2. Anwaltskanzlei Siemon
Country Report Germany - „Anfechtungsrecht“ (Avoidance powers) - Introduction of pre-insolvency reorganization proceedings in Germany/Europe
IEEI Colloqium 2016, Chicago
, Barack Ferrazzano Kirschbaum & Nagelberg, LLP
Klaus Siemon
Rechtsanwalt/Fachanwalt für Insolvenzrecht/Insolvenzverwalter
Düsseldorf/Köln/Essen/Erfurt/Frankfurt a. M.

3. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
Introduction
2 partners, Klaus Siemon and Thomas Jahn.
Founded 1995 as a law firm, strongly specialized in working as Insolvenzverwalter (Trustee in Bankruptcy).
We dealt with more than insolvency proceedings. I have maintained a large number (more than 200) of companies as going concern after filing for bankruptcy.
We worked especially in Eastern Germany after the German reunfication with its very special circumstances.

4. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
Today we have 10 offices in Germany, including in Cologne, Düsseldorf, Essen, Erfurt and Frankfurt.
We have 40 members of staff. 12 insolvency law specialist lawyers and several other kinds of professionals for insolvency proceedings, like Wirtschaftsjuristen, Diplom-Juristen, accountants.
We are working regularly for 16 insolvency courts in 4 Bundesländern/States (Nordrhein-Westfalen, Hessen; Thüringen, Sachsen). Nearly 60 judges will appoint me as Insolvenzverwalter (Trustee in Bankruptcy) over the course of a year.

5. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
The firm is exclusively focused on the handling of insolvency cases starting from the filing for insolvency and the appointment by an insolvency court.
Normally we do not work in pre-insolvency legal advices; only in a few important cases we did so (ATEC-Industries AG).
Furthermore, I have published more than 50 articles in different insolvency law journals in Germany on a large number of topics.

6. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
Some topics of the articles:
-Evaluation of Chapter 11 and the German debtor in possession proceedings, NZI 2016, 434,
A concept for pre-insolvency reorganization proceedings, NZI 2016, 57,
Distressed Debt Investing in the German insolvency, ZInsO 2014, 172f
-The restructuring case Leveraged Buyout in the German insolvency, ZInsO 2013, 1549f,
-About group insolvencies, NZI 2013, 1f and NZI 2014, 55f ,
-Going concern of operational businesses in an insolvency case, ZInsO 2012, 1045f and ZInsO 2014, 625f.

7. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
II. The reform of German „Anfechtungsrecht“ (avoidance powers)
Example case: Technische Glaswerke Ilmenau
Technische Glaswerke Ilmenau, a company located in Eastern Germany with 240 employees and energy costs of half a million € every month. A creditor filed for bankruptcy in May TGI was producing, processing and distributing products made of glass. Glass production causes very high energy costs. According to my findings as a Trustee in Bankruptcy, the company has been unable to pay its debts and therefore was insolvent since the beginning of Instead of filing for insolvency in timely manner, the management of the company tried to maintain the semblance of a well-functioning business. This worked a long time well by changing its electricity suppliers, by arranging payment schedules (which it could not fulfill), by arranging personal meetings with its creditors or by using delaying tactics such as late replies to reminders and overdue notices. It changed 5 times the electricity supplier, each with millions of debts.

8. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
§ 133 of German InsO gives the Trustee the right to recover
all (prepetition) payments that have been made to the suppliers since the company became insolvent or was likely to become insolvent – here since 2011
2. if the supplier knew or could have known that the debtor was insolvent
- the supplier could have known of the debtor‘s insolvency, if he knows indicators which are giving him an indication that the debtor is insolvent or is likely to become insolvent.
Such indicators could be: Debtor‘s declaration that he is unable to pay; fruitless enforcement; increasing debts without paying all of them; payment agreements.

9. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
- to answer the question if the supplier could have known of the debtors insolvency situation, the Federal Court requires a consideration of all circumstances in the individual case
3. Trustees claim goes back up to 10 years!
4. according to the law it is not important/does not matter that the supplier provides something such essential for the running business as energy; he has to repay the money which he received and for his claim he only gets the insolvency quota.

10. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
This example illustrates that based on the current law, it is possible to recover payments that an insolvent company or a company that is likely to become insolvent has made to one of its creditors/suppliers many years ago (max 10 years ago), based on a number of indicators and a consideration of all relevant circumstances.
Such a claim of a Trustee is able to put a supplier in an existential crisis!

11. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
The current reform activities aim at “defusing” (entschärfen) the current avoidance powers and to facilitate the situation for suppliers. There are 3 suggestions to do so:
Reduce the claim to 4 years (from 10 years)!
Stop the claim if there is a cash transaction (Bargeschäft): it means that if the supplier provides energy, he is able to collect the bill/claim in a time period of 30 days without being exposed to an avoidance powers claim.
Deactivate some indicators, for example the indication of a payment agreement.
The draft bill of the Federal Government regarding the reform of the avoiding powers is already in discussion and it is not sure when it will become established law.

12. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
III. Introduction of pre-insolvency reorganization proceedings
In Germany we had a discussion about an introduction of pre-insolvency reorganization proceedings since Now the European Commission has announced to introduce such proceedings by the end of 2016 in all European countries.
Why do we need such proceedings?

13. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
When a company files for bankruptcy, the operational business suffers damages. We say that the filing for bankruptcy causes a stigma of the insolvency. It means that because of the filing the stakeholders become very cautious and the market loses its confidence in the operational business. For example, the suppliers only deliver against prepayment, the clients look for other suppliers, the employees look for other jobs. Often, the operational business cannot exist on the market in an insolvency situation.
The stakeholders lose the confidence in the solvency of the company and this provokes a reaction of the market. For this reason, in many cases it is very difficult to continue a business in the insolvency proceedings. The difficulties depend on the kind of the business model. In the US, you describe such cases as “melting ice cubes”.

14. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
The idea is now that in pre-insolvency proceedings, it might be possible to avoid or to prevent the damages which caused the filing for bankruptcy. The intention is to prevent the melting ice cubes- situation within the scope of pre-insolvency proceedings.
What do you think? Would it be possible to prevent damages within the scope of pre-insolvency proceedings?
In my opinion, it is necessary to have a look at the basic points:

15. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
The German Bankruptcy Code obliges a managing director to file for bankruptcy when the company is insolvent, in other words when the company is unable to pay more than 10% of all payable debts. Because of that, a filing for insolvency always indicates a lack of solvency.
The usual case is that in this situation, the operational business does not work well; normally the company is generating losses.
If a company is generating losses, the obligation to file for bankruptcy defines the (latest) moment when the company has to start a reorganization in the insolvency proceedings or to leave the market.

16. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
Today we have financial techniques, for example the Leverage Buyout, which impose high debts/liabilities on the company.
These debts are not having their origin in the operational business. In the case of a Leverage Buyout, the company which is purchased by the LBO-investor has to finance the purchase price itself.
This causes a large number of debts and these debts can cause an insolvency situation. But normally the operational business works well. If now the managing director files for bankruptcy or has to file, the operational business will suffer a great damage.

17. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
The question is now if pre-insolvency proceedings are able to prevent the damage in these cases where the company needs a financial reorganization?
I discussed a concept for these kinds of pre-insolvency proceedings in NZI 2016, 57. My colleague Mrs Alix Hueck translated this article to English language.
The discussion in Germany and Europe has just started. Until now no (draft) bill has been published neither from the German Government nor the EU Commission.

18. Siemon Insolvenzmanagement
Anwaltskanzlei Siemon
Siemon Insolvenzmanagement
Why, in the US, pre-insolvency proceedings are not in the discussion? Did the ABI Commission talk about pre-insolvency proceedings? And if not, why not?

19. Anwaltskanzlei Siemon Thank you very much for your attention!