Save the Company with an Insolvency Plan

Tips for corporate restructuring

Another goal of the Bankruptcy Act is to give entrepreneurs a chance to save or rehabilitate their companies using a bankruptcy plan. To this end, the insolvency law permits one to initiate the proceedings for an insolvency plan, this being an effective means to rehabilitate their ailing companies...

The insolvency plan procedure is usually rarely utilized although there is a high chance for rehabilitation and thus of rescuing the company. However, this type of corporate reorganization is not very easy to understand. First of all, the current situation of the company in question needs to be assessed accurately because only a company that offers opportunities for the future may be rescued by means of an insolvency plan procedure. Therefore, the liquidator must analyze the current positioning of the company accurately, as well as the opportunities and risks on the market, in order for the bankruptcy plan to be valid. Then they create the insolvency plan, which is presented to the creditors during a meeting. The creditors' committee then decides whether the company can continue its work or will be shattered along a lengthy bankruptcy procedure.

The insolvency plan procedure offers many advantages to creditors. They give up some of their demands willingly. In case of an insolvency plan procedure, the rates are significantly higher after about six months and not after several years. It is also possible to rehabilitate parts of the company through the renunciation of claims so that business contacts can also be established in the future. The insolvency plan procedure only has chances of success if employees, creditors and banks are equally interested in the continuation of the company. On the creditor side, this means to give up a portion of the claims. The same applies to banks. Workers have to deal with the insolvency plan procedure to save the company and thus give up shares or agree to be paid less.

The insolvency plan procedure must also be accepted by the creditors. Otherwise, the company is liquidated. It is very important whether the company still has market opportunities afterwards, whether management is trustworthy and whether the company's employees are motivated. However, the acceptance of a bankruptcy plan often leads to massive cuts in the company. Operating parts are often closed and employees are laid off. These actions lead to substantial savings and guarantee success in the long term. This means difficult times to all parties involves, but also hope for a bright future.

Nowadays, the insolvency plan procedure is only used rarely despite its many advantages, such as the fact that the owner of the company gives the employees the chance to preserve their professional futures. However, most companies find this insolvency plan procedure unattractive. This is probably the case because the requirements are very high and the road to a stronger company is rocky. Ways to improve the process are currently sought. One suggestion is that the creditors have a say regarding the selection of the liquidator in the future.