Using docurex® in impending insolvency / insolvency protection proceedings
In March 2012, the legislature of the Federal Republic of Germany amended the Insolvency Act (Insolvenzordnung, InsO) applicable to its territory to include a critical aspect. Similar to its neighbouring countries and the USA, the German Insolvency Act (InsO) now makes it easier for companies facing imminent insolvency or an inability to pay to reorganise. Previously Managing Directors, Members of the Board and CEOs were required to virtually hand over and thus relinquish control of their company when filing for insolvency. This amendment to the German Insolvency Act now provides CEOs with a real opportunity to restructure their company with the assistance of an external adviser and the consent of the competent insolvency court, and thus save it.
Restructuring or insolvency protection proceedings in the docurex® Data Room
It is critical that a company or its management file for insolvency with the aim of restructuring while the company is still solvent. If a company is already unable to meet its obligations, then restructuring within insolvency protection proceedings is impossible. As was the case previously, the management must file for insolvency with the court and ensure that it is not yet unable to honour its payments. When filing for insolvency, it must be stated explicitly that the company is to be restructured, marking the intention to continue to manage or restructure the company. Restructuring or continuing the company must have merit, meaning that the court must be presented not only with the prospect of a successful restructuring but also a credible substantiation for the effort.
To show this credibly to the court, the previous management must consult an insolvency expert (usually an auditor, tax accountant or lawyer).
Restructuring steps
If the court agrees to the registered insolvency, the adviser and management have three months to submit an insolvency plan for internal restructuring.
The purpose of the revision is obvious: the company and its management need to be able to consider a restructuring concept at an early stage in order to save the company.
The background to this is the fact that a restructured company is more desirable for all parties (owners, customers, suppliers, employees and the state) and more beneficial from a macroeconomic perspective than a bankrupt company. Generally, the consequences of actual insolvency would be far more severe. They would mean suppliers’ invoices going unpaid, employees losing their jobs and the state losing income from back taxes.
To ensure that all communication required to produce the insolvency plan remains secure and confidential, companies wishing to make use of the insolvency protection procedure can use a virtual data room. It is especially important for companies that fall within insolvency protection proceedings to have a place during the three months in which the insolvency plan is worked out, as well as in subsequent talks and negotiations with creditors, to store and view documents securely so that creditors will agree to the insolvency plan.
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