Germany: German Insolvency Law - Rights And Duties Of The Creditors' Committee

Last Updated: 24 September 2018
Article by Dr. Marco Wilhelm, Dr. Malte Richter, LLM and Tina Hoffmann

Introduction

Parties to an insolvency proceeding are regularly the insolvency debtor, the insolvency court, the insolvency administrator (or the trustee with the management) as well as the insolvency creditors and creditors with a right to separate satisfaction (absonderungsberechtigte Gläubiger). The principal organ of the insolvency creditors is the creditors' assembly, through which the creditors jointly exercise their rights vis-à-vis the insolvency debtor, the insolvency court and the insolvency administrator (Sec. 74 German Insolvency Code (Insolvenzordnung, InsO)). Another vital organ ensuring creditors' autonomy is the creditors' committee (Gläubigerausschuss), a representative body regularly elected by the creditors' assembly. The creditors' committee's role is comparable with the monitoring bodies of supervisory or advisory board under corporate law and primarily includes supervising and supporting duties vis-à-vis the insolvency administrator. The main provisions regarding the rights and duties of the creditors' committee are provided for in Sec. 67 – 73 InsO.

By appointing a creditors' committee, the insolvency creditors can strengthen their influence on the process of the insolvency proceedings. In the majority of insolvency proceedings the creditors are only informed about the current status of the proceeding and decide on specific measures of the insolvency administrator in the initial report meeting, the claims verification meeting and the final meeting of the creditors' assembly. In contrast, the creditors' committee ensures that the groups of creditors represented become better and regularly informed about the process of the insolvency proceedings and acts of the insolvency administrator. Furthermore, it grants them the limited possibility to take influence on certain decisions.

Appointment of the creditors' committee

Unlike the creditors' community, which comes into existence automatically upon insolvency proceedings being opened and in which every creditor is represented and which only needs to be invited to an assembly, the creditors' committee must be appointed separately. In this regard, the German Insolvency Code distinguishes between:

  • the provisional committee as a compulsory committee according to Sec. 22a para. 1 InsO if certain codified key figures regarding the debtor's balance sheet total, the turnover and number of employees are met,
  • the optional provisional committee according to Sec. 22a para. 2 InsO, which can be appointed upon request of the debtor, a creditor or the preliminary insolvency administrator in the preliminary insolvency proceedings,
  • the interim committee according to Sec. 67 para. 1 InsO, which regularly exists in larger proceedings and which can be appointed in particular if the insolvency administrator has to make vital decisions with regard to the insolvency estate prior to the first creditors' assembly taking place, and
  • the final creditors' committee pursuant to Sec. 68 InsO.

The appointment of the final creditors' committee is resolved upon by the creditors' assembly. If a creditor's committee has already been appointed, the creditors' assembly decides whether it shall be retained. The insolvency court may revoke the creditors' assembly's resolution to appoint or retain the creditors' committee upon request of a creditor with a right to separate satisfaction, a non-subordinated ordinary creditor or the insolvency administrator if the creditors' assembly's resolution disregards the common interests of the creditors (Sec. 78 InsO).

Composition of the creditors' committee

With regard to the composition of the creditors' committee all relevant groups of creditors, i.e. creditors with a right to separate satisfaction, creditors with the highest claims, small claims creditors and employees, should be taken into account. The actual selection of the creditors' assembly or the insolvency court, respectively, is subject to their best judgment; thus, they are free to decide upon the precise number of members of the committee and the creditor groups represented therein. Excluded as members of the creditors' committee are the insolvency administrator and the insolvency debtor itself. Furthermore, the representatives of the individual creditor groups within the final creditors' committee, unlike within the preliminary creditors' committee, do not necessarily need to be creditors themselves. Thus, it is possible to appoint external experts. In order to prevent a stalemate the committee should consist of an uneven number of members.

As soon as the creditors' assembly has approved or appointed a final creditors' committee in a specific composition, the appointment of individual members may only be revoked for cause. Moreover, a member of the creditors' committee cannot resign from office without cause, either. In contrast, the creditors' assembly may at any time appoint additional members.

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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