Insolvency-Bancruptcy

Contents

1. Introduction

2. Insolvency and bankruptcy

3. Course of insolvency
3.1. Who applies for insolvency?
3.1.1. The request by the creditor
3.1.2. The request by the debtor
3.2. Insolvency reasons
3.3. Role of the court

4. The ways out of the insolvency
4.1. The rescue
4.1.1. The Process

5. What happens to the employees?
5.1. The salary
5.2. The dismissal
5.3. The holidays
5.4. New employment

6. The consumer insolvency

7. Final conclusion

Sources

Tables

1. Introduction

The first time I heard about the word insolvency was during my interview at Daewoo. The human resource manager asked me “We are in an insolvency, do you know what that means?”. I answered “Yes” but it was a lie. Afterwards I asked my whole family about their experiences with insolvency. Some of them told me they did not know and others answered that insolvency is like bankruptcy. Nowadays I know that this was a wrong consideration. I received that kind of definition again and again when asking to define insolvency. It is also a common consideration, that a company who is in an insolvency is already brake. The public is not get informed although the new insolvency procedure exists since the 1st of January 1999. Only a few people know the differences between insolvency and bankruptcy. This is not amazing because there is a lack of information about this topic. During my search for information about the topic I pushed at boundaries again and again. I found for example only one book about the new insolvency order. However, you get more in the internet. Therefore, this work is based on information taken from the internet.

I am still wondering about this fact because the insolvency openings are increasing nowadays. In the year 2001 the insolvency orders increased by 19 percent in whole Germany. In the first part of this year there is a growth of about 25 percent.

In the following table, I would like to point out the current situation in Germany.

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table 1

This work will first start with the introduction of insolvency and bankruptcy. Furthermore, I would like to explain how to handle the business insolvency. Afterwards, I will show you the way out of the insolvency and what insolvency means for the employees. After these explanations I would like to turn to the consumer insolvency and I will give you a final conclusion. I hope this work will help to clearify the misunderstandings about insolvency.

2. Insolvency and bankruptcy

The bankruptcy usually meant the end of a business. It was only requested when there was nothing left for the creditors. Consequently many bankruptcies were not opened. Furthermore, there were different ways to handle a bankruptcy in Germany.

Since 1999 the new insolvency law has been valid. This means a standardized procedure for whole Germany. The legislator wanted to design the procedure in a way that rescue and thus the continuation of the businesses are facilitated.

Of course a rescue should only be carried out under the provision that it makes sense in a market economy. Otherwise, the enterprise is liquidated. Moreover the new insolvency order sets on an early intervention. This means that businesses who will not be able to pay their debts in the near future can apply for insolvency.

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3. Course of insolvency

3.1. Who applies for insolvency

The insolvency procedure is opened only on request. Both, the creditor and the debtor, are able to place this request.

3.1.1. The request by the creditor

The creditor must have a legal interest in the opening of the insolvency procedure. This means that his receivable accounts are decisive. The insolvency request must not be used as a means of putting pressure on a supplier. It is also not allowed to request an insolvency to eliminate a competitor.

The demand has to be convincing with the help of documents that the debtor is unable to pay his debts. It can be done on the basis of an official document from a bailiff proving an unsuccessful execution.

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3.1.2. The request by the debtor

Every partner being personally liable is entitled to request an insolvency procedure. It is also important to know that the managing director of a “GmbH” is obligated to request insolvency if he knows about the difficulties of payment. This has to be done without any hesitation after the beginning of the difficulties within three weeks. If the managing director delays the request he commits an offence. The consequence of this can be a fine or a term of imprisonment.

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An important aspect is also that the manager director is unrestrictedly obliged to give the insolvency court any information which is necessary.

3.2. Reasons

With the new insolvency procedure there are three possible reasons for the opening:

- inability to pay

This is the case if the debtor is no longer able to pay his debts. It is usually assumed if the debtor stopped his payments. However this situation has to continue over a longer period.

- imminent inability to pay

This is an advantage of the new insolvency procedure. Now there is a possibility to react at the beginning. The insolvency can be requested as if debtor will be unable to pay his debts right on time. This is valid for all the debts. However, only the debtor is able to request the insolvency procedure in such a case. There has to be an evaluation of the financial situation. This is usually based on a financial plan or a liquidity plan which is limited to half a year.

- overburden

This happens if the debtor´s assets do not cover his debts any longer. For the finding there will be created an overburden balance. In this balance the assets have to be evaluated with their realizable market values and have to be compared with the actually existing liabilities.

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