Mr Stefan Sax

Stefan Sax


Insolvency & Restructuring

ECJ opines on insolvency-related ancillary claims against members of creditors' committees
European Union | June 08 2018

The European Court of Justice recently extended the international jurisdiction of the court where the insolvency was opened through so-called 'annex competence' and insolvency-related 'ancillary claims and proceedings'. This decision clarifies that creditors' committee member activities are inseparably linked with insolvency proceedings and their effects. Although the case at hand viewed the creditors' committee as compulsory, the same should also apply to members of a voluntary creditors' committee.

Berlin to Korneuburg: NIKI's insolvency proceedings
Germany | May 25 2018

Charlottenburg Local Court ordered insolvency proceedings for safeguarding NIKI Luftfahrt, a company incorporated under Austrian law with its registered office in Vienna. At the time, its indirect shareholder, Air Berlin (with its registered office in Berlin), had already commenced proceedings in Germany. While Charlottenburg Local Court was satisfied that NIKI's centre of main interest was in Berlin, the Berlin Court of Appeal decided that it had been wrong to assume jurisdiction.

Increased liability for managing directors – bow wave theory rejected by court
Germany | February 23 2018

German regulations obliging managing directors to monitor the liquidity of a company during crisis situations are typically strict and give rise to the risk of personal liability in cases of non-compliance. Legislation requires company management to file for insolvency proceedings without undue delay in the case of illiquidity or over-indebtedness. Continued trading where the company is considered to be materially insolvent can have serious consequences.

Restructuring Order applies only where binding ruling exists
Germany | December 15 2017

On February 9 2017 the Great Senate of the Federal Fiscal Court published a decision stating that the Restructuring Order was illegal. On June 27 2017 the legislature introduced new legislation which provides that the tax authorities may waive taxes or assess taxes at a lower level. However, the new legislation can be applied only where creditors have waived their claims after February 8 2017.

Liability claims against managing directors
Germany | October 06 2017

In order to maintain an insolvency estate and achieve the utmost satisfaction of all creditors, German legislation has ratified various liability claims against managing directors for payments made after their company has become illiquid or been deemed to be overindebted. However, according to recent case law, one thing that all of these claims have in common is that managing directors cannot be held liable for payments made that result in an equivalent compensation for the company.

Federal Ministry of Finance Restructuring Order violates tax law – what next?
Germany | May 26 2017

According to the Federal Ministry of Finance's Restructuring Order, a tax deferral or exemption for restructuring profits is possible if the restructuring needs of the company are clear, a complete or partial waiver of the debts takes place, the creditor's intention to restructure is apparent and the tax deferral or exemption is linked to the restructuring and necessary for its successful implementation. However, the Great Senate of the Federal Fiscal Court recently held that the Restructuring Order is illegal.

New insolvency law for groups of companies finalised
Germany | May 19 2017

The Law for the Facilitation and Management of the Insolvencies of Groups of Companies will enter into force in April 2018. The new law places no emphasis on a consolidation of the insolvency estates of certain group companies. Instead, it firmly sticks to the principle of 'one company, one insolvency proceeding'. Consequently, an insolvency of a group of companies will still lead to multiple individual insolvency proceedings.

New insolvency clawback rules coming soon
Germany | March 17 2017

Parliament recently concluded the reform of the insolvency clawback rules introduced by the federal government at the end of 2015. The reform is expected to come into force in the first half of 2017. Its declared objective is to create greater legal certainty and transparency regarding clawback practice for all kinds of market participant. But can the reform live up to its promise?

Federal Ministry of Finance Restructuring Order violates tax law
Germany | March 03 2017

According to the Federal Ministry of Finance's Restructuring Order, a tax deferral or exemption for restructuring profits is possible if the restructuring needs of the company are clear, a complete or partial waiver of the debts takes place, the creditor's intention to restructure is apparent and the tax abatement is linked to the restructuring and necessary for its successful implementation. However, the Great Senate of the Federal Fiscal Court has held that the Restructuring Order is illegal.

Federal Court of Justice clarifies calculation of compensation payment
Germany | January 27 2017

In a recent decision, the Federal Court of Justice clarified that no provision in the Insolvency Code clarifies how a compensation payment for deterioration is to be calculated. The court held that it is within the discretion of the court to calculate the amount of the compensation payment based on both the official tables for the depreciation of fixed assets and the actual deterioration of the assets.

Berlin Higher Regional Court takes position on maximum term for bridging finance
Germany | November 11 2016

A German court recently limited the permissible term allowed for bridging finance loans and declared a loan defined as 'bridging finance' to be void for not meeting the permissible term requirements. The court justified its decision by stating that the loan was not aimed solely at bridging a liquidity gap to facilitate the possibility of effectively restructuring the distressed business, but also at ensuring the survival of the business.

Guidelines for creditors participating in financial restructurings
Germany | September 09 2016

Case law has consistently set out the terms on which the refinancing or financial restructuring of a distressed company can take place in order to avoid lender liability and prevent the clawback of payments made under the finance agreements. The Federal Court of Justice has now outlined certain guidelines and rules of conduct which creditors should observe in the context of financial restructurings.

Refinancing debt in Germany – how secure is security?
Germany | July 01 2016

The Dusseldorf Higher Regional Court recently dealt with a challenge to security under a new loan provided by a bank for the purpose of repaying outstanding claims. The court found no direct proof of either the debtor's intention to disadvantage its creditors or the bank's awareness thereof. The court had to ascertain whether the insolvency administrator's burden of proof was reduced due to the fact that the security assignment constituted an unusual transaction.

Last-minute actions to avoid claw-back risks
Germany | May 20 2016

The Federal Court of Justice recently clarified the conditions applicable to an 'unusual' transaction that may later qualify it as an 'ordinary course' transaction. The judgment is particularly important in the construction industry, where this type of arrangement – allowing a subcontractor to step in where the main contractor is in distress – is useful, as subcontractors can effectively protect themselves against a general contractor's crises or insolvency.

Reform Act on Insolvency Avoidance Rules
Germany | March 11 2016

The federal government recently introduced a reform act which aims to improve legal certainty in connection with the existing avoidance rules under the Insolvency Code. The government has indicated that the act is intended to be a "selective readjustment" of avoidance rules. Measures proposed in the act appear unlikely to resolve all the issues that arise under avoidance provisions, but they are a step in the right direction.

A lot can change in a year
Germany | January 22 2016

The Federal Court of Justice recently dealt with a clawback claim brought by an insolvency administrator against a shareholder of a debtor in insolvency proceedings. The court found that the transfer of the shareholder position before payment of the last instalment was irrelevant and that the insolvency administrator's ensuing clawback rights would persist as long as insolvency proceedings were opened within one year after the shareholding had been disposed of.

IDW S 6 Standards within scope of insolvency challenge rights
Germany | December 04 2015

Insolvency law provides for a clawback right in respect of transactions negatively affecting the insolvency estate and made within certain hardening periods before filing for insolvency. The Munich Higher Regional Court recently decided on whether the formal requirements of the Institute of Public Auditors S 6 Standards must be met in order to accept a restructuring plan as the basis of a serious restructuring attempt.

Equitable subordination of leased assets – the end of the story?
Germany | October 02 2015

The Federal Court of Justice recently stated that the lease of assets by shareholders to their subsidiaries no longer falls under the principle of equitable subordination. The court stated that shareholders are no longer considered subordinated creditors in this respect. Thus, rental payments made in the year preceding the opening of insolvency proceedings cannot be clawed back on the basis of the rules applying to the repayment of a shareholder loan.

Groundbreaking decision on requirements for subordination agreements
Germany | July 31 2015

A recent Federal Court of Justice ruling sets out the requirements for subordination agreements designed to avoid insolvency. The court used the opportunity to clarify a number of basic and previously disputed questions concerning the nature and requirements of such agreements, which are a typical restructuring tool for stabilising a company in a crisis.

Self-administration proceedings: creditor support determines success
Germany | June 19 2015

There is some uncertainty in self-administration proceedings as to the scope and content of a 'substantial impairment of interests', which will lead the court to refuse an application for self-administration and, where alleged by creditors, will trigger severe consequences for the restructuring process. A recent Cologne District Court decision has further clarified the definition of a 'substantial impairment of interests'.

How market-value considerations could relieve directors from personal liability
Germany | February 27 2015

In a decision which is expected to bring major changes to the regime of directors' liability, the Federal Court of Justice recently changed its previous jurisprudence on payments made after the occurrence of mandatory insolvency reasons. The court clarified that directors must reimburse payments after the occurrence of illiquidity or overindebtedness only if those payments were not compensated.

Insolvency plan proceedings – it ain't over 'til it's over
Germany | January 16 2015

German insolvency law offers insolvency plans as a means to restructure a company in insolvency proceedings. An insolvency plan can include solutions that are almost as flexible as an out-of-court restructuring agreement. Recent amendments to insolvency law have extended the array of restructuring options and consequently insolvency plans are gaining in popularity.

Insolvency avoidance rules re-loaded?
Germany | November 28 2014

The Federal Court of Justice recently ruled that the presumption of an intentionally disadvantageous transaction based on awareness of impending illiquidity can be rebutted if the debtor has made a congruent payment against a fair and immediate consideration which was essential for the continuation of the business and beneficial to the creditors.

Could restructuring efforts eliminate intention to disadvantage?
Germany | October 03 2014

The Federal Court of Justice has held that knowledge of impending illiquidity leads to a strong presumption of the debtor's intention to disadvantage its creditors; even liabilities which will become due in future must be taken into account when considering whether illiquidity may occur under certain circumstances. Such circumstances have a major impact on restructuring efforts and the risk of clawbacks.

Schemes of arrangement – another step forward
Germany | June 27 2014

A recent decision concerning the APCOA Group is the latest case to illustrate the willingness of English courts to accept jurisdiction over non-UK companies. The case demonstrates the need to develop the government draft bill on group insolvencies into law in Germany. It clearly shows the need for German insolvency law to provide for pre-insolvency restructuring proceedings and insolvency laws for group companies.

ECJ answers German question on international jurisdiction of insolvency courts
Germany | May 23 2014

Following a referral from the Federal Court of Justice, the European Court of Justice recently ruled on whether the EU Insolvency Regulation is applicable where insolvency proceedings have been opened in a member state, but the place of residence or registered office of the defendant is not in a member state.

Use of insolvency plans as corporate restructuring tool
Germany | March 28 2014

Suhrkamp has made legal history by initiating insolvency protection proceedings. It is at the centre of a power struggle between its two rival shareholders, which are attempting to wrest control over its business operations. The proposed insolvency plan provides for transformation from a limited commercial partnership into a German stock corporation. The dispute is unlikely to be resolved in the foreseeable future.

How to structure contractual trust agreements
Germany | February 28 2014

Contractual trust agreements are often used by German companies to set up a pension scheme in a tax-efficient manner to protect pension claims in the event of an employer's insolvency. A recent court decision shows that for a contractual trust agreement to be upheld, it is essential to properly implement all elements of the twofold trust into the underlying trust agreement.

Group insolvencies – recent regulatory developments
Germany | November 08 2013

The Federal Ministry of Justice recently published a discussion paper on the Act for the Facilitation of the Management of Corporate Group Insolvencies. The paper proposes the introduction of rules to enhance the coordination of multiple insolvency proceedings in domestic group settings.

Debtor empowered to incur preferential claims against insolvency estate
Germany | August 30 2013

The Duisburg Regional Court recently ruled that an insolvency court can empower the insolvency debtor to incur certain predetermined preferential claims. The decision will help to shape prevailing opinion after several local insolvency courts arrived at divergent rulings. For now, debtors should seek constructive dialogue with the competent local insolvency court before filing the petition for the opening of insolvency proceedings.

Shareholder and assignee jointly and severally liable for insolvency claw-back claim
Germany | May 10 2013

The Federal Supreme Court recently underlined the importance of commercial considerations in the context of insolvency avoidance rules regarding the repayment of shareholder loans. The court explicitly outlined that a commercial approach is required in order to prevent any potential strategies to structure around the German principles of equitable subordination.

Federal Supreme Court decides on validity of insolvency-related termination clauses
Germany | March 15 2013

The Federal Supreme Court recently ruled that a termination clause was invalid pursuant to Section 119 of the Insolvency Code, as it was based on an insolvency-related termination event which limited the insolvency administrator's right to choose whether to perform the supply contract in accordance with the code. The court's judgment is likely to cause suppliers to monitor the financial situation of their customers more carefully.

Whose interests must be considered by adviser to financially distressed company?
Germany | December 07 2012

When a company is in financial distress, the shareholders and management must decide to what extent they will subordinate their own interests to the company's interest in survival. It is vital for them to know whether they can rely on advice given by company advisers. A recent Federal Supreme Court judgment provides insight to advisers and stakeholders on how best to protect their interests in a distressed situation.

Does subordination cause taxable profits?
Germany | September 28 2012

Subordination agreements between a debtor and its shareholders are a frequently used restructuring tool for German companies. A Federal Finance Court decision has highlighted that the decisive factor in the treatment of debt is the wording of the relevant subordination provision and, in particular, the circumstances under which the debtor must repay the subordinated claim.

Court refuses to recognise an English scheme of arrangement
Germany | August 03 2012

The German Federal Court of Justice has refused to recognise an English scheme of arrangement in relation to the German branch of an insurance company, finding that such recognition would be contrary to EU Regulation 44/2001. The judgment was based on specific insurance-related provisions of the Judgment Regulation, suggesting that outside the scope of these specific provisions, schemes will be recognised in Germany.

Courts adopt clear position on subordination of shareholder loans
Germany | May 18 2012

The Federal Court of Justice has clarified that a former shareholder will be subordinated to its claim under a loan only for a one-year period. The ruling has been widely accepted by German legal scholars and practitioners. However, some legal authors have criticised the ruling, since they think that it could create questionable incentives for delays in filings for insolvency in order to overcome the one-year period of subordination.

Reform Act improves creditor participation in selection of insolvency administrator
Germany | March 09 2012

The Reform Act on insolvency law, which aims to facilitate the restructuring of companies within insolvency proceedings, recently entered into force. The main scope of the act is to strengthen the creditors' influence throughout preliminary insolvency proceedings, particularly by involving the creditors at an early stage in the selection of the insolvency administrator.

Reform act on restructuring insolvent companies: upcoming changes
Germany | December 09 2011

Parliament recently adopted various changes to the insolvency law, which aim to facilitate the restructuring of operating companies. The revisions are intended to improve the prospects of a successful restructuring; involve the debtor and creditors in the selection of the preliminary insolvency administrator; and improve the reliability and predictability of insolvency proceedings.

Federal Court of Justice clarifies trustors' rights of segregation
Germany | October 07 2011

According to the Federal Court of Justice, as soon as a trustee chooses to violate its obligations under the contractual trust agreement and decides to use the trust assets at its own discretion instead of administering them for the trustor in accordance with the trust arrangements, the assets can no longer be considered to belong to the trustor, which must therefore lose its rights to segregate them in case of insolvency.

Courts accept transferability of restitution claims resulting from clawback
Germany | July 29 2011

Following a ruling by the Federal Court of Justice, when faced with a contestable transaction an insolvency administrator now has a second option to satisfy the creditors. Instead of pursuing claims for restitution before a national court, it may choose to sell them in order to increase the value of the insolvency estate immediately.

Three-week payment period permitted for crisis-ridden limited liability company
Germany | June 17 2011

Managing directors of a crisis-shaken company are obliged to file for the opening of insolvency proceedings within three weeks of an insolvency event arising. Managing directors are personally liable for any payments which they make out of the company's assets during that three-week period. However, a recent court ruling held that payments made by managing directors with a view to an intended restructuring are permissible.

Draft act for insolvency law reform
Germany | April 08 2011

The federal government recently published the first draft of a new act to facilitate the restructuring and the reorganisation of enterprises. The purpose of the draft act is to improve the prospects of a successful restructuring process, to involve the debtor and the creditors in the selection process of the (preliminary) insolvency administrator and to improve the reliability and predictability of insolvency proceedings.

Consultation paper on insolvency law reform issued
Germany | November 05 2010

The Ministry of Justice has issued a consultation paper on insolvency law reform. While many insolvency lawyers and academics have acclaimed the proposals, a significant number of insolvency administrators and judges have voiced their opposition to the paper. It remains to be seen when and how the various elements of the paper will be manifested in a draft bill.

Securitisation & Structured Finance

Exit strategies for non-performing real estate financings
Germany | February 08 2011

Irrespective of certain weaknesses that German restructuring and insolvency law may have, creditors whose claims are secured by land charges can nevertheless choose between several feasible possibilities for realising encumbered real estate. German law tends to be somewhat reluctant to allow creditors to grasp direct control of real estate. As such, the Federal Ministry of Justice's recent proposals should be welcomed.