Insolvency proceedings in self-administration – reorganisation managed by the debtor

Financial difficulty rarely strikes out of nowhere. In most cases there are signs for business-related difficulties or financial distress. The earlier that management, shareholders and board members recognise these signs and start taking steps to counter them, the better their chances are of either avoiding the crisis altogether or – if that is not possible – overcoming it successfully. Often a company’s first step is to attempt to reach an out-of-court settlement with its creditors. If an agreement of this kind is not or is no longer possible, insolvency in the form of self-administration (Insolvenz in Eigenverwaltung) presents good opportunities for reorganisation.

The major advantage of insolvency proceedings in self-administration is that the debtor’s management continues to hold the reins of the company and retains the power of disposal over the company’s assets during the reorganisation. Unlike in standard insolvency proceedings, companies in self-administration do not have an insolvency administrator. The management itself reorganises the company – often advised by a reorganisation expert acting as chief restructuring officer (CRO), who provides advice and operational support to them during preparation and implementation of the reorganisation. This reinforces confidence that self-administration will be handled properly and increases acceptance for the reorganisation among affected creditors.

Creditors’ interests are protected by the supervisor, who is appointed by the court and whose job it is to ensure compliance with the rules set out in the Insolvency Code (Insolvenzordnung, InsO) during insolvency proceedings in self-administration. Put simply, the role of the supervisor is to oversee the proceedings.

Essentially, self-administration enables a company to reorganise both its finances and its business – the notice periods for long-term contracts such as rental or leasing agreements are significantly reduced – under its own direction and make full use of the tools provided by insolvency law. During self-administration, employees also continue to receive their wages and salaries for up to three months in the form of insolvency pay.

Self-administration prevents the loss of product expertise and preserves business relationships on the market. Important contacts are maintained and so do not need to be laboriously re-established later on. Self-administration enables investors and customers to plan with greater certainty than with standard insolvency because it presents a clear route out of crisis. That makes it attractive for all involved.

If self-administration plans are well prepared and structured, a company can emerge strengthened from the proceedings.

Insolvency plan

The insolvency plan – the roadmap for reorganisation via self-administration

The stated objective of every self-administration scheme is to preserve the company and save jobs. This can be done in a number of ways. The most frequent path is reorganisation through insolvency plan proceedings. Our experts work with company management to devise a concrete roadmap for reorganisation – the insolvency plan.

Developed in collaboration and coordination with management, the insolvency plan describes what measures the company should take to get through the crisis. In insolvency plan proceedings, the legal entity concerned – a German limited liability company (GmbH) for example – remains intact and is not wound up. This is good news for existing shareholders because they get to keep their shares which in turn increases their willingness to support the restructuring efforts. Preserving the legal entity is also essential if important licences and permits are tied to it – this can be the case for sports clubs, hospitals and nursing homes, for example. Reapplying for permits, a sometimes laborious process with uncertain outcomes, can be effectively avoided by keeping the company in place as a legal entity. An insolvency plan can also be used to reorganise a company in other ways – by bringing in a new investor via an asset or share deal, for example.

Our services include support in the preparation of your plan as well as in plan voting to get the approval of the creditors. To build trust, it is advisable to establish contact with the principal creditors beforehand. If a majority of the creditors consent to the insolvency plan, we help you implement the corresponding measures and provide the necessary evidence to the court. Once all required measures set out in the insolvency plan have been implemented in a timely fashion, the insolvency court terminates the self-administration proceedings – in many cases this is possible after only a few months. Alongside greater predictability, speedy termination of proceedings is one of the major advantages of reorganisation in self-administration using an insolvency plan.


The benefits of self-administration

In general, insolvency in self-administration can be terminated after only a few months of proceedings beginning, thus often making it significantly quicker than standard insolvency proceedings. The fact that management retains full control over the company provides another important time advantage that makes proceedings shorter and therefore also less costly. And the fact that management approach and carry out the reorganisation themselves is an added incentive to file for insolvency as early as possible. This further increases the chances of success. For creditors, proceedings of this kind have the advantage that the court appoints a supervisor to monitor proceedings and protect their interests.

In general, self-administration is a transparent and well-established route to reorganisation and helps debtors regain the trust of those they do business with.

Self-administration proceedings in insolvency: we take responsibility

Schultze & Braun supports you in preparing and implementing a self-administration plan for your company, including all necessary trust-building measures. As well as serving as your advisors, we can also join your company’s governing bodies and take operational responsibility as chief restructuring officer (CRO) or general agent. We are experienced with interim management appointments of this kind and work with you to get through the reorganisation phase successfully. Our focus is on saving costs and keeping your company in business. The stated aim of every self-administration scheme is reorganisation.

This is how the self-administration process works at Schultze & Braun: As a first step, our trained business management experts carry out a thorough analysis of your company, prepare liquidity plans and issue statements and reports in accordance with the standards of the IDW (the German Institut der Wirtschaftsprüfer or Institute of Public Auditors) if necessary. This gives you a rapid, impartial and objective outside view of your company’s position that you can use as a basis during the subsequent reorganisation and that enables you to keep track of the current situation.

Next, our insolvency law advisors work with you to prepare all the steps to initiate the self-administration procedure including filing at the competent court. Throughout the self-administration proceedings our advisors and lawyers are at your disposal to discuss any detail of the procedure and drive the reorganisation forward in a focused manner. In addition, Schultze & Braun helps you implement your chosen measures successfully until the reorganisation is complete.

Resolute action at an early stage is what is needed. Can we help you with that?


Michael Böhner
Rechtsanwalt (Attorney at law)


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