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Annotations to bankruptcy and administration/insolvency proceedings in Germany: A guideline on German Insolvency proceedings

Our investigations (different databases) can result in fact that bankruptcy proceedings of the debtor are initiated or that such proceedings are pending with a court.

Please note that there is no guarantee that actually at present no proceedings are pending or opened, since the publishing of these information may be delayed by the authorities or the handling by publishing into the databases. Therefore our inquiries may show at first that no proceedings are pending or opened, but that some time later a court order can be found with an earlier date of institution of proceedings.

We will provide you with the corresponding court order as soon as it is available. see>>

In such a situation it is no longer possible to sue the debtor at the court or to proceed in court proceedings any more. Court proceedings will be interrupted by law until the end of bankruptcy proceedings.

To prosecute your claim it is necessary to file a proof of debt to the receiver in bankruptcy/administrator (to file the claim to the list of creditors' claims). It is possible to file the claim up to the first meeting of the creditors scheduled by the court.

For such proceedings we need

- the invoices

- statement of claim

- special PoA (proxy) Power of Attorney

Find here the PoA, Proxy we need to represent your interest in insolvency proceedings:
- PoA only English version: here-->
- PoA German/English version: here-->
- PoA Draft to see what is to fill out: here-->
- Flyer bankruptcy proceedings, insolvency proceedings: here-->
- Flyer Our Services and Conditions: here-->

1. Lawyer Fees in insolvency and administration proceedings: see>>

For working on the file we regularly charge a retainer fee of 250 EUR in minimum. That is because it is not possible to cover our fees by the debtor/administrator. The debtor is legally not obliged to pay our fees in such proceedings. Supplementary fees will only be charged if further activities - apart from filing and conducting the claim until the end of proceedings (payout of rates) - become necessary. In case of your approval please remit the above mentioned amount to our bank account. We also like to offer to file the claim on behalf of the client not charging anything but we would deduct all our fees firstly from the payments we received in the coming months or years.

2. PoA: download here>>

A special proxy (POA) is needed in order to entitle us to file the claim in the name of the client. Please fill and undersign the form. We need the form sent by post (original). You can find the proxy on : www.debtcollectioningermany.com/contact.html.

3. Procedures

The bankruptcy court first appoints an attorney (Lawyer) as a preliminary receiver inbankruptcy/administrator in this matter after receipt and approval of the application.

3.1. Preliminary Administration

In bankruptcy proceedings of a company the bankruptcy court often cannot judge the application to open bankruptcy proceedings immediately. To the purpose to sustain and maintain the assets for bankruptcy proceedings the court can order preliminary and appropriate security measures until the decision to open or to dismiss the application (vorläufige Insolvenzverwaltung § 22 InsO) like to appoint a preliminary receiver inbankruptcy/administrator with different powers and authority.

The preliminary receiver in bankruptcy/administrator assesses the financial situation of the debtor in detail and checks whether there are enough assets and liquidity to cover costs and fees of bankruptcy proceedings itself (court fees, fees of the receiver in bankruptcy/administrator) and for the running business. His task is also to assess whether the progress of business is possible. He file an expert report for the judge and recommend to institute bankruptcy proceedings or to reject it.

Often the bankruptcy court notices that no assets are available to payout anything to the creditor's because there are no assets to open proceedings or conducting bankruptcy proceedings (meaning to pay the receiver in bankruptcy and costs of the court).

In such cases the court orders the end of bankruptcy proceedings by lacking assets to pay proceedings themselves (German wording: "... wird mangels Masse eingestellt" or ... Masseunzulänglichkeit"). Consequence: the company will be winded up and will be deleteted in the commercial register.

If there are assets enough and prospects to run business further on perhaps by changing the structure of the company, the legal form and areas of business (...) the court will order the opening of bankruptcy proceedings (court order). The order appoints a receiver in bankruptcy/administrator too.

In the meantime (often several months) the preliminary receiver in bankruptcy/administrator supervises the business of the debtor and all business is to do with his affirmation.

3.2. Opened proceedings:

The receiver in bankruptcy/administrator requests all creditors to file the claim to the creditor's list at the court (Attention: a deadline for filing will be appointed!). He is leading proceedings and he is competent to decide in all matters concerning the debtor's business, such as developments in business, the future legal form and - in general - the legal existence of the debtor's company.

The administrator scrutinises all claims in detail and approves them in legal regulated procedures. The administrator's ascertainment/acknowledgement of a claim has the same legal effect as a judgement. Please note that the receiver in bankruptcy will inform only those creditors which claims are contested. Creditor's claim he confirmed would not be informed.

It is not possible for us to expedite proceedings in any way.

We would like to add that in nearly all cases of - rejected - bankruptcy proceedings of a company the department of public prosecution will be informed and scrutinize the case (fraudulent bankruptcy proceedings).

The principal duty of the administrator is to assess the financial standing of the company concerned and to continue business if possible. If this should not be possible the company is to be commercialised resp. liquidated. The creditors will then achieve a rate (quota) of their claim related to the funds and assets still available, whereas according to experience the rate is often/usually very small (to average 5% of the debt in Germany).

The disbursement/payout of a possible quota or dividend could be announced to a future date.

Often the bankruptcy court notices that no assets are available to payout anything to the creditor's because there are no assets to open proceedings or conducting bankruptcy proceedings (meaning to pay the receiver in bankruptcy and costs of the court).

In such cases the court orders the end of bankruptcy proceedings by lacking assets to pay proceedings themselves (German wording: "... wird mangels Masse eingestellt" or ... Masseunzulänglichkeit"). Consequence: the company will be winded up and will be deleteted in the commercial register.

Further possibilities and terms:

Notification of insufficiency of assets / Massearmut:

consequence: no payments for all kinds of creditor's (preferential creditors too).
bankruptcy proceedings stop and cease.
Nach Eröffnung des Insolvenzverfahrens stellt sich heraus, dass das Vermögen der schuldnerischen Firma (sog.Insolvenzmasse) noch nicht einmal ausreichend ist, um die Kosten des Insolvenzverfahrens (Gerichtskosten, Vergütungen des Insolvenzverwalters und die Vergütung der Mitglieder des Gläubigerausschusses) zu decken. Der Insolvenzverwalter teilt dies dem Gericht mit - das Verfahren wird gemäß § InsO 207 eingestellt. Vor der Einstellung ist die Gläubigerversammlung einzuberufen und der Insolvenzverwalter und die Massegläubiger anzuhören.

Eine Verwertung der Massegegenständen führt der Insolvenzverwalter dann nicht mehr durch. Nicht verwertete Teile des Unternehmens gehen nach Einstellung wieder an den Schuldner zurück. Noch vorhandenes Geld wird verteilt, wobei zuerst die Auslagen des Gerichts und des Insolvenzverwalters erstattet werden. Soweit noch Geld übrig ist, werden die Kosten des Gerichts und die Vergütung des Insolvenzverwalters gezahlt.
Die Insolvenzgläubiger erhalten im massearmen Insolvenzverfahren keine Zahlungen, da es aufgrund der fehlenden Insolvenzmasse nicht zur Ausschüttung von Geld kommt!
Der Schuldner erhält die Verwaltungs- und Verfügungsbefugnis über sein Vermögen zurück.

Notification of insufficiency of assets for running proceedings / Massunzulänglichkeit:

consequence: no payments for creditor's, preferential creditors only can obtain a quote

bankruptcy proceedings continues.
Eine Masseunzulänglichkeit liegt vor, wenn zwar keine Massearmut gegeben ist, jedoch die sog. Masseschulden nicht mehr gedeckt sind. Sobald der Insolvenzverwalter die Masseunzulänglichkeit angezeigt hat, wird diese öffentlich bekannt gemacht. Das Verfahren läuft weiter, die Massegläubiger erhalten jedoch nur noch eine Quote. Alle anderen Gläubiger, insbesondere.die Insolvenzgläubiger erhalten keine Zahlungen.

Abgrenzung: Bei Masseunzulänglichkeit deckt die Masse zwar die Kosten des Verfahrens, nicht aber die Kosten, die während des laufenden Insolvenzverfahrens entstanden sind (auch Masseverbindlichkeiten)

4. Risk of debt collection in case of subsequent bankruptcy proceedings of the debtor

If our clients want us to file for bankruptcy proceedings it is important to know that in most of the cases bankruptcy proceedings will not bring the money back!

If the debtor is not willing to pay or the financial situation is bad to pay the debt it is regularly possible to file a petition for bankruptcy proceedings at the bankruptcy court. Please note that the creditors will regularly achieve only a rate (quota) of their claim related to the funds and assets still available, whereas according to experience the rate is often/usually very small (to average 5% of the debt in Germany) and proceedings often take years. Therefore the threat to file for bankruptcy is often more effective as the institution of proceedings itself.

Moreover: if it turns out for the court that there was or is no situation of inability to pay/ illiquidity ("case of bankruptcy") the debtor is legally entitled to claim for the damages caused by bankruptcy proceedings. An application not beeing well-founded can lead to the obligation of the creditor to pay compensation and indemnification because of "endangering the credit of a person or firm" ("Gefährdung eines ausgeübten Geschäfts, Kreditgefährdung, vorsätzlicher sittenwidriger Schädigung oder übler Nachrede"). The application is not well-founded if there is no inability to pay and/or overindebtedness ("Insolvenzgrund: Zahlungsunfähigkeit, drohende Zahlungsunfähigkeit, Überschuldung"). The applicant has to pay the costs of proceedings hitherto and has to present a public declaration.

Furthermore it is possible that we can collect the debt in total or collect some instalments and later on the debtor goes bankrupt. It is possible that the administrator/receiver in bankruptcy rescinds the payment(s) by legal ground of "disadvantage of the other creditors". The legal background is that in case (and from this moment on) of inability to pay/ illiquidity ("case of bankruptcy") the debtor privilege (only) the client if he pay solely and exclusively to him and not to the other creditors. The administrator/receiver in bankruptcy appointed by the bankruptcy court is legally entitled to claim back such payments to the debtor's assets.

In consequence the client has to pay back/refund the payments to the administrator/receiver in bankruptcy.

5. If you intend to file bankruptcy against your debtor - conditions on the application and the legal position:

- The application has to be in written directed to the bankruptcy court (a departement of the Local Court).

- It is to apply the opening of bankruptcy proceedings.

- The application is permissable if the creditor has a legal interest he can show credibly (by furnish documents) Also he has to show credibly his claim and reasons for bankruptcy proceedings: inability to pay and/or overindebtedness (§ 14, 17, 19 InsO, Insolvency Statute).

The court makes high demands on the application of a creditor contrary to an application of the debtor himself.

The "possibility" of inability to pay is not sufficient. For furnishing prima facie evidence of the claim and insolvency the creditor has to present documents (evidence) like a judgment or court orders (final). It has to be shown very clear that the debtor is not able to pay the due and mature claim which are demanded for very seriously. .

Regularly the creditor has to present an executory title/writ of execution (like a final judgment, court order to pay a debt, court summons) and to present a confirmation of the bailiff that no assets are to attach/collect from the debtor by lack of any assets.

To present only an invoice is regularly not sufficient - but all depends according to circumstances and the specifics of the single case.

It could be sufficient to present a letter of the debtor that he cannot fulfill payment because funding of the bank failed or is lacking (LG Berlin, Beschluss v. 3.5.2004 - 86 T 385/04, ZInsO 2004, 875 in InsbürO 8/2004 S. 320).

If the reason for filing bankruptcy is solely because the claim is not paid the creditor has to present fully proof not only to show prima facie evidence. Please note that the bankruptcy court cannot take evidence!

Der Schuldner ist zahlungsunfähig, wenn er nicht in der Lage ist, die fälligen Zahlungspflichten zu erfüllen. Zahlungsunfähigkeit ist in der Regel anzunehmen, wenn der Schuldner seine Zahlungen eingestellt hat. Bereits die Unfähigkeit, auch nur kleinere Teile der fälligen Verpflichtungen über Monate hinweg nicht mehr erfüllen zu können, führt dazu, dass Zahlungsunfähigkeit gegeben ist.

All applications are dubious and can be rejected which have solely the purpose to force the debtor to payment.

The court always will grant "the right to be heard", a due process of law and will grant 1-2 weeks in minumum for a reply and payment of the debtor.

BGH vom 5. Februar 2004- IX ZB 29/03: "...Soweit das Landgericht gemeint hat, die Unzulässigkeit des Eröffnungsantrags ergebe sich auch daraus, daß die Gläubigerin einen fruchtlosen Vollstreckungsversuch nicht glaubhaft gemacht habe, ist noch auf folgendes hinzuweisen: Ist der antragstellende Gläubiger in der Lage, den Eröffnungsgrund der Zahlungsunfähigkeit (auf andere Weise) glaubhaft zu machen, kann das Rechtsschutzbedürfnis für den Eröffnungsantrag nicht deshalb verneint werden, weil er vor Antragstellung nicht fruchtlos die Einzelzwangsvollstreckung versucht hat (LG Göttingen aaO; AG Göttingen aaO S. 594; Unger KTS 1962, 205, 214; HK-InsO/Kirchhof, aaO § 14 Rn. 27; Nerlich/Römermann/Mönning, aaO § 14 Rn. 18; Kübler/Prütting/Pape, aaO § 14 Rn. 11; Uhlenbruck, aaO § 14 Rn. 8; FK-InsO/Schmerbach, aaO § 14 Rn. 32; a.M. OLG Köln ZIP 1989, 789, 791 mit insoweit abl. Anm. Gerhardt EWiR 1989, 701, 702). Mit dem Gesetz (§§ 13, 14 InsO) ist die Annahme einer allgemeinen Subsidiarität des Insolvenzverfahrens gegenüber anderen Vollstreckungsmöglichkeiten nicht vereinbar. Die Einzelzwangsvollstreckung gewährt nicht dieselben Sicherungsmöglichkeiten wie ein Insolvenzverfahren. Ist die Krise des Schuldners so weit fortgeschritten, daß der Eröffnungsgrund glaubhaft gemacht werden kann, so sind dem Gläubiger solche Verzögerungen und etwa hierdurch verursachte Verfahrenskosten nicht zuzumuten (Gerhardt aaO; MünchKomm-InsO/Schmahl, § 14 Rn. 49; vgl. OLG Celle OLG-Report 2000, 126, 128). Ob etwas anderes gilt, wenn der antragstellende Gläubiger der einzige Gläubiger des Schuldners ist (so Nerlich / Römermann / Mönning, aaO), kann hier dahinstehen.

Therefore the court will give an opportunity to reply to the application for bankruptcy. In case the outstanding balance of receivables is straightforward the judge will grant a time-limit of a few days (1-2 weeks in maximum) to settle the claims. Is it possible for the debtor to pay the claims the application has to be withdraw. The judge would not charge an interim administrator in this time.

An application not beeing well-founded can lead to the obligation of the creditor to pay compensation and indemnification because of "endangering the credit of a person or firm" ("Gefährdung eines ausgeübten Geschäfts, Kreditgefährdung, vorsätzlicher sittenwidriger Schädigung oder übler Nachrede"). The application is not well-founded if there is no inability to pay and/or overindebtedness ("Insolvenzgrund: Zahlungsunfähigkeit, drohende Zahlungsunfähigkeit, Überschuldung").

The applicant has to pay the costs of proceedings hitherto and has to present a public declaration.

After all there are 2 options to proceed:

1. To file a proof of debt to the receiver in bankruptcy (to file the claim to the list of creditor's claims).

2. To assert your claim by a dunning letter, court proceedings et cetera like usual. This is (only) possible and recommendable as long as you have not received any notice or information about the institution of bankruptcy proceedings against the debtor. In this case you are not involved in bankruptcy proceedings and are able to claim for the debt without any restriction whereas prospects to cover the debt are likewise bad. Please inform us whether you have received any information concerning bankruptcy proceedings in the past.

Moreover it may be the case that we find out that in the meantime the company has been deleted in the commercial register, because of lack of assets to initiate bankruptcy proceedings. These facts mean that bankruptcy proceedings were not initiated because of lack of assets to cover the costs of the proceedings themselves. In that case it is to assume that there were no assets for longer time before.

To assert the claim in bankruptcy proceedings we need all relevant documents (esp. the invoices, delivery notes, credit notes, reminders, a.s.o., whereas copies are sufficient).

6. Bankruptcy proceedings for consumers - consumer insolvency - personal bankruptcy:

Besides regular bankruptcy proceedings for companies and salesmen the bankruptcy court can open/institute bankruptcy proceedings for consumers or salesman "with not too many debts and creditors" (German wording of the Law provisions).

Personal bankruptcy is a special procedure besides regular bankruptcy proceedings which allows an individual to declare bankruptcy. In other jurisdictions, bankruptcies are reserved only for corporations. In Germany we call it " personal/consumers bankruptcy proceedings".

Such proceedings would stop regular court proceedings if initiated at the court (by court order).

Purpose of proceedings is that the debtor get rid from any filed debts after 6 years under control of a receiver/trustee appointed by the court - "discharge of residual debt". All details are regulated by law.

That means that the debtor has to pay all earnings (not to be subject to seizure) to the receiver in bankruptcy (for 6 years) which will be distributed - regularly once a year - to the creditors relating to the amount of their claims (quota).

In detail:

The debtor has first to ask all creditors out of court whether they agree in an payment plan considering all creditors and the amount of their debts by a monthly or periodic part payment The purpose is to come to an "administration or voluntary arrangement under the Insolvency Act" with all creditors. Therefore the debtor send a letter to all creditors explaining his financial situation and claim them to file their claim once more exactly and in detail and he mentions all other creditors he has with their amount of claim. The debtor will propose a payment plan and set a deadline to declare whether the creditor agrees in this payment plan.

Please note that the debtor is legally entitled to propose to pay nothing ("Zero-Plan") to the creditors if he has no earnings or assets.

Regularly is the following (example!):

According to the legal provisions in such special bankruptcy proceedings the debtor inform his creditors that

- he has 12 creditors; the amount of his debts are 150.000,00 Euros
- he is married and have a monthly salary of 850,00 Euros
- therefore no amounts are seizable by Law at present
- he offers a so called "Zero-Plan" that is not a payment plan in fact because he offers his creditors an amount of 0 Euros per month, which is admissible by Law; but in case of any earnings the payment plan will be adjusted. The purpose is to come to an "administration or voluntary arrangement under the Insolvency Act" with all creditors.
- attached is a proposal for an "administration or voluntary arrangement under the Insolvency Act" with all creditors.
- the plan will start on the 01.05.2010 if all creditors agree.

The debtor mention also the obligations of the debtor and the creditors according to the Insolvency Act and set a time limit to agree and to file the claim in detail once more. If the creditor do not agree the proposal is rejected and the Lawyer will cancel his mandate and will recommend his client to file the application to the court. The court will propose the same and order the plan as justified and legal binding.

If this proposal of a payment plan fails and only one of the creditors objects/rejects to the plan the debtor has to file bankruptcy proceedings at the court. He informs the court that he tried to come to an agreement with all of his creditors according to his legal obligations and according to the legal provisions in such proceedings. Because his efforts to come to an payment plan failed he applies to institute bankruptcy proceedings managed by the court.

The application to the court must be very detailed and the debtor has to disclose all (!) his assets, earnings, claims to the court. The debtor also has to declare all assets he had in the past 3 years and what happens to them (sale, assignment, cession...).

The court will suggest the payment plan or a modified plan to all creditor's once more after perusal of all documents the debtor has to provide especially related to his financial situation.

If all of the creditors do not agree now the court will state and order the payment plan as legally binding. The court will appoint a receiver/trustee for the debtor's assets - regularly an court accredited Lawyer, but not the Lawyer of the debtor - who has the (legal) task to manage all earnings and claims and to manage that the payment plan will be executed. He has also the task to claim all assets back to the debtor's assets the debtor gave away unjustified. Therefore it is possible that the administrator/receiver in bankruptcy rescind the payment(s) or transactions of assets by legal ground of "disadvantage of the other creditors". The legal background is that in case (and from this moment on) of inability to pay/ illiquidity ("case of bankruptcy") the debtor privilege (only) the client if he pay solely and exclusively to him and not to the other creditors.

In addition it is to check whether "the debtor make himself bankrupt" with consequence of "disadvantage of the other creditors" or he tried to disguise or to stash assets and property. The administrator/receiver in bankruptcy appointed by the bankruptcy court is legally entitled to claim back such payments and transactions to the debtor's assets.

Regularly you receive the following documents:

- first the letter of the debtor or the debtor's Lawyer that he intends to declare bankrupt, proposal of a payment plan
- Form for filing the debt (principal claim, interest, costs, fees)

- court order to declare to agree to the payment plan

- leaflet of the court for creditor's

- the letter of the trustee/receiver in bankruptcy appointed from the court
- court order of institution of bankruptcy proceedings
- order announcing discharge of residual debt after 6 years

It is not possible for us to expedite proceedings.

Insolvency Statute (Insolvenzordnung, InsO) pdf>>

"Section 287: Debtor's Request
(1) Discharge of residual debt shall require a request on the part of the debtor, which should be joined with his request to open the insolvency proceedings. If it is not joined with the latter, it shall be submitted within two weeks of the reference in accordance with section 20 subs. 2.
(2) Such request shall be accompanied by a statement assigning the debtor's garnishable claims to emoluments due to him under a service relationship or to emoluments replacing them to a trustee to be appointed by the court for a period of seven years following opening of the insolvency proceedings. If the debtor had assigned or pledged such claims to a third party already prior to his request he shall indicate such assignment or pledge in his statement.
(3) Agreements excluding, making dependent on a condition, or otherwise restricting the assignment of claims on the part of the debtor to payments resulting from a service relationship or current payments in lieu shall be ineffective insofar as they would obstruct or be detrimental to the declaration of assignment pursuant to subs. 2 first sentence."

Please note that bankruptcy proceedings often last several years but that the possibility of receiving any payment should not be omitted.

Please do not hesitate to contact us if you have further questions.

Law Firm Germany-Feinen, 50823 Köln, Germany, specialist in debt collection, claim management and international contract law
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phone 0049-221-16844589, Fax: 0049 -221- 16844619

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Copyright: Michael Feinen 2000-2024
04.03.2024
4, March 2024