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Many small and medium-sized enterprises are currently facing major economic challenges. German insolvency law offers various ways to address these challenges. One of these is self-administered restructuring. It enables companies to restructure under their own management and position themselves to remain competitive in the long term.
The ESUG (Act to Further Facilitate Corporate Restructuring) was introduced as early as 2012, and since then, the self-administered insolvency proceeding has established itself as a proven restructuring option. The self-administered proceeding must be ordered by the competent local court. The management remains in office. It guides the company through the process itself and is supported by restructuring experts, while a court-appointed trustee oversees the proceedings and safeguards the interests of the creditors. Unlike in traditional insolvency proceedings, therefore, no insolvency administrator is appointed.
Implementing Measures Early
As a restructuring tool, the self-administered insolvency proceeding is promising because it provides the company with all the restructuring tools available under insolvency law—and does so at an early stage of impending insolvency, that is, up to 24 months before insolvency actually occurs. Management can thus identify and implement restructuring measures early on. These include, among other things, measures such as improving liquidity or making necessary cost reductions to return to profitability. Old liabilities do not need to be repaid immediately; the company can terminate onerous contracts; and employees’ wages are covered by insolvency pay for up to three months.
The protective shield procedure is a special form of self-administration and is subject to stricter requirements and conditions. Both procedures enable the company to restructure and achieve sustainable recovery. More and more small and medium-sized enterprises are taking advantage of these options, and in practice, it has become clear that self-administration and the protective shield procedure offer good options for restructuring. Such a restructuring can also be beneficial for creditors, as higher recovery rates are often achieved.
Conclusion
A well-prepared self-administration opens up opportunities to save a company. The business can utilize all the restructuring tools available under insolvency law while the management remains in office. Timing is crucial and lays the foundation for a sustainable restructuring.
5 Tips for Business Owners
Business Planning as a Standard Tool
Companies should invest in modern early-warning systems—integrated planning should be standard practice.
Keeping Liquidity Under Control
The key question for an entrepreneur should always be: Can I meet my current obligations, even in the short term?
Acting Early
In light of current developments, companies should seek professional help in a timely manner and not wait until the crisis seems insurmountable.
Addressing the Root Causes of the Crisis
Bringing in external consultants helps break down outdated structures and modernize operations.
Keeping Legal Obligations in Mind
Business owners are liable from the moment a company becomes insolvent and must file for bankruptcy in a timely manner; otherwise, they face civil and criminal consequences, including personal liability and imprisonment.
