be announced. For late claim lodging, an additional cost of EUR 20 is incurred, and the confirmation of the debt will be delayed. The liquidator can either accept a lodged debt or dispute it. If your claim is disputed, you may only file a claim in court to prove the justification of the claim when further documentation does not convince the liquidator to confirm the debt.


At the end of the proceedings, all the creditors with confirmed debts will receive dividends - on average between 5% and 8% of the original claims. In fewer than 50% of the proceedings, dividends higher than 2% are distributed.

6.3. Required documents

In order to lodge a claim, we need:


  • An original power of attorney
  • Copies of the invoices
  • Copies of the contracts
  • Copies of the orders, order confirmations, and delivery notes
  • Copies of the general conditions of sale, should there be any
  • Copies of any other correspondence that may verify the claim

6.4. Expected time frame

The deadline for lodging claims is one to three months, depending on the complexity of the proceedings, which start from the adjudication order (“Insolvenzeroffnungsbeschluss”). The check on the lodged claims takes place one to three months after the deadline for lodging claims. The total duration of insolvency proceedings is between four and seven years. In Germany, a case will be closed when the insolvency practitioner has accepted the claim after it has been lodged.

6.5. Limited companies

A limited company will file for insolvency for three main reasons:


  • Inability to pay. This doesn’t automatically mean that the company’s assets do not cover all its debts. Under special circumstances, it could be the case that only the actual liquidity does not cover the due debts, but in general, the company’s expected liquidity would
  • Expected inability to pay. This means that the management already knows that within a certain time span, the company will be unable to pay the due debts
  • Accounting insolvency. This means that the company’s assets do not cover its debts

6.6. Unlimited companies / individuals

For unlimited companies or individual debtors, it’s not obligatory to declare bankruptcy. Nevertheless, they can declare bankruptcy for the reason of inability to pay or expected inability to pay. The costs of the proceedings will be covered by the company’s assets, or the liable persons may request respite of the costs. If the insolvency proceedings are confirmed, the debtor company has the right to claim annulment of all their pending debts after a period of six years.

6.7. Pools of creditors

If a bigger company goes bankrupt, the actual insolvency proceedings will often be accompanied by a second set of proceedings called pools of creditors. In this case, the creditors join in a pool agreement usually founded by credit insurance companies or banks. The aim of the pool is to accumulate all the claims of the creditors who delivered goods under ROT clauses. The creditors have to prove that the ROT clauses were agreed to. They then transfer their rights to the pool arrangement and participate in the refunds of the sale of all the debtor’s secured goods with quotas of their confirmed credits.

6.8. Rescission

The liquidator can dispute payments carried out by the debtor within three months prior to the declaration of bankruptcy. A longer period, up to 10 years, is possible for some special forms of payment (practical experience shows an increasing number). If the liquidator disputes these payments, the creditors have to refund the liquidator plus interest and can only lodge the corresponding debts instead.


(End of chapter 6 - Insolvency proceedings)

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