1.2.1, German)'

The German Insolvency Code (liisolvt'iizonlnnng- InsO) entered into force in 1999.

It generally aims to ensure that creditors have at their disposal a single procedure which

enables them to arrive at what they regard as the optimal manner of deployment.

Consequently, German insolvency proceedings a r e ' n e u t r a l ' a s to the mode of deploym

e n t . ' - Creditors decide which mode - liquidation or continuation - and what form

of that mode, best serves their (collective) interests.

In order to present the creditors as a group with a genuine choice as to manner of

deployment, a general stay of proceedings prevents individual creditors from

dismembering the estate. At the same time the insolvency administrator (IHSOIWUZverwalter)

is expected to continue to operate the business, until and unless the creditors

decide otherwise. This implies that the stay of proceedings cannot remain limited

to unsecured creditors. Upon commencement of the proceedings, the administrator

therefore also gains the power of disposal over and use of all movable assets that are

I From Struggle to Co-operation

in his or her possession and subject to a security right. ' The same is true for claims

assigned tor security by the debtor." In respect of immovable property, the administrator

may request suspension ot realisation by the holder ot the security interest. The

debtor's insolvent estate is thus kept largely intact, preserving reorganisation as an

option tor deployment.

No later than three months after commencement ot proceedings, the general body

of creditors decides, on the basis of a report by the administrator, on how to deploy

the debtor's estate." They may chose to liquidate the assets, to sell off (part of) the

business as a going concern or to reorganise the business. The decision and the course

of further proceedings are laid down in the Insolvency Phn (Insolvenzplan).' Although

the possible contents of the Plan are virtually unlimited, it is of particular importance

where creditors decide to reorganise the business in the hands of the debtor. "" Reorganisation

requires the state of insolvency to be resolved. If reorganisation is realised

through the sale of the business to a third party, it suffices to ensure that liabilities are

not being transferred to the b u y e r . " Otherwise the creditors must release the debtor

from (part of) his/her debts. The Plan allows creditors to agree on any necessary

adjustment of debts, including the (partial) release or deferment of secured claims.'"

The Plan is in principle drawn up by the administrator.'1 It is subject to approval by

the creditors, who for these purposes are divided into various c l a s s e s . A p p r o v a l of

the Plan requires - in each class of creditors - a simple majority ot creditors, representing

more than half of the total amount of claims held by voting c r e d i t o r s . 1 . If a

majority of classes has approved the Plan, other classes may be torced to accept it as

well. I'h is, however, is only possible when the creditor class is not (prospectively) worse

off than it would have been without the Plan and its relative position as against other

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creditor classes is e n s u r e d . " After approval by the creditors, the Plan must be confirmed

by the court. Again, confirmation wall be denied if a creditor would be worse

off with th an without the Plan. Satisfaction of the claims in accordance with the Plan

will release the debtor from his/her remaining liabilities."

As far as distribution is concerned, the introduction of the Insolvency Law has done

away with most priorities. Lssentially the only ones remaining are the costs of the proceedings,

claims arising from executory contracts the administrator has elected to

perform, and claims arising from a scheme of dismissal agreed between the administrator

and the works council.1 Moreover, the autonomy of creditors essentially ensures

that no redistribution takes place in favour of non-creditors. Neither is the value of

secured claims affected in favour of unsecured claims. No redistribution of secured

to unsecured creditors or other parties should take place." The administrator does

have the right to sell (movable) assets covered by a security right. However, the

proceeds, minus the costs of realisation, are for the secured creditor.'" Likewise, i f t he

administrator uses the asset in a different manner, s/he is to compensate the secured

creditor for any loss of value.'1 1