Insolvency Plan
The plan has to contain a descriptive part outlining the debtor’s business, the reasons for its failure and a proposal for saving the business. The creative part of the plan sets out the steps which are necessary to reorganise the business. The plan might reduce claims of creditors, diminish the rights of secured creditors or sell assets of the debtor. Unlike the Chapter 11 procedure in the US, the German Insolvency Code does not support debt equity swaps because shareholders can not be affected by the plan, nor can the court order such a swap.

The plan will also divide the creditors into groups. Even though the law stipulates that the members of the groups have to have common interests, it is realistic to assume that the author of the plan has considerable flexibility when assigning the creditors to certain groups.

The plan needs the approval of all groups, but the court can overrule a dissenting group if it can be established that this group’s position is not worsened by the plan and that the group participates fairly in the available assets. The provisions are comparable to the cram down provisions of the US Bankruptcy Code.
An overview of the insolvency plan procedure is shown in our diagram ‘Insolvency Plan Proceedings’.