In Germany, corporate entities are not allowed to act as
insolvency administrators (sec 56 I 1 Insolvency
Code). Instead, the insolvency court selects and appoints
Supporters of this modus operandi argue that the appointment of
corporates as insolvency administrators would increase liability
risks and could lead to conflicts of interest, as the shareholders
of the corporation might interfere with the interests of the
creditors. The insolvency court is accustomed to working with its
cadre of experienced individuals. Their relationship is mainly
built on trust. Changing accustomed practice would lead to
Infringement of fundamental rights
The Federal Constitutional Court recently held that the
exclusion of corporates in this manner does not infringe
Although this exclusion infringes on the freedoms associated
with choosing an occupation (Art. 12 German
Constitution) this was considered justifiable under
constitutional law. In its reasoning, the Federal Court focused on
the effectiveness of the insolvency court's supervision of the
administrator. This was better achieved when natural persons were
appointed. Individuals were also more likely to maintain the
independence of the profession.
The case has affirmed that corporate entities may support
insolvency administrators with the provision of research,
information and personnel resources.
As such, the Federal Court has taken the view that companies
have not been restricted in entirety from participating in the
handling of insolvency cases; their constitutional rights have
therefore been preserved. Their partial exclusion does not violate
the constitutional right of equal treatment (Art. 3 para 1
German Constitution). The bar on corporates serving as
administrators is justified and serves a higher purpose.
In our view, the Federal Court's reasoning is not
Corporate entities may be insured like natural persons, and this
provides another line of defence.
Furthermore, it is not convincing that the appointment of a
natural person (in practice being supported by advisors and staff)
enhances quality and continuity. In a corporate entity, the
management controls the quality of the offering, and could equally
be held accountable by the insolvency court.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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