On 13 October 2008, in connection with further rules to stabilise the financial market, the Federal Cabinet decided to amend the Insolvency Code to adjust the concept of over-indebtedness.
"The current financial crisis has led to significant losses in value, especially in shares and real estate. This can lead to balance sheet over-indebtedness for companies that are particularly massively affected by these losses. If these losses cannot be offset by other assets, the managing directors of these companies are obliged under current law to file for insolvency within three weeks of the occurrence of this accounting over-indebtedness. This applies even if a positive continuation prognosis can be made for the company as such and the turnaround is already apparent in a few months. In future, such companies should no longer be obliged to file for insolvency immediately," said Federal Minister of Justice Brigitte Zypries.
"Of course, not only financial market companies benefit from this new regulation, but also all other companies, so it also benefits small and medium-sized enterprises from other sectors in particular. In this way, we are also helping a medium-sized craft enterprise in the legal form of a GmbH (limited liability company) that is perhaps formally over-indebted at the moment, but has been awarded a major contract. Under current law, it would have to file for insolvency within three weeks, although it is already clear today that once the major contract has been completed, the over-indebtedness will no longer apply only a few weeks later," Zypries emphasised.
The proposed amendment also benefits, for example, a company that has developed a new product to market maturity and for which there is already a lively demand at the first presentation. It can also benefit an exporter who has succeeded in entering a completely new market. In all of these examples, there may be over-indebtedness on the balance sheet at the moment, but the forecast that they will be able to service their liabilities in both the current and the coming business year is justified.
The concept of over-indebtedness under insolvency law should therefore be adapted so that companies that are likely to be able to make their payments in the medium term do not have to go to the insolvency judge even if there is a temporary balance sheet shortfall.
This regulation paves the way for the restructuring of healthy companies, especially in times of crisis. This effectively flanks the regulations on the financial market stabilisation fund, which also enable systemically distressed companies with a clear restructuring perspective to access this fund.
Concept of over-indebtedness: Over-indebtedness within the meaning of insolvency law exists if the debtor's assets no longer cover the existing liabilities (section 19 (2) sentence 2 Insolvency Code, InsO).
Source: Press release of the Press and Public Relations Department of the Federal Ministry of Justice of 13 October 2008,
Goldberg Attorneys at Law, Wuppertal-Solingen 2008
Attorney at Law Michael Ullrich, LL.M. (Information Law)
E-mail: m.ullrich@goldberg.de
