Background

Pursuant to Sec. 15 para. 1 of the German Insolvency Code (lnsolvenzordnung, lnsO) the managing directors of a company may individually file a request to open insolvency proceedings on behalf of the company, even if they only have joint power of representation together with other managing directors. This special right to file the request on behalf of the company prevails over the general or agreed provisions regarding the power of representation of the directors.

The Rules

Generally, upon the opening of insolvency proceedings, the right to manage or dispose of any of the company’s assets is transferred to the insolvency administrator (sec. 80 para. 1 lnsO).

However, the German Federal Court of Justice (BGH) points out in its decisions dated 24 March 2016 (file no. IX ZB 32/15) that:

  • even though the company had been dissolved with the opening of the insolvency proceedings, the company’s executive stays in place just as it was at the moment of the opening of the insolvency proceedings
  • the legal position of the directors of a limited liability company basically remains unaffected
  • In particular, they have the right to file for certain applications or appeals during the insolvency proceedings.

This includes applications for discontinuation of the insolvency proceedings (Einstellung des lnsolvenzverfahrens) and filing for immediate appeal against decisions of the insolvency court in accordance with Sec. 6 para. 1 lnsO. For example, immediate appeals can be filed against the decision to open insolvency proceedings or against the rejection of an application to discontinue the insolvency proceedings.

Comment

In the underlying decision, the BGH emphasises that with regard to the filing of the above mentioned applications and appeals (in contrast to the filing of the request to open insolvency proceedings) the general provisions regarding the power of representation of the directors apply, i.e. directors need to file jointly in cases of them only having joint power of representation.

However, it is not the power of representation registered with the German commercial register (Handelsregister) which is decisive; but the objective power of representation at the moment of the decision regarding any application or appeal. This is relevant, since the power of representation can change during the insolvency proceedings because the shareholders’ meeting retains its right to withdraw directors.

Conclusion

Although the insolvency administrator is the person who is entitled to manage and dispose of the company’s assets in insolvency proceedings, the executive may remain in place and the directors may still hold certain powers to represent the company.