Coalition agreement – A new chapter in the German Insolvency Act (InsO) saga?

The long-awaited coalition agreement that underpins the future German government was published on 24 November 2021. It touches on only a few insolvency law issues, which are described briefly below.

Plans to reduce the burden on the self-employed with regard to health insurance contributions and retirement provision

The coalition intends to reduce the burden on the self-employed by making contributions to statutory health insurance above the mini-job limit strictly dependent on income. In future, newly self-employed persons who are not covered by a compulsory retirement insurance system will be obliged to provide for their retirement, with the freedom to choose between different options. 

The self-employed are insured under the statutory pension scheme unless they opt out and choose a private pension product. This product must be protected against insolvency and attachment and deliver more than the minimum level of provision. 

Coalition aiming at stronger consumer protection

The coalition intends to expand debt and insolvency advice services, especially with regard to consumer credit.

At EU level, it will work to strengthen protection against over-indebtedness caused by unfair interest rates and loan sharking across all forms of lending, and to ban misleading advertising. Early repayment penalties will be limited to what is reasonable. Fair access to a basic bank account and greater transparency are additional goals. The coalition has also taken on the task of consolidating regulation of debt collection agencies.

Air travel to be protected against insolvency

In future, air travel will be subject to the Package Travel Directive with regard to insolvency protection. The intention is also that compensation payments should be automated for all carriers.

Coalition supports initiative for codified international sovereign insolvency procedure

The coalition also wants to build a new consensus on international debt management in the form of an initiative for a codified international sovereign insolvency procedure. The procedure should cover all creditors and provide debt relief for groups of countries that are especially at risk. 

The objectives include boosting partner countries’ own revenues and combating tax evasion. To achieve this, the coalition will call for and support effective and transparent tax systems that also include the financial capacity of elites.

Another stated goal of the coalition – strengthening the European banking and capital market

The coalition is committed to a strong European banking and capital market that features competition and a diversity of business models. Deepening of the Capital Market Union is a declared objective. In this context, the coalition will campaign at EU level to reduce differences in insolvency, tax, consumer protection, regulatory and corporate law. 

Outlook: Impact on insolvency and restructuring law and corporate insolvencies

At national level, the measures referred to above almost exclusively affect private individuals. The coalition agreement doesn’t make any reference to corporate insolvencies. The German Insolvency Act has been the subject of repeated and in some cases sweeping reforms over recent decades (e.g. via the Restructuring Simplification Act (ESUG)). We are currently facing major challenges in the economy (climate crisis, digital transformation, a shortage of skilled workers, Covid-19) that will lead to a wave of business failures. Can today’s restructuring and insolvency law cope with this situation? The Act on the Stabilisation and Restructuring Framework for Businesses (StaRUG) was rushed through parliament last year. It should at least be evaluated and examined to see whether adjustments are needed. Another unresolved issue is whether professional regulations should be put in place for insolvency administrators.

The coalition agreement starts one level higher up and talks about reducing the differences in insolvency law at EU level. This could mean many things, up to and including scrapping over-indebtedness as ground for insolvency. Over-indebtedness is recognised by some EU Member States, but by no means all. At national level, a number of high-profile figures have called for it to be scrapped in recent years. It’s a very appealing idea, especially in view of the uncertainty around over-indebtedness. However, the legislative process for the EU Restructuring Directive demonstrated how difficult it is to harmonise substantive insolvency law.

It remains to be seen whether the future government will and can avoid adding to the long-running German Insolvency Act saga. 

Our blog series on the impact of the coalition agreement provides information on how the coalition agreement will affect businesses across a range of sectors.