Protective Shield Proceedings in Accordance with § 270b InsO

In some countries, there are special forms of insolvency proceedings. As an example, in Germany, in addition to regular insolvency and insolvency proceedings in self-administration, there is the option of protective shield proceedings pursuant to Section 270b InsO, provided that certain requirements are met. The protective shield proceedings are also known as “ESUG proceedings”. ESUG is a law to further facilitate the restructuring of companies.

Protective shield proceedings do not sound like insolvency and are therefore sought by many entrepreneurs and managing directors. It is considered a restructuring procedure. But don’t be fooled. Protective shield proceedings also lead to insolvency proceedings if they fail. When insolvency proceedings are opened, the company’s insolvency is also published as such.

As in the case of regular insolvency and in the case of insolvency proceedings in self-administration, the management of a company close to insolvency must also file an application for the opening of protective shield proceedings. And as with regular insolvency and insolvency in self-administration, a trustee is appointed by the local court as a provisional insolvency administrator. For protective shield proceedings, unlike for insolvency proceedings in self-administration, the company has a right to propose the administrator.

However, the protective shield proceedings pursuant to Section 270b InsO enable companies close to insolvency to prepare for restructuring under the protection of the Insolvency Code without being subject to restrictions under insolvency law.

The formal requirements for protective shield proceedings under section 270b InsO are more stringent than those for insolvency proceedings in self-administration. In particular, the applying company must not yet be in a state of insolvency and thus not yet in insolvency, and restructuring must not be ruled out. For this proof, a confirmation from a specialist lawyer for insolvency law, an auditor or a tax consultant must be submitted. Pay attention to the selection of the certifier. A restructuring consultant currently working for your company should not issue the confirmation because the probability of rejection by the district court would be high. It should be an independent certifier. Note that it takes time to prepare such a certification. You can expect about three weeks. It is not impossible that courts will have a third party review the submitted certificate, which again is time consuming. During this time, the economic situation of your company may not improve. You will lose this time for an application for regular proceedings or for proceedings in self-administration in accordance with § 270a InsO. Furthermore, the certificate triggers additional costs.

During the time until the certificate is accepted, the company is not under the protective shield. The choice of insolvency proceedings in self-administration in accordance with Section 270a therefore leads to protection more quickly and securely.

As with regular insolvency and insolvency proceedings in self-administration, insolvency benefits are usually paid to employees by a pre-financier. In protective shield proceedings, however, the pre-financier does not know if and when the insolvency proceedings will be opened. For this reason, many pre-financiers tend to initially pay out only part of the insolvency money to the employees. In such cases, the company has to pay the rest of the wage and social security amounts itself, which puts a strain on liquidity.

In each country, local regulations should be applied.


What are your challenges?

Restart Dialogue