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Projected Reform of German Insolvency Law

By Constantin Conrads

A large number of U.S. companies have investments in German entities, whether they be in the form of wholly owned subsidiaries, joint ventures etc. Should one of these German companies face a severe financial crisis, the U.S. shareholder must deal with German insolvency laws and procedures concerning its German subsidiary.

German insolvency law has met with criticism in the past, particularly during the economic crisis since 2008. The main criticisms include:

  • The duration of insolvency proceedings.
  • The lack of influence on the appointment of insolvency administrators, in particular with the consequence of losing control over the company with the commencement of insolvency proceedings.
  • The impossibility of expedient debt-to-equity swaps without a cooperation of the existing shareholders.
  • The impossibility of pre-packaged or pre-negotiated bankruptcy proceedings similar to those in the U.S., the latter of which seems to be a clear trend in the U.S. This procedure enables companies in a financial crisis to reorganize and recapitalize the company as quickly as possible and its implementation, in connection with German insolvency proceedings, would presumably be welcomed by U.S. shareholders.

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