Academic journal article Texas International Law Journal

The New German Insolvency Code

Academic journal article Texas International Law Journal

The New German Insolvency Code

Article excerpt

CHRISTOPH G. PAULUST

I. HISTORY OF THE NEW CODE

When the new German Insolvency Code (InsO)I becomes law on January 1, 1999, Germany will finally be reunified in her insolvency law. At this time, the old political border still exists between Eastern Germany (the new Bundeslander) and Western Germany (including the former West Berlin): In the West, the Konkursordnung of 18772 is applied, and in the East, the Gesamtvollstreckungsordnung of 1990.3 The reason for this split codification is that the political reunification happened at a time when it had become quite clear that the Konkursordnung was to be abolished and replaced by a more modern insolvency code.

Even though the Konkursordnung was, and still is, an excellent piece of legislation, it has-seen from a modern perspective-a fundamental flaw: It does not provide for reorganization, but concentrates exclusively on liquidation. In 1935 this gap was filled by a supplemental code (Vergleichsordnung),4 but it was never really accepted in practice. The requirements for composition were too old-fashioned and the proceedings too complicated.5 Nevertheless, it was only after the oil price shocks of the early seventies that the urgent need for a new and more modern insolvency code was commonly felt. At that time, the number of bankruptcy proceedings in Germany climbed to frightening heights and the old code failed to manage the situation.6

In 1978-notice the parallel with the United States Bankruptcy Reform Code of that year-the German Secretary of Justice established a commission which was to prepare a new code. The result of this effort was a draft that was published in the mid-eighties7 and discussed intensely. Right in the middle of this stage of development the political reunification of the two German states took place. The agreement between the two governments, called the Einigungsvertrag,8 provided for a more or less smooth assumption of nearly all the West German law by the former East Germany. Instead of also extending the Konkursordnung, it was decided that the new Bundeslander would continue to use a GDR statute on bankruptcy (Gesamtvollstreckungsverordnung)9 and would modernize it in such a way that it could be used as a "test drive" for at least some of the concepts of the new Insolvency Code.1 These concepts included, for example, a special regulation on discharge," which is nonexistent in the Konkursordnung and which is truly necessary given the indebtedness of the families in the East, who were literally overwhelmed by Western consumer standards.

In 1994, the Parliament passed the final draft of the InsO and decided for political and financial reasons that it would not enter into force before 1999.12 Thus, at the end of this century, Germany will get a new code that is one of the most thoroughly discussed and thought-over statutes of the last one hundred years. Part of the constant discussion of the last twenty years was the inclusion and review of foreign ideas: those of the United States, France, Japan, and Austria, to name but a few.

II. FUNDAMENTAL NEW IDEAS OF THE INSOLVENCY CODE

A. The Undivided Proceedings

As described before, there are now separate codes for a composition (Vergleichsordnung) and for liquidation (Konkursordnung and Gesamtvollstreckungsordnung). This means that the person who is about to file a petition has to decide beforehand which type of proceeding he or she wants. Due to the peculiarities of these codes, such a choice is quite often used for the purpose of gaining strategic advantages. The new InsO follows the French model and offers just one procedure that aims at the best satisfaction of all creditors by using either liquidation or reorganization.'3

B. Creditors' Autonomy

The history of bankruptcy laws reveals a basic bifurcation in responsibility for the proceedings: The extremes are full responsibility in the hands of the court or, on the other side, of the creditors. …

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