Insolvency management

The successful management of insolvency proceedings requires specialist knowledge of the applicable insolvency law. It also requires an understanding of the immense psychological pressures faced by decision-makers and employees involved in the insolvency process.

Although insolvency laws set out provisions to enable the successful repositioning a company in its marketplace, the German legal principle of creditor protection entails that even planned and necessary insolvency measures might not prevent a compulsory buyout of the original owner.

Even when the appointed insolvency administrator recommends keeping the managing director and/or owner in place, it is the competent court that rules and does so according to Germany’s predominant creditor protection objective.

Any insolvency procedure also presents the company’s management with significant risks of personal liability exposure, with liabilities that can quickly reach seven-figure sums. Many court-appointed administrators tend to skirt around this issue at the beginning of an insolvency procedure.

Also worth noting is that insolvency administrators operate within a highly specialised, complex legal framework, the depths and practical implementation of which are generally unfamiliar to companies, managing directors and board members, as well as the more generalist legal, tax, banking and financial advisers

And whilst court-appointed administrators are typically seasoned lawyers, experts in their legal field, they lack management consultants’ experience in advising on the restructuring and successful reorganisation of a business.

The majority of administrators will approach the restructuring process from a legal perspective, focusing on the restructuring steps allowed by the applicable insolvency law. These, however, seldom align with sustainable, economic and strategic restructuring measures.

Losing control over the potentially enormous and often underestimated cost of the insolvency procedure is another common pitfall. Court-appointed administrators are paid on a fixed fee schedule that is not linked to the success of their restructuring efforts. They typically rely on a plethora of external service providers (interim managers, M&A advisers, management consultants, experts, payroll offices, etc.) who must be paid for by the company. This does not affect their fees, but might leave you surrounded by experts whose quality of advice and fee levels you have very little control over.

In a nutshell, if there is one time in your life to call in a competent external advisor, it is when as an owner or managing director of a company, you are contemplating the threat of insolvency or need to file for insolvency.

If your company finds itself in a difficult situation, whatever the reason, get in touch. Where possible, we will find a way out.