If a company is illiquid or overindebted, its management is required by law to file for insolvency. An insolvency application does not necessarily mean the end of the company, however. In crisis situations of this kind, German insolvency law, in particular the Insolvency Code (Insolvenzordnung, InsO), offers companies a variety of options for overcoming the challenges they face and achieving a sustainable fresh start for their business.
Larger companies may wish to use protective shield proceedings or self-administration. However, standard insolvency, i.e. traditional insolvency proceedings, also offers a full range of reorganisation options, particularly if the insolvency application is filed early and professionally prepared. Our investigation into the long-term sustainability of company reorganisations has shown that both standard insolvencies and self-administration and protective shield proceedings lead to successful and sustainable reorganisations.
In a standard insolvency, the insolvency court with territorial competence in the location of the company’s seat appoints a preliminary insolvency administrator in what are known as “preliminary insolvency proceedings”. An insolvency administrator is appointed when the (permanent) insolvency proceedings are formally commenced.
The insolvency administrator has a crucial role in a reorganisation in standard insolvency proceedings. It is his or her job to secure the assets of the insolvent company for the creditors, identify potential options and – whenever it is financially possible and advisable to do so – reorganise the company.