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Cross-border insolvency

Recognition of foreign proceedings

Under what circumstances will the courts in your jurisdiction recognise the validity of foreign insolvency proceedings?

Under the EU Insolvency Regulation (1346/2000), foreign insolvency proceedings are recognised by German courts without further requirements. Outside the regulation's scope, German international insolvency law applies, according to which foreign insolvency proceedings are recognised unless:

  • the courts of the state in which the proceedings have been commenced do not have jurisdiction in accordance with German law; or
  • the recognition of the foreign proceedings would lead to a result which conflicts with the major principles of German law – in particular, where the recognition would be incompatible with basic rights. 

Winding up foreign companies

What is the extent of the courts’ powers to order the winding up of foreign companies doing business in your jurisdiction?

If a foreign company is over-indebted or illiquid and a respective application has been filed by the company's management or one of the company's creditors, the German insolvency courts have the power to open insolvency proceedings on the estate of companies with legal capacity or other companies without legal personality (eg, general, private limited or private partnerships). In general, this rule applies to German and comparable foreign companies.

An additional prerequisite for the opening of German insolvency proceedings is that the German courts have international jurisdiction in the case at hand. Where the EU Insolvency Regulation is applicable, German courts will have international jurisdiction if the foreign company's centre of main interests is located in Germany. Outside the EU Insolvency Regulation's scope of application, the question of whether the company's centre of economic activity is located in Germany is a decisive factor.

If the foreign company's centre of main interests is located outside Germany, but the foreign company has an establishment in Germany, German courts can open secondary proceedings if the foreign company is insolvent and a respective application has been filed. Such secondary proceedings are limited to the foreign company’s Germany-based assets.

Centre of main interests

How is the centre of main interests determined in your jurisdiction?

As far as the EU Insolvency Regulation is applicable, the location of the registered office of a company or legal person is presumed to be the centre of main interests in the absence of proof to the contrary. This presumption may be rebutted only by objective elements which are determinable for a third party. There are two main theories on how centres of main interests should be determined. According to the mind of management theory, the decisive factor is where the company's head office functions are located. According to the business activity theory, decisive factors may be where the company’s:

  • office and production facilities are located;
  • employees are located; and
  • bank accounts are held.

The European Court of Justice seems to favour the business activity theory.

When determining the place of jurisdiction – outside the EU Insolvency Regulation's scope of application – the company's centre of economic activity is decisive. This term is similar to the centre of main interests used in the regulation (ie, the decisive factors are where the company’s office is located and employees work and bank accounts are held and where the company gets in contact with its customers).

Cross-border cooperation

What is the general approach of the courts in your jurisdiction to cooperating with foreign courts in managing cross-border insolvencies?

The German insolvency courts are not obliged to share information or cooperate with foreign courts. However, the German insolvency courts may (at their sole discretion) contact foreign courts in order to share relevant information and harmonise the different courts' general approaches without officially requesting judicial assistance. This applies not only if a foreign proceeding has already been recognised in Germany, but also where clarification is required as to whether foreign proceedings can or must be recognised. In June 2017 the reformed European Insolvency Regulation will come into force and will contain further provisions on cooperation in cross-border insolvencies.

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