Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
A German Perspective on Restructuring
Speaker: Frank Engelhard (attorney at law)
ESCH & KRAMER Rechtsanwälte
Wall 21, 42103 Wuppertal
fon: +49 (0) 202-255505-0
fax: +49 (0) 202-255505- 5
http://www.eschkramer.de
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
Introduction:
Financial and Economic Crisis beginning 2007
•
In 2007 beginning of the Sub-Prime crisis in the U.S. (housing crisis)
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Expansion into financial crisis with impacts on companies of the
financial sector (ex. insolvency of Lehman Brothers)
•
Since 2008 also negative effects on the real economy (drop in orders,
losses, short time work etc.)
•
Transboundary impacts; Shrinking economies in Germany, France and
other European countries
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
Effects of the financial crisis on the German Economy
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•
•
•
•
•
•
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2009 decrease of growth of 5.1 %
Public revenue in 2009: -47 billion €; in 2010: -65 billion €
Credit crunch for companies
The massive economic crisis 2008/09 had substantial impacts on the
innovation activities of the German economy
Slowdown in Sales; breaking down of productivity
Insolvency records: In 2008 the Federal Statistical Office in Germany
reported 29.291 insolvencies of companies. In only 640 cases a
restructuring of the companies was initiated with the measure of an
insolvency plan
Ex. 1: Arcandor AG (until 2007 known as KarstadtQuelle AG) filed for
insolvency procedures on 1. September 2009; a company with 100.000
employees and a turnover of 15.3 billion € (in 2004)
Ex. 2: ThyssenKrupp AG: loss of value since 2007 to 2008 of 50 %
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
• According to the Centre of Insolvency and Restructuring („Zentrum
für Insolvenz und Sanierung (ZIS)“ as well as the credit insurer
Euler Hermes, 2/3 of insolvent companies with at least 5 Million €
annual turnover could be subjects to successful restructuring. 50 %
of mid-sized companies (with an annual turnover between 500.000
€ and 5 Million €) could be subjects to successful restructuring.
• „Measures of restructuring are used to infrequently“ (ZIS managing
director Mr. Georg Bitter).
Demand of insolvency administrators and German industry for
substantial changes in German Insolvency Law in order to
face the upcoming needs to preserve, to restructure and to
rescue companies
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
In particular:
I.
„Finanzmarktstabilisierungsgesetz (FMStG)“ German
Financial Markets Stabilisation Act (17. October 2008) 
Art. 5 FMStG: new definition of over-indebtedness (§ 19
para.2 Insolvency Act) since 18.10.2008
II.
„Gesetz zur weiteren Erleichterung der Sanierung von
Unternehmen (ESUG) (7. December 2011)“:
New insolvency law
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
I.
„Finanzmarktstabilisierungsgesetz (FMStG)“ German Financial
Markets Stabilisation Act (17. October 2008)  Art. 5 FMStG: new
definition of over-indebtedness (§ 19 para.2 Insolvency Act) since
18.10.2008
Change of the definition of „over-indebtedness“
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
Legislation before the crisis:
 Managing directors were obliged to file for insolvency within three
weeks after the occurence of technical over-indebtedness.
 Over-indebtedness occurs if the assets of a company no longer
cover the existing liabilities.
(Using fair market values – not book values).
 The obligation to file for insolvency applied even if the company had
a „positive prognosis to continue its business“ („positive
Fortführungsprognose“).
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
•
•
Problem:
The financial crisis caused heavy losses in values of real
estate and shares
Companies are over-indebted, which may trigger insolvency,
despite the fact that their liquidity and profitability may be
sufficient in the medium run.
 The German legislators passed the „Financial Markets Stabilisation
Act“ („Finanzmarktstabilisierungsgesetz“) on 01 November 2008.
 Change of section 19 clause 2 of the German Insolvency Act:
„Over-indebtedness is on hand, if the assets of the debtor no longer
covers the existing liabilities, unless, it is according to the
circumstances highly probable that the business is to be continued.“
 In case of a positive prognosis for continuing the business no
obligation to file for insolvency procedures exists.
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
 First, this provision was meant as a “sunset provision”: The
legislator’s aim was that the change of this definition remains in
effect only temporarily. (The old rule was meant to get back in
force beginning January 2011)
 Extension until 31. December 2013
 In the meantime: The time-limit was abandoned: This means, a
company is not overindebted according to German Insolvency
Law, if a positive prognosis for continuing the business exists
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
II.
Gesetz zur weiteren Erleichterung der Sanierung von
Unternehmen (ESUG) (7. December 2011)“
New insolvency law
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
Aim of ESUG:
→ Strengthening the position of a debtor in possession (self-administration,
„Eigenverwaltung“)
∙ Measures:
-
facilitating a debtor`s reorganisation and
strengthening the position of a debtor in possession
creation of a protective screen
appointment of a Funding Register administrator (Sachwalter)
strengthening the creditors` rights (i.e. a creditors` committee)
support and rationalisation of insolvency plans
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
∙ Facilitation of the reorganisation
→ Conditions:
- imminent inability to pay or imminent over-indebtedness (to be
examined by court)
- Request for self-management (Eigenverwaltung)
- Explanatory statement that the aspired reorganisation does not
obviously lack the prospect of success
- Submission of an expert`s certification that the above
mentioned conditions are fulfilled or plausible
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
∙
Strenghtening the self-administration:
The debtor is entitled to manage and dispose of the assets
involved in insolvency proceedings under surveillance of a
Funding Register administrator.
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
∙ Conditions:
- Request for self-administration
- Reason why the person is qualified
- Reason why self-administration will not lead to creditors`
disadvantage
- Approval of the preliminary creditors` committee
∙ Advantage:
- The debtor remains a key player.
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
Process:
Preparation of filing for insolvency proceedings at an early stage is
crucial (only imminent inability to pay may exist)
→
Step 1: Establishment of a preliminary creditors` committee
→
Step 2: well prepared filing for insolvency proceedings
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
Step 1
Establishment of a preliminary creditors` committee
To represent all groups of creditors in the creditors` committee it should
comprise persons from the 5 following groups:
-
banks` representatives
-
creditors holding the maximum claims
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representatives of the group of small sum creditors
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representatives of the employees
-
where appropriate any other neutral creditors`
representative
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
∙
Advantages of an established creditors` committee:
unanimous decision
binding vote for selfadministration
or
binding vote for an
insolvency
administrator /
Funding Registry
administrator
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
Step 2
To file for insolvency
→
to file for insolvency including an explanation
→
request for self-administration with explantion
→
proposal of a Funding Register administrator
→
announcement of an insolvency plan
→
request to establish a preliminary creditors` committee
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
Summary:
→ The insolvency proceedings may become to procedures
governed by the parties
→ The creditor gets more opportunities to reorganise in case he
decides early to file for insolvency
→ The creditor obtains influence on the composition of the
preliminary creditors` committee
→ The creditor gets impact on the announcement of the Funding
Registry administrator through the preliminary creditors`
committee
→ If the creditors act unanimously the insolvency court loses
impact.
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Bucharest, 18. September 2013 -Towards a Romanian Chapter 11
Effects:
→
Creditors spot the existence of a crisis earlier
→
Creditors can take part in iussing a recovery plan at an
early stage
→
Debtor and creditor may co-ordinate the process of
insolvency proceedings
→
The success of reorganisation is greater due to cooperation between debtor and creditor
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Thank you for your attention!
Frank Engelhard
Attorney at law
ESCH & KRAMER Rechtsanwälte
Wall 21, 42103 Wuppertal
fon: +49 (0) 202-255505-0
fax: +49 (0) 202-255505- 5
http://www.eschkramer.de
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