German Reform of Insolvency Law Enters Into Force: Shortened Discharge of Residual Debt and Introduction of New Reorganization Options, Especially for Corona "Victims"

At the turn of the year, two important laws reforming insolvency law in Germany came into force. The Act on the Further Shortening of Residual Debt Relief Proceedings came into force with retroactive effect (!) from 01.10.2020, while the Act on the Further Development of Restructuring and Insolvency Law came into force on 01.01.2021.

The Act on the Further Shortening of the Residual Debt Relief Procedure will enable over-indebted entrepreneurs and consumers to make a fresh start more quickly. The reduction of the residual debt discharge procedure to three years instead of the current six years ensures that those affected can participate actively in social and economic life again more quickly. The reduction of the residual debt discharge procedure to three years applies retroactively to all insolvency proceedings filed after October 1, 2020. This will also enable those debtors who have fallen into insolvency as a result of the Covid 19 pandemic to be supported in making a fresh economic start. For insolvency proceedings filed in the period from 17.12.2019 to 30.08.2020, inclusive, the current six-year procedure will be shortened on a month-by-month basis.

The Act on the Further Development of Restructuring and Insolvency Law introduces a legal framework for restructuring that can be used to avert insolvency. It ensures that the waiver of the appointment of an insolvency administrator in the so-called self-administration proceedings is reserved in principle only for well and solidly prepared projects. At the same time, companies are provided with a legally secure path to the self-administration-based restructuring options. However, as it will not always be possible to ensure compliance with these requirements under the current crisis conditions, these new special requirements are not intended to apply to companies whose insolvency is attributable to the Corona pandemic. Consequently, the new rules on reorganization through restructuring under German insolvency law can be used in particular by companies that have run into financial difficulties as a result of the Corona pandemic.