Creditors' prevalence in insolvency procedures: what Germany can learn from the UK

Schemes of arrangement are said to be an extremely valuable tool for restructuring a company in financial distress. In the past we have seen several foreign companies coming to the UK to benefit from its scheme-of-arrangement procedure. But what is the secret behind its success? A vivid discussion around the adoption of the scheme in European or German Law has already distilled important aspects of an effective preventive restructuring framework. However, one approach might have been neglected. Especially in Germany, the prevalence of creditors in insolvency procedures is hardly questioned. Legislative materials never cease from highlighting the benefits of the so called “Prinzip der Gläubigerautonomie” which roughly translates as “principle of creditors’ autonomy”. It would ensure the best possible outcome by transferring the idea of the free market economy to insolvency procedures. This might be the case for the process of decision making in the creditors’ meeting or the creditors’ committee. But neither the debtor nor the creditors in the long run benefit from unilateral governance of the procedure. The implementation of an equivalent to the debtor in possession in German law in 2012 was an important step towards a less dominant position of the creditors. The English scheme of arrangement, however, offers an additional way of restructuring a company in financial distress by maintaining the bargaining power of the debtor. This weakens the creditors compared to the regular insolvency process. But is this weakening a value in itself and therefore beneficial to any restructuring framework, or is it merely a natural consequence of the stronger financial position of the debtor? This question will be addressed.

A sandwich lunch will be available from 12.30. The meeting will begin at 1pm.