{"id":267,"date":"2009-05-17T10:11:55","date_gmt":"2009-05-17T15:11:55","guid":{"rendered":"http:\/\/www.commerciallawinternational.com\/?p=267"},"modified":"2010-09-29T15:12:06","modified_gmt":"2010-09-29T20:12:06","slug":"german-companies-turn-to-uk-for-insolvency-proceedings","status":"publish","type":"post","link":"https:\/\/www.commerciallawinternational.com\/?p=267","title":{"rendered":"German companies “go UK” – for insolvency proceedings"},"content":{"rendered":"

By: Carsten Lexa, LL.M.<\/em><\/p>\n

During the last several months, some German midsize companies have turn to the UK to undergo insolvency proceedings. They seem to be quiet happy with their decision and, more importantly, they were successful: Today, companies like DNick Holding (formerly Deutsche Nickel AG) or Schefenacker (today separated into the two independent companies odelo and Visioncorp) prosper and even pay out dividends. Utilizing UK insolvency proceedings was made possible by the European Insolveny Regulation. It states that if insolvency proceedings are being commenced in one EU country, it cannot be commenced in another EU country.<\/p>\n

Although Germany has very sophisticated insolvency proceedings, there must be reasons why German companies want to “go UK” for applying UK insolvency proceedings. And there are a few:<\/p>\n

First, the proceedings in the UK are far more flexible than and they don\u00b4t take as long as in Germany. Very often, in the UK three months into the proceedings it becomes clear whether a\u00a0company can be saved or not. In Germany, very often after three months one has just received the court order of the disclosure of the proceedings.<\/p>\n

Second, there is one very special instrument of the UK insolvency proceedings that German companies are interested in: the “Dept for Equity Swap”. With this instrument, dept can be changed into equity by majority vote: New share capital can be made from dept. And the required majority in the UK is only 75% of the attendant share capital. Therefore, major shareholders can force the\u00a0creditors to become shareholders (Germany also has provisions for “Dept to Equity Swaps; but the German provisions require the dept claim to be of certain value, meaning that there must be a good chance that the claims can be honored by the company – something that is rarely the case for a company in danger of becoming insolvent). Turning dept into equity is very often an important requirement for the financial recovery of a company.<\/p>\n

But needless to say, not every company can exert UK insolvency proceedings. According to article 3 of the European Insolvency Regulation, the law regarding\u00a0\u00a0insolvency proceedings of that state\u00a0apply, in which the company has its “Comi”, its “Center of Main Interest”. According to the German version of the Regulation, this is the place where the company “usually pursues the administration of its interests” – a very elastic term. That does not mean that each an every employee must be relocated to, in this case, the UK. But having only a mailbox in a city somewhere in the UK is clearly\u00a0not enough. And it is not sufficient only to\u00a0 transform a German company into a UK private company limited by shares but continue the business in Germany without modifications.<\/p>\n

Therefore, if a company wants to “go UK”, it should consider the costs for the relocation of the place of residence and for the reorganisation of the administration. These costs must be weighted against the advantages of the UK insolvency proceedings. It should be clear that the decision of whether to “go UK” or not should be made with the help of competent advisors.<\/p>\n

For inquiries please contact the author: kontakt@kanzlei-lexa.de<\/a><\/p>\n

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