Self-administration and protective shield procedures

The self-administration procedure offers companies a legal framework for repositioning themselves during ongoing business operations. In contrast to regular insolvency proceedings, the entrepreneurial responsibility remains in the hands of the management, which controls the reorganization itself ("self-administration").

Sometimes the restructuring of an enterprise reaches a dead end. The sum of the problems and the pressure of the creditors become so great that the situation seems hopeless. With a worsening crisis situation and a lack of money, the liability risks for all involved increase, especially for the entrepreneur. In the event of failure, far-reaching risks are imminent.

The aim of Restrukturierungspartner is to provide companies with the best possible support and assistance in their self-administration. In doing so, we ensure the success of the corporate restructuring with a high level of commitment and dedication.

In such a situation it is right to think about other options for action. These options are perhaps not obvious at first glance and are somewhat outside the scope of what typically comes to the entrepreneur's mind during restructuring or reorganization: self-administration (§ 270a InsO) and the protective shield (§ 270b InsO). The legislator has created two partially interconnected restructuring options for companies. The company is restructured under the conditions of insolvency proceedings with all the advantages they entail.

What does that mean in concrete terms?

Self-administration is a form of insolvency proceeding in which it is not the insolvency administrator, but the management/board of directors who largely conducts the insolvency proceedings. The order for self-administration is issued on the basis of the company's application, which must be submitted to the competent local court in parallel with filing for insolvency. If this type of insolvency proceeding is applied for and finally ordered, the entrepreneur or the managing director of the GmbH or the executive board of the stock corporation remains in charge.

This person determines the fate of the company entrusted to him without an insolvency administrator. The court appoints a trustee who ensures that the rules which apply in any insolvency are observed. In particular § 1 InsO, which demands the best possible satisfaction of the creditors, also applies in this case.

What is the shield process?

If the insolvency proceedings are initiated early in self-administration, i.e. at a time when the company is not yet insolvent, a so-called protective shield can be applied for. The protective shield procedure lasts a maximum of three months and serves to grant the company time and protection from its creditors (hence: protective shield). During these three months, the company draws up an insolvency plan, which forms the basis for the company's restructuring.

It is important in the protective shield procedure that the application is backed by the certification of a neutral expert (so-called certificate according to § 270b InsO), which makes at least three statements:

1. The company is not insolvent

2. The company is threatened with insolvency

3. The intended restructuring of the company is not obviously futile

What must be observed?

If self-administration or protective shield procedures are ordered, the company can reorganize itself under the direction of the acting bodies and under the supervision of the administrator. However, the following must be observed:

For the majority of managing directors, board members or entrepreneurs, this will be the first time they have to deal with insolvency proceedings in their own administration or under the protective shield. Nevertheless, it is their responsibility to ensure that the legal framework conditions are met. It has proved practicable that the management of the enterprise is supported during the self-administration or protective shield procedure by a restructuring expert experienced in insolvency. This ensures that no technical (insolvency) errors happen. This expert is the first point of contact for the court, the trustee and the creditors' committee and personally ensures that all legal requirements are met and that the restructuring process is implemented as quickly as possible. In these cases he or she is also frequently referred to as the CRO (Chief Restructuring Officer) or restructuring manager or CIO (Chief Insolvency Officer) genannt. As Restrukturierungpartner, we have many years of experience as restructuring managers and have supported numerous companies from a wide range of industries.

In many cases, in addition to the trustee, a temporary creditors' committee is appointed by the competent local court. The role of the creditors' committee is to advise the self-administrator and administrator on important decisions. It represents all creditors so is composed in a representative manner. A well functioning creditors' committee is an important criterion for successful restructuring within the framework of self-administration.

What needs to be prepared?

It is important that every self-administration procedure is well prepared. This includes:

1. Fundamental consideration of the financing of the procedure

    Although financial aids for insolvency proceedings in self-administration such as insolvency money exist, a sum must be paid at the end of the proceedings. Money is usually needed then at the latest.

2. The restructuring concept must be in place

    From day 1 it must be clear where the journey is heading.

3. Addressing of the stakeholders involved

    at an appropriate point in time before an application is submitted. As well as the financers, these may also be customers, members of the proposed creditors' committee or the works council.

4. Insolvency filing and the application for an order for self-administration must be drawn up

    and coordinated with the court in its detail.

Principles of proper self-administration

We adhere consistently to the principles of proper self-administration, as established by Forum 270, an association founded by leading consultants in this field, and published in mid-December 2018.

Dr. Stefan Weniger

Partner and Managing Director

+49 30 2064 3720 0

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