protective shield procedure

Requirements for the protective shield procedure:

The requirements for the protective shield procedure are set out in Section 270b InsO and include:

  • Imminent insolvency or excessive indebtedness is a prerequisite: The company must not yet be insolvent, but there must only be an imminent insolvency or excessive indebtedness.
  • Ability to restructure: There must be a prospect that the company can be restructured. This must be confirmed by a report prepared by a tax advisor, auditor or lawyer experienced in insolvency matters.
  • Application for self-administration: The company must submit an application for self-administration.

Significance for a company: The protective shield procedure offers a company various advantages:

  • Restructuring period: As part of the protective shield procedure, the company is given three months to prepare an insolvency plan. During this time, the company can continue its business and attempt to restructure itself.
  • Self-administration: The company remains largely in control of itself and can continue its business under self-administration while it is under the "protective umbrella" of the insolvency law.
  • Protection against enforcement measures: During the protective shield procedure, the company is protected against enforcement measures by its creditors.
  • Preservation of the company: By creating and implementing an insolvency plan, the company can often be preserved and continued instead of being broken up.
  • The protective shield procedure offers the company time and protection to reorganise and restructure itself while continuing its business.

Procedure of the protective shield procedure:

Preparation and application: The company prepares the application for the opening of the protective shield procedure together with an advisor experienced in insolvency matters (e.g. a lawyer). An essential part of this application is a report prepared by an independent expert confirming that the company is not yet insolvent, but is at risk of insolvency or over-indebtedness and that restructuring is possible.

Judicial review: The competent insolvency court examines the application and the expert opinion . If it considers the application to be admissible, it orders the provisional protective shield procedure.

Restructuring phase: During the protective shield procedure, which lasts a maximum of three months , the company remains under self-administration and draws up an insolvency plan to restructure the company. During this time, the company is protected from enforcement measures.

 Confirmation and implementation of the insolvency plan: The insolvency plan is submitted to the creditors for a vote. If the plan is confirmed by the creditors and the insolvency court, it is implemented.

 

Advantages and disadvantages of the protective shield procedure and the processes

Advantages of the protective shield procedure:

  • The company will remain largely under the control of the current management during the proceedings.
  • The company receives protection from enforcement measures and gains time to prepare an insolvency plan.
  • The continuation of the company is encouraged, which is often more advantageous than breaking up the company.

Disadvantages of the protective shield procedure:

  • The procedure requires careful preparation and can be costly.
  • The company must be able to continue to cover its running costs during the procedure .
  • The process may undermine the trust of customers, suppliers and employees in the company .

Role of creditors:

  1. The creditors play an important role in the protective shield procedure . They must approve the insolvency plan submitted by the company . If the creditors reject the plan, the procedure can fail.

Role of insolvency money:

Insolvency benefit is a benefit provided by the Federal Employment Agency to secure the wages and salaries of employees for the last three months before the opening of insolvency proceedings . This can help to relieve the company's liquidity during the protective shield procedure.

Consequences of the protective shield procedure for employees of the company

1. The aim of the procedure is to secure the job:

If the procedure is successful and the company can be rehabilitated in time, this can help to secure jobs.

 

2. Insolvency benefit supports employees:

For the period immediately following the filing of the insolvency proceedings, the wages and salaries of employees are secured by the so-called insolvency allowance. This is paid by the Federal Employment Agency and covers the salaries of the last three months before the insolvency proceedings were opened.

 

3. Changes in working conditions and employment:

This may include, for example, salary cuts , changes in working hours or even restructuring . Such changes are usually the subject of negotiations between the company management, the works council and, where applicable, the trade unions.

In some cases, a protective shield procedure can unfortunately also lead to job cuts if this is necessary to restructure the company.

 

Consequences for suppliers:

The consequences of the protective shield procedure for a company's suppliers can vary and depend heavily on the company's individual situation and the success of the procedure.

  1. Uncertainty about payments: Suppliers may fear that the company will not be able to pay its outstanding invoices. In general, however, liabilities that arise during the procedure (so-called preferentially treated insolvency liabilities) must usually be paid in full.
  2. Continuation of the business relationship: Under the protective umbrella, the company can continue to do business. This means that suppliers can continue to receive orders and deliver goods, which can help to continue the business relationship.
  3. Adjustment of terms and conditions: In the course of the protective shield procedure and the associated restructuring, the company could try to renegotiate the terms and conditions with its suppliers. This could include, for example, price discounts, extended payment periods or other adjustments.
  4. Potential risk for future business: A protective shield procedure can affect suppliers’ confidence in the company’s financial stability. Suppliers

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