Overview of Composition and Insolvency Proceedings

Crisis situations require quick and decisive – but nevertheless prudent – actions by the board of directors. The main focus lies on maintaining liquidity (e.g. short-time work, salary negotiations, improving receivables management, deferring investments, termination of non-essential contracts, etc.). In addition, further operational and balance sheet restructuring measures should be assessed. If, despite such measures, an out-of-court restructuring appears no longer possible, the board can generally choose between two insolvency proceedings. If the company is overindebted, the board may be obliged to initiate such proceedings. The choice of the appropriate proceedings depends primarily on whether the future business development is expected to be "U"-shaped (composition proceedings) or "L"-shaped (bankruptcy proceedings).

Bär & Karrer Briefing, November 2020