What does plan insolvency in self-administration mean?
In addition to Standard insolvency, there is the option of plan insolvency proceedings in self-administration pursuant to section 270a InsO, provided certain requirements are met.
The plan insolvency procedure in self-administration is another instrument for the reorganisation of companies. The special feature of this procedure is that the company retains the power of disposal during the period of the insolvency proceedings and thus remains capable of making decisions and acting. The management may continue to represent the company externally and manage the debtor’s assets, the insolvency estate, itself. However, the management is required to engage an experienced restructuring advisor in order to quickly draw up an objective and convincing restructuring plan and subsequently support the sustainable restructuring of the company.
Instead of an insolvency administrator, the competent district court assigns a trustee to the company during the insolvency proceedings, who exercises supervisory and control functions to ensure that creditors are protected.
As an alternative to regular proceedings and a plan insolvency in self-administration, the Protective shield proceedings is also available if certain requirements are met.
The plan insolvency in the company in detail
There are some special features of plan insolvency in self-administration that distinguish the procedure from regular insolvency proceedings.
Requirements for a plan insolvency in self-administration
An essential prerequisite for plan insolvency proceedings in self-administration is the requirement that the company is not yet in insolvency, but only in a phase of impending insolvency. The company can provide proof by means of a current liquidity status.
As in the case of regular insolvency, the management of a company close to insolvency must also file an application for the opening of insolvency proceedings with the competent district court for proceedings in self-administration. It is advisable to involve an experienced reorganisation advisor for the application.
Essential prerequisites for the decision of the district court on the opening of insolvency proceedings are
- that there is actually an (imminent) insolvency or balance sheet over-indebtedness
- and that the insolvency estate is at least sufficient to cover the costs of the proceedings.
The local court also decides on self-administration. A decisive criterion for this is the confidence of the creditors in the ability of the management to successfully restructure the company. To this end, the management – with the support of an experienced restructuring advisor – must explain in a comprehensible manner that the company’s creditors will not suffer any disadvantages as a result of self-administration compared with regular insolvency proceedings. The creditors’ committee must approve the self-administration and the appointment of the specific administrator.
Procedure of a plan insolvency in self-administration
When the application is received by the local court, the court usually initiates the opening proceedings. With the initiation of the opening proceedings, the company is granted protection against enforcement so that individual creditors cannot enforce their claims against the insolvency estate during the ongoing restructuring proceedings.
The court can already order provisional self-administration for the period of the opening proceedings. This means that the management remains able to act throughout. In the next step, a creditors’ committee must be formed, consisting of at least one member of each stakeholder group (commercial banks, suppliers, customers, employees).
The company must use the time of the opening procedure to prepare a convincing restructuring concept, if possible with the support of an experienced restructuring advisor. If the restructuring concept is approved by the creditors’ committee, the company can implement the restructuring in self-administration.
With the insolvency proceedings, the company discharges itself from all unsecured liabilities. These usually include, above all, liabilities to suppliers. To create insolvency assets, personnel costs are paid by the state for a period of three months – as in a regular insolvency. The so-called insolvency money is usually paid directly to the employees by a prefinancer during this period. In return, the employees must assign their wage claims to this prefinancier, which the prefinancier uses as collateral for refinancing. The advantage for the employees is that they receive their insolvency benefits in the short term.
With strengthened liquidity, the company can take effective restructuring measures. Immediately effective measures should be distinguished from measures effective in the medium to long term. If the reorganisation plan can be successfully implemented, the reorganisation in self-administration succeeds. The administrator monitors the progress of the restructuring and the proper use of the insolvency estate. During the period of the insolvency proceedings, the management regularly informs the creditors’ committee, which must confirm the successful restructuring.
Advantages of a plan insolvency in self-administration
One advantage of plan insolvency proceedings in self-administration is that there is no mandatory limitation of enforcement protection to three months.
A major advantage of plan insolvency proceedings in self-administration for many entrepreneurs and managing directors is that plan insolvency proceedings are not published. Applicants are therefore not stigmatised in public as insolvent companies. However, investors and suppliers naturally know how to correctly classify plan insolvency proceedings in self-administration and apply the necessary caution that they also apply to regular insolvency proceedings of their clients.
It is true that careful and proper preparation is also required for plan insolvency proceedings in self-administration, without which the competent district court would reject the application. Therefore, it is advisable for plan insolvency proceedings in self-administration to call in professional support during the preparation phase. But the management keeps the lead in its hands. This can – if suitable – be a decisive advantage for the company and for the shareholders.
The costs of plan insolvency proceedings in self-administration are lower than the costs of regular insolvency proceedings. This protects liquidity and increases the chances of reorganisation. A larger distributable estate can be created.
The duration of plan insolvency proceedings in self-administration is usually shorter (6-7 months) than the duration of regular insolvency proceedings. This has a positive effect on business relations and supports the motivation of the workforce.
Conclusion on plan insolvency in self-administration
The plan insolvency procedure in self-administration is an interesting alternative to the standard procedure. If the conditions for a plan insolvency procedure in self-administration are met, the company can benefit from it.