Creditors of an insolvent entity file their claims against the entity with the insolvency administrator (Germany) or insolvency court (Austria). If a claim is accepted, it is registered in the insolvency table as an accepted claim and the creditor is listed as an insolvency creditor in the insolvency proceedings.
Funds can acquire these registered claims from creditors. In Austria, it is advisable to gain the express consent of the insolvency administrator for such a purchase. After such an acquisition, the purchaser is registered as a new insolvency creditor in the insolvency table.
Over the last twelve months, we have seen an increasing number of funds – in particular, US funds – buying larger stakes of insolvency claims in Germany and Austria.
Whilst in Germany, funds focus on acquiring single claims exceeding EUR 10 million, investors are willing to opt for smaller claims in Austria.
Average German insolvency proceedings
In 2015, there were 23, 230 entity insolvencies in Germany. Of these, 160 insolvencies were commenced over the estate of entities with revenues above EUR 25 million p.a.
The average recovery percentage in Germany ranges between 3% and 5% of the claims filed.
However, in the aforementioned 160 insolvencies of more substantial entities, the recovery was significantly higher; exceeding 50% and more of the claims’ amount filed.
Recovery of insolvency claims takes between one and four years.
Average Austrian insolvency proceedings
Austria saw 5,150 entity insolvencies in 2015 (including cases where proceedings were rejected by the court) of which 174 insolvencies were commenced over the estate of entities with a revenue of between EUR 2 million – 10 million p.a. and 35, to entities with a revenue of more than EUR 10 million p.a.
The average recovery in Austria is around 10% of the claims filed; the average recovery period for insolvency claims takes 2 years.
Taylor Wessing Munich and Vienna advise funds and other debt investors regarding the acquisition of insolvency claims on an ongoing basis. Purchases can be implemented within a short time frame based on standardised legal documentation.
We believe that acquiring and trading insolvency claims is an investment trend in the German and Austrian market that will continue to grow. Both jurisdictions provide for highly effective and creditor friendly-insolvency regimes. The market is still in its infancy and higher margins are available than in mature markets such as the US.