If a company is insolvent or over-indebted, it is legally obliged to file an application for insolvency proceedings. For this purpose, the procedure in the Insolvency Act (InsO) is required in detail by law. The proceedings are therefore also referred to as ‘regular insolvency proceedings’. The following article provides a brief overview of the individual procedural steps from the opening to the cancellation of the insolvency proceedings. Thus, it should inform potential creditors as well as debtors equally.

1.1. The request to initiate the procedure

The opening of insolvency proceedings is examined by the competent insolvency court exclusively on written request (§ 13 (1) InsO). Both the company concerned (hereinafter: “debtor”) and the debtor’s creditors are entitled to apply. While the debtor herself, or the members of the representative body, in certain cases makes an application, creditors are never obliged to file an insolvency application (§ 15a (1), (2) InsO). Similarly, under no circumstances will the opening of insolvency proceedings be examined ex officio by an insolvency court without an application.

If an application for the opening of insolvency proceedings has been made, it can in principle be withdrawn until the opening of the proceedings by the insolvency court (§ 13 paragraph 2 InsO). By withdrawing the insolvency application, however, any existing application obligations are restored.

1.2. The opening decision of the insolvency court

If the application for the opening of insolvency proceedings has been effectively filed, the competent insolvency court will check from this point on whether the conditions for the opening of insolvency proceedings are met. In particular, the existence of the insolvency reason specified in the insolvency application is subject to the examination. In addition, the examination focuses on whether the debtor’s existing assets are likely to be at least sufficient to cover the costs of the insolvency proceedings. Within the framework of the judicial review, the debtor makes information and cooperation obligations (§ 20 (1) InsO). In doing so, these are mainly taken into account when determining the necessary facts about the debtor’s assets, finances and earnings situation.

In the course of the decision-making process, the insolvency court may take provisional measures which pursue the aim of securing the debtor’s remaining assets for the purpose of future creditor satisfaction (§ 21 InsO). These measures include, inter alia, the appointment of a provisional committee of creditors (see paragraph 1.2.1.) and the appointment of a provisional insolvency administrator (see paragraph 1.2.2.). In addition, a general prohibition of disposal of the debtor’s assets and the prohibition of foreclosure measures in the debtor’s assets can be considered as a measure.

1.2.1. The interim creditors committee (§ 22a InsO)

First of all, the interim creditors’ committee serves already before the opening of the insolvency proceedings to safeguard the interests of the creditors. For this purpose, a provisional creditors’ committee shall be composed of creditors of the debtor. Depending on the individual case, a mandatory committee may be required. Nevertheless, a provisional creditors’ committee may be appointed upon request or a provisional creditors’ committee may not be appointed. For this purpose, the order is in any case made by the insolvency court. The criteria for a mandatory committee can be determined by the debtor exceeding certain legal limits with regard to balance sheet total, revenues and employees (§ 22a (1) InsO).

If a preliminary creditors’ committee is appointed, it has in principle the tasks and powers of a creditors’ committee in the insolvency proceedings opened (§ 21 (2) sentence 1 no. 1a InsO). Its tasks therefore include, for example, monitoring the economic development of the debtor and monitoring relevant documents. In addition, the interim creditors committee has the basic power to participate in the selection of the (provisional) insolvency administrator (§ 56a InsO). In this case, the committee can even obtain a binding of the court to the proposed person in the specific individual case by a unanimous proposal of a future insolvency administrator (§ 56a (2) sentence 1 InsO).

1.2.2. The provisional insolvency administrator

If the insolvency court appoints a provisional insolvency administrator, two different variants are to be assumed according to the legal concept. On the one hand, the statutory rule order is made as a so-called “strong insolvency administration”. In this context, the insolvency court imposes a general disposition ban on the debtor simultaneously with the appointment of the insolvency administrator. The provisional insolvency administrator accordingly becomes the direct administrative and disposable person over the debtor’s assets (§ 22 (1) InsO). The original task of the “strong” provisional insolvency administrator is in particular to carry out the examination of the expected cost recovery of the debtor’s assets with regard to the insolvency proceedings for the court.

On the other hand, the “weak insolvency administration” that is also frequently found in practice is the other alternative. As part of this variant, the debtor retains his power of disposal and can thus initially continue his business operations independently. Therefore, the insolvency court must specify the duties of the provisional insolvency administrator in this case.

1.3. The opening decision

If it emerges during the investigations during the initiating proceedings that the stated cause of insolvency exists and the debtor’s assets are likely to cover the costs of the insolvency proceedings, the insolvency court decides to open the insolvency proceedings (§ 27 InsO). In the opening decision, the insolvency administrator previously appointed pursuant to § 56 InsO must be named. Furthermore, among other things, creditors are requested to file their claims against the debtor with the appointed insolvency administrator within a certain period and in compliance with the requirements of § 174 InsO.

If, on the other hand, it is found that the debtor’s assets are not even likely to be able to cover the costs of the insolvency proceedings (court costs, costs of the insolvency administration), the insolvency court rejects the opening application due to lack of insolvency assets (§ 26 InsO).

The reporting date of the creditors’ meeting is already set by the insolvency court in the opening decision. The date usually constitutes the first meeting of creditors in the proceedings and serves for a detailed reporting by the insolvency administrator on the economic situation of the debtor and its causes (§ 156 InsO). As part of the reporting, it is also necessary to discuss which restructuring opportunities exist with regard to the debtor and which possibilities the preparation of an insolvency plan can offer.

Following the report of the insolvency administrator, the meeting of creditors has to make a resolution on various issues (§ 157 InsO). In particular, the creditors’ meeting decides on the closure or continuation of the debtor’s business operations. A decision is also taken on the preparation of an insolvency plan, including the targets relating to it. Resolutions of the creditors’ meeting shall normally be deemed to have been adopted if the sum of the claims represented by the consenting creditors is more than half of the total of the creditors participating in a vote. The content of the decisions taken is then to be implemented by the insolvency administrator (§ 159 InsO).

2.2. Application and examination of creditor claims: the establishment procedure

Already from the opening of the insolvency proceedings, the determination procedure with regard to the creditors and the amount of their claims against the debtor begins. The registration of own claims with the insolvency administrator enables creditors to participate in insolvency proceedings. However, creditors themselves must actively file their claims. Neither the insolvency court nor the insolvency administrator is obliged to carry out an ex officio investigation in this regard. From a creditor’s perspective, it is important to note that they also file claims that have already been dubbed or pending.

Following the establishment procedure, the accuracy of the amount claimed and the ranking claimed of the notified claims are examined at an examination date (§ 176 InsO). However, a detailed discussion only takes place if and to the extent that individual claims are disputed by the insolvency administrator, the debtor or a creditor in the examination date. In the examination date, creditors should therefore dispute unjustified claims of other creditors in order to increase their own participation rate in the case of distribution.

2.3. The settlement phase

The winding-up phase serves to liquidate the debtor’s assets by the insolvency administrator. Upon realization of the assets, the insolvency administrator usually begins immediately after the reporting date in accordance with the resolutions made (§ 159 InsO). In the event of immediate dissolution of the company, the assets in question, the intangible assets (e.g. trademarks, patents, copyrights) and the working capital must be disposed of. Depending on the resolution of the creditors’ meeting and the content of the insolvency plan, the liquidation can also take place by the sale of the company as a whole. An internal renovation of the debtor is also considered in individual cases. However, this type of recovery will normally only be possible if creditors waive their claims in part.

The duration of this phase of insolvency proceedings depends largely on the circumstances of the specific individual case. Depending on the extent of the recovery measures required, it may take up to several years. However, under certain legally regulated circumstances, advance payments from the insolvency estate can already be made to the creditors (§ 187 InsO).

2.4. The closing date

After completion of the winding-up phase, the insolvency court must first approve the final distribution proposed by the insolvency administrator. Subsequently, the insolvency court terminates a last meeting of creditors (§ 197 InsO). In the context of this final date, the final invoice of the insolvency administrator will be discussed. During the closing date, creditors can expressly raise objections both against the final invoice and against the final list of the insolvency administrator which is relevant for the final distribution. If such objections are raised by the eligible creditors, a decision is made by the insolvency court.

2.5. The final distribution

Subsequent to the closing date, the final distribution of the remaining partition mass to the creditors takes place in accordance with the final list established by the insolvency administrator and confirmed by the insolvency court (§ 196 InsO). The payment of the amounts determined in this way is usually made by bank transfer.

2.6. The annulment of insolvency proceedings

After the final distribution has been carried out, the insolvency proceedings will be annulled by the insolvency court (§ 200 InsO). In the general insolvency procedure, this represents the conclusion of the entire procedure. The insolvency proceedings are thus terminated.