International Legislative Update

Germany—Major German insolvency law reforms designed to facilitate corporate group insolvencies will become effective on April 21, 2018. When the reforms come into force, they will supplement and complement the Recast European Union Insolvency Regulation that became effective on June 26, 2017.

The new German legislation will permit corporate group insolvencies with individual proceedings, on an entity-by-entity basis, presided over by a single German insolvency court and administered by a single insolvency administrator, unless a unitary approach is impracticable. In the case of impracticability, the courts and administrators involved are obligated to cooperate for the purpose of coordinating the separate proceedings.

The new law also provides a mechanism for creating group creditors' committees, the role of which is to support insolvency administrators appointed in individual insolvency proceedings and to ensure that such proceedings are conducted in a coordinated manner. Each insolvent member of a group and each individual creditors' committee has the ability to initiate a "coordination proceeding" designed to facilitate the individual insolvency proceedings and to maximize creditor recoveries.

The new law does not permit substantive, as distinguished from procedural, consolidation of the group member debtors. Instead, the estates of each entity remain separate, and creditors can receive distributions only from the particular debtor(s) against which they hold claims. This reform is particularly significant because reliance on insolvency protocols is uncommon in German insolvency proceedings.

The legislation defines a "business group" (Unternehmensgruppe) as a group of legally autonomous businesses whose center of main interests is in Germany and who are directly or indirectly connected with each other by means of: (i) the ability to exert a dominating influence; or (ii) centralization under joint management (einheitliche Leitung).

Among the new law's key provisions are the following:

Group venue (Gruppen-Gerichtsstand). If a member of a corporate group files an insolvency proceeding in a particular court, that court can declare that it also has jurisdiction over all the other members of the corporate group. There are certain safeguards designed to prevent smaller subsidiaries from being used to facilitate forum shopping. If the insolvency proceedings over the group members are not procedurally consolidated in one insolvency court, all...