In general, insolvency proceedings are separated into two phases – preliminary insolvency proceedings and the (actual/opened) insolvency proceedings.
After an application for insolvency, the competent court (“Insolvency Court” at the local court) orders measures to protect the debtor’s assets (e.g. appointment of a preliminary insolvency administrator, suspension of enforcement/foreclosure, etc.). The preliminary insolvency administrator also reports to the Insolvency Court if the requirements for the opening of insolvency proceedings are met.
The debtor usually stays in possession during the preliminary phase. If necessary, the Insolvency Court may rule that the right to manage and dispose of the debtor’s assets is transferred to the preliminary insolvency administrator. In this case, the preliminary insolvency administrator has almost the same powers as an insolvency administrator. Preliminary proceedings usually take 6 to 12 weeks and result in the opening of insolvency proceedings if the requirements are met.
Once the Insolvency Court has decided to open insolvency proceedings, the right to manage and dispose of the debtor’s assets is transferred to an insolvency administrator who gains full control over the debtor’s business and assets. Enforcement/foreclosure actions remain suspended. Ongoing litigation is automatically suspended but may be continued by the insolvency administrator if appropriate for the insolvency estate. The insolvency administrator will continue the business operations of the debtor if reasonable and possible or to wind up the company. The method by which the debtor’s assets are realised (e.g. liquidation, share deal, asset deal, restructuring) needs to be coordinated between the insolvency administrator, the creditors/creditors’ committee and the Insolvency Court. The insolvency administrator is obliged to assert and enforce claims of the debtor. The insolvency administrator is bound to aim for the best possible realisation in the interest of the creditors.
Any court orders on preliminary protective measures and on opening of insolvency proceedings must be announced publicly on a database accessible via https://www.insolvenzbekanntmachungen.de. However, in exceptional cases during preliminary insolvency proceedings, the Insolvency Court may refrain from making a public announcement.
Apart from the regular (preliminary) insolvency proceedings it is also possible to carry out (preliminary) insolvency proceedings in self-administration (debtor in possession). In principle, the procedure of insolvency proceedings in self-administration does not differ much from the regular proceedings described above. The main difference is that the debtor (i.e. its management) remains in charge and the Insolvency Court appoints a custodian (Sachwalter) to supervise the debtor. The right to manage and dispose of the debtor’s assets remains with the debtor. Self-administration is often used for larger companies suitable for restructuring, if the know-how of the management is necessary to continue operating the business. In such cases, an insolvency plan is frequently used to implement restructuring measures or a corporate transaction. However, insolvency plans are not limited to self-administration