Definition and Basics of Self-Administration
Die Self-administration is a procedural institute under German insolvency law. It enables an insolvent debtor, under court supervision, to conduct its own insolvency proceedings independently without the appointment of an insolvency administrator. Instead, the debtor itself—possibly with the assistance of a so-called custodian—manages and liquidates its insolvency estate. Self-administration thus supports the restructuring and continuation of the business and offers an alternative to the traditional standard insolvency proceedings.
Legal Foundations
Statutory Basis
The regulations on self-administration are set out in §§ 270 et seq. of the Insolvency Code (InsO). Since the 2012 insolvency law reform, self-administration has been particularly strengthened by the Act to Further Facilitate the Restructuring of Companies (ESUG). The aim is to promote entrepreneurial initiative as well as to facilitate and accelerate corporate restructuring in insolvency proceedings.
Requirements and Application
Self-administration may be requested either from the outset together with the insolvency application (§ 270a InsO) or later during the proceedings. The application can be submitted by the debtor itself. The insolvency court examines whether self-administration can be ordered. It is excluded if circumstances are known which indicate that the order would lead to disadvantages for the creditors (§ 270 para. 2 InsO).
Debtor Requirements
The debtor must demonstrate that it is capable of carrying out self-administration properly and in the best interests of all creditors. This particularly requires the submission of a meaningful plan for the continuation of the business and transparency regarding its financial situation.
Course of the Self-Administration Proceedings
Role of the Custodian
Unlike in standard insolvency proceedings, no insolvency administrator is appointed in self-administration. Instead, a court-appointed custodian supervises the procedure (§ 274 InsO). The custodian acts as a supervisory authority, in particular examines the debtor’s financial situation and management, but does not have the authority to issue instructions.
Rights and Duties of the Debtor
The debtor retains the right to manage and dispose of the assets forming part of the insolvency estate (§ 275 InsO). The debtor independently manages and distributes the estate in its own name and on its own account. The debtor is obliged to keep the court and the custodian regularly informed and to grant access to the accounts.
Creditor Protection Measures
The court can revoke self-administration at any time, for example in the event of violations of legal provisions or disadvantages for creditors. In addition, creditors may exert influence on the course and decision to revoke self-administration via the creditors’ committee (§ 277 InsO).
Special Forms: Provisional Self-Administration and Protective Shield Proceedings
Provisional Self-Administration
In practice, the application for provisional self-administration is widespread (§ 270b InsO). Upon the commencement of proceedings, the debtor is already permitted during the insolvency application process to continue business operations under court and custodian supervision. The goal is seamless restructuring planning.
Protective Shield Proceedings
Das Protective Shield Proceedings (§ 270d InsO) represent a special form of self-administration. It aims at early-stage restructuring and is only possible if there is no insolvency, but merely impending insolvency or over-indebtedness. At this stage, the debtor is granted so-called provisional creditor protection in order to prepare a restructuring plan within three months.
Relationship to Insolvency Code and Restructuring Law
Comparison to Standard Insolvency
In contrast to self-administration, in traditional standard insolvency proceedings all powers of disposal are transferred to the court-appointed insolvency administrator (§ 80 InsO). Self-administration thus constitutes an exception, leaving the debtor in a stronger position and ensuring entrepreneurial agency.
Connection with European Guidelines
Self-administration corresponds in many respects to European requirements regarding corporate restructuring and creditor involvement. With the implementation of the EU Directive on preventive restructuring frameworks, this legal institution has also been further strengthened under German law.
Revocation and Termination of Self-Administration
Self-administration may be revoked by the court if its requirements cease to exist or if the proceedings are being conducted abusively. Upon revocation, the proceedings switch to standard insolvency with an insolvency administrator (§ 272 InsO). Self-administration usually ends with the termination of the insolvency proceedings or the final confirmation of the insolvency plan.
Significance and Practical Relevance
Self-administration has gained particular significance in practice as a result of changes to the law. It is primarily used by larger companies and corporate groups whose management wishes to implement restructuring on their own responsibility. Its area of application is mainly insolvency in self-administration for the purposes of business continuation, restructuring, and creditor satisfaction.
References and Web Links
- Insolvency Code (InsO), §§ 270 et seq.
- Act to Further Facilitate the Restructuring of Companies (ESUG)
This article was created for a comprehensive legal lexicon and provides a thorough and detailed overview of the legal institute of self-administration in German insolvency law.
Frequently Asked Questions
What legal requirements must be met for self-administration to be ordered?
In the legal context, the Insolvency Code (InsO), particularly in §§ 270 et seq., regulates the requirements of self-administration. The insolvency court can order self-administration upon the debtor’s application if there are no circumstances suggesting that the order would disadvantage the creditors. Legal requirements include, in particular, a properly filed application, submission of documents substantiating self-administration, and credible demonstration that self-administration does not conflict with creditor interests. The application must be submitted in writing by the debtor and must include a self-administration plan. Furthermore, there must be no reason to assume that the debtor will act in breach of duty or that self-administration could cause delays or disadvantages in the proceedings (§ 270b InsO). The court regularly obtains the opinion of the provisional creditors’ committee or otherwise examines the interests of the creditors. The court also appoints a provisional custodian for supervision.
What are the duties of the custodian in self-administration?
The custodian plays a central role in the self-administration procedure pursuant to § 274 InsO. He is appointed by the insolvency court and acts in the legal sense as a supervisory body. His duties include overseeing the management of the debtor, whereby he has no right to issue instructions but has extensive supervisory powers. The custodian, in particular, examines the financial circumstances of the debtor, monitors compliance with insolvency law provisions by the debtor, and undertakes supervisory functions with regard to the preservation of the assets. The custodian also has numerous reporting obligations to the insolvency court and the creditors. In connection with the insolvency plan, he prepares an opinion for the court, mainly regarding the prospects of success and the proper conduct of the debtor’s management.
What special obligations does the debtor have during self-administration?
During self-administration, the debtor remains, according to § 270 InsO, in control of its business, but assumes, in contrast to standard insolvency proceedings, extended insolvency law duties. In particular, the debtor is obliged to perform all legal acts in the interest of all creditors, to ensure proper accounting and reporting, and to provide comprehensive information to the custodian. The debtor may not undertake any actions that would diminish the insolvency estate or delay the proceedings. In addition, the debtor has special reporting, cooperation, and information duties. For example, significant transactions, such as the sale or encumbrance of real estate, often require the consent of the custodian and/or the creditors’ committee (§ 275 InsO).
How are creditors involved and supervised in self-administration?
Creditors play an important participatory role in self-administration from a legal perspective. They are generally represented by a creditors’ committee, which may be appointed by the court as early as the initiation of proceedings (§§ 22a, 67 et seq. InsO). The committee has far-reaching supervisory and participatory rights, for example regarding the appointment and removal of the custodian or the conduct of significant transactions by the debtor. In addition, the committee receives extensive information rights concerning the financial situation of the debtor and the status of the insolvency proceedings. Creditors have the right to deny or revoke self-administration in individual cases if this appears necessary to protect their interests.
Under what conditions can the insolvency court revoke self-administration?
The revocation of self-administration is regulated in § 272 InsO. The court can revoke self-administration in particular if subsequent circumstances become known that would have precluded the order of self-administration, or if the debtor violates its insolvency law duties, such as endangering the estate, violating information obligations, or obstructing the custodian. Revocation may also be requested by the custodian or the creditors’ meeting if a corresponding serious reason exists. Upon revocation, a regular insolvency administrator is typically appointed, who then takes over the administration and liquidation of the estate.
How does self-administration differ from protective shield proceedings?
Although both self-administration and the protective shield proceedings are instruments of the Insolvency Code and serve to support restructuring processes, there are legal differences. While self-administration constitutes a procedural type under §§ 270 et seq. InsO, the protective shield proceedings (§ 270b InsO) are a special preliminary procedure that may be applied for by the debtor prior to the initiation of insolvency, provided there is no insolvency but only impending insolvency or over-indebtedness. In protective shield proceedings, the debtor enjoys broader protection against enforcement actions and is granted a period of up to three months to submit an insolvency plan, with certain increased requirements regarding the forecast for business continuation and the debtor’s suitability. Self-administration can be applied for within the context of protective shield proceedings but is also available outside of this specific preliminary procedure.
What legal consequences apply to ongoing contracts during self-administration?
Within the framework of self-administration, the same insolvency law provisions for ongoing contracts apply as in standard proceedings pursuant to §§ 103 et seq. InsO. The debtor (now under self-administration) may freely decide after the opening of proceedings whether to fulfill or reject mutual contracts. In the event of non-fulfillment, the contractual partner is entitled to claims for damages as insolvency claims. Special termination rules with shortened notice periods apply to lease and rental contracts and employment relationships. The custodian also reviews whether the continuation or termination of existing contracts is compatible with the goal of best satisfying the creditors’ interests.
