Self-Administration: from the exception to the rule
To date, self-administration has played only a minor role in practice. This resulted not only from an unwillingness on the part of the participants in the process to work with the insolvency debtor’s apparently unsuccessful management bodies, but also stems from a number of legal hurdles. The ESUG is intended to remedy this situation; various measures are planned in order to make self-administration more attractive and even the rule. In future, it will be possible to have self-administration ordered as of right in cases in which factors which would militate against this process cannot be positively established.
In future, grounds for rejection of an application must be given
To date, doubts with regard to ordering self-administration have always been resolved against the debtor. Accordingly, an application could be rejected merely due to concerns on the part of the court. By contrast, under the ESUG, self-administration must be ordered if no circumstances which could lead to the creditors being disadvantaged are known. Therefore, the court is obliged to determine specific facts; in future, grounds for rejection of an application must be given. There is thus a right to have self-administration ordered. As a result, self-administration, where it is applied for, will become the legal norm and the appointment of an insolvency administrator will by contrast become the exception.
In many cases, the course of insolvency proceedings will be set at the very outset. The ESUG takes this into account by providing that the court should refrain on the one hand from imposing a general automatic stay on the debtor, and on the other, from ordering that any asset disposals are only effective with the consent of the preliminary insolvency administrator. In such cases, a preliminary supervisor who merely monitors management should be appointed rather than a preliminary insolvency administrator. Previously this has only been possible once proceedings have been initiated.
The ESUG also expands the rights of the creditors’ meeting. In this respect, it is no longer a prerequisite for a subsequent self-administration order that the debtor had previously submitted an application for self-administration prior to the initiation of proceedings which was then rejected by the court. In addition, all subsequent creditors' meetings may apply for self-administration rather than only the initial such meeting.
The new provisions render the suspension of self-administration more difficult to the extent that it must be applied for by creditors’ comprising a majority both as to the number of creditors and the total value of claims and the creditor submitting the application must be threatened with an individual detriment. The (preliminary) supervisor is a central figure in self-administration proceedings. Its required independence is no longer ruled out merely by the fact that he or she was proposed by the debtor or a creditor. In general, independence had generally not been ruled out previously, however this issue was not handled uniformly in practice.
Conclusion
The changes contained in the ESUG should be viewed positively. On the one hand, the interests of the debtor are safeguarded by the certainty provided with respect to requests for self-administration as a result of predictable decisions on the part of the court. On the other hand, the creditors’ interest in the best possible satisfaction of its claims and protection against being disadvantaged by the debtor are not forgotten.
Further ESUG issues...
(free for publication)
In future, grounds for rejection of an application must be given
To date, doubts with regard to ordering self-administration have always been resolved against the debtor. Accordingly, an application could be rejected merely due to concerns on the part of the court. By contrast, under the ESUG, self-administration must be ordered if no circumstances which could lead to the creditors being disadvantaged are known. Therefore, the court is obliged to determine specific facts; in future, grounds for rejection of an application must be given. There is thus a right to have self-administration ordered. As a result, self-administration, where it is applied for, will become the legal norm and the appointment of an insolvency administrator will by contrast become the exception.
In many cases, the course of insolvency proceedings will be set at the very outset. The ESUG takes this into account by providing that the court should refrain on the one hand from imposing a general automatic stay on the debtor, and on the other, from ordering that any asset disposals are only effective with the consent of the preliminary insolvency administrator. In such cases, a preliminary supervisor who merely monitors management should be appointed rather than a preliminary insolvency administrator. Previously this has only been possible once proceedings have been initiated.
The ESUG also expands the rights of the creditors’ meeting. In this respect, it is no longer a prerequisite for a subsequent self-administration order that the debtor had previously submitted an application for self-administration prior to the initiation of proceedings which was then rejected by the court. In addition, all subsequent creditors' meetings may apply for self-administration rather than only the initial such meeting.
The new provisions render the suspension of self-administration more difficult to the extent that it must be applied for by creditors’ comprising a majority both as to the number of creditors and the total value of claims and the creditor submitting the application must be threatened with an individual detriment. The (preliminary) supervisor is a central figure in self-administration proceedings. Its required independence is no longer ruled out merely by the fact that he or she was proposed by the debtor or a creditor. In general, independence had generally not been ruled out previously, however this issue was not handled uniformly in practice.
Conclusion
The changes contained in the ESUG should be viewed positively. On the one hand, the interests of the debtor are safeguarded by the certainty provided with respect to requests for self-administration as a result of predictable decisions on the part of the court. On the other hand, the creditors’ interest in the best possible satisfaction of its claims and protection against being disadvantaged by the debtor are not forgotten.
Further ESUG issues...
- Enhancing the influence of creditors
- Structuring shareholders’ rights in insolvency proceedings
- From a provider of financing to an owner of the business: the debt-equity swap
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