In Germany, companies in distress are often sold through court proceedings. For foreign investors, that is an opportunity: you can take over the running business without buying its old debts. Whether it works depends on the right procedure, the right timing and a clean structure.
A typical case
Suppose a Chinese industrial investor is interested in a German automotive supplier. The supplier has full order books, but its costs are too high. It has applied to the insolvency court for self-administration proceedings. The investor wants to take over production, move part of the manufacturing to lower-cost sites abroad and continue to market the established brand in Germany and the EU. The example is a composite. But it raises the questions that come up in almost every case like this: Which procedure applies? When can you sign? Which obligations pass to the buyer? And who keeps track of the figures and taxes from day one?
The procedures at a glance
German law recognises three grounds for insolvency: illiquidity, imminent illiquidity (usually assessed over a 24-month forecast) and, for corporations, over-indebtedness (§§ 17 to 19 InsO). If a GmbH is illiquid, its managing directors must file for insolvency within three weeks at the latest; if it is over-indebted, within six weeks (§ 15a InsO). That is why sale processes in a crisis run under intense time pressure.
| Procedure | Who runs the company? | What it means for buyers |
|---|---|---|
| Standard insolvency | A court-appointed insolvency administrator | The administrator sells. Your counterpart is a neutral person, not the previous owner. |
| Self-administration (§§ 270 et seq. InsO) | The existing management, supervised by a court-appointed monitor (Sachwalter) | You negotiate with management. Among other things, the application requires a six-month financial plan (§ 270a InsO). |
| Protective shield proceedings (§ 270d InsO) | Management, with a provisional monitor | Only available in cases of imminent illiquidity or over-indebtedness, not actual illiquidity. The court allows a maximum of three months to prepare a restructuring plan. |
| StaRUG proceedings | Management, outside insolvency | Not a sale process. A plan restructures creditors’ claims; the investor can come in as a lender or as a new shareholder. |
The StaRUG (German Act on the Stabilisation and Restructuring Framework for Businesses) is only available in cases of imminent illiquidity (§ 29 StaRUG). A restructuring plan can also transfer shares in the company (§ 2 Abs. 3 StaRUG). It cannot, however, alter employees’ claims (§ 4 StaRUG).
Transferring restructuring: the asset deal out of insolvency
The most common route for investors is transferring restructuring (übertragende Sanierung). The buyer does not acquire the insolvent company itself, but its assets: machinery, inventory, trademarks, patents, customer contracts. Practitioners call this an asset deal. The old company is left behind with its debts; its creditors are paid out of the purchase price. A dedicated German company makes a natural acquisition vehicle, for example a GmbH that the investor sets up or buys beforehand. How this works for a foreign investor is explained in our article Setting Up a GmbH as a Foreign Investor.
To sell the business, the insolvency administrator needs the consent of the creditors’ committee, the body that represents the creditors (§ 160 Abs. 2 Nr. 1 InsO). In self-administration, the same applies to management (§ 276 InsO). The rules are stricter if the buyer is closely related to the debtor or is itself a major creditor, for example a customer with large outstanding claims. In that case, the creditors’ meeting must approve the sale (§ 162 InsO). This can matter for our investor if it was already a business partner before.
We explain how this differs from a conventional acquisition with a share deal and due diligence in Buying a Company in Germany.
The right timing: closing after the proceedings open
Between the insolvency filing and the formal opening of proceedings, there is often a preliminary phase. What matters for buyers: many protective rules only apply once the court has opened the proceedings. Only then does an insolvency estate exist in the legal sense (§ 35 InsO).
“Subsection 1 does not apply to acquisitions from an insolvency estate or to acquisitions in enforcement proceedings.”
§ 75 Abs. 2 AO / gesetze-im-internet.de (unofficial translation)
This provision releases the buyer from liability for the seller’s business taxes. A similar rule applies when a business keeps its trading name: anyone who continues a business under its previous name is normally liable for its old debts (§ 25 HGB). According to the Federal Court of Justice (BGH), this does not apply to purchases out of insolvency, even when the debtor sells in self-administration (BGH, judgment of 3 December 2019, II ZR 457/18). By contrast, an insolvency administrator may, in certain circumstances, challenge transactions made before the opening (§ 129 InsO). This is why completion, the closing, is usually scheduled for a date after the opening.
You can sign early. You should complete after the proceedings have opened. That is when the statutory liability exclusions apply most reliably.
Employees: transfer-of-undertaking rules also apply in insolvency
When a buyer takes over a business, the employment relationships pass to the buyer automatically (§ 613a BGB). Dismissals made solely because of the transfer are invalid. Employees must be informed in writing beforehand and may object within one month. This also applies to purchases out of insolvency. However, insolvency gives the buyer some relief:
- The acquirer is not liable for company pensions earned before the proceedings opened (Federal Labour Court, judgment of 26 January 2021, 3 AZR 139/17).
- The notice period is capped at three months to the end of a month (§ 113 InsO).
- If the insolvency administrator and the works council agree on a reconciliation of interests with a list of named employees, the dismissals are presumed to be for operational reasons (§ 125 InsO). This also applies if the job cuts are only implemented after the sale (§ 128 InsO).
For the typical case, this means: if you plan to move manufacturing abroad, agree the headcount plan with the administrator and the works council before the purchase. The works council is the elected body representing the workforce. One more point: employees receive insolvency benefit (Insolvenzgeld) for unpaid wages from the last three months before the opening (§ 165 SGB III). This helps keep the business stable during the preliminary phase.
Investment screening: also when buying out of insolvency
When an investor from outside the EU acquires a German company, the Federal Ministry for Economic Affairs and Energy (BMWE) can review the acquisition. This expressly applies even if only all of the essential operating assets are bought (§ 55 Abs. 1a AWV). Suppliers may be subject to a notification requirement, for example if they develop components or software for automated or autonomous driving (§ 55a Abs. 1 Nr. 14 AWV). Until clearance, completion is provisionally invalid (§ 15 AWG). The ministry has two months from becoming aware of the contract to open a review. After that, it has four months from receipt of the complete documents; this period can be extended (§ 14a AWG). For insolvency proceedings under time pressure, that is a long time. So raise the issue early. The details and the planned reform are covered in our article Investment Screening in Germany.
From day one: figures, taxes, systems
The real work begins after closing. The new company needs bookkeeping, tax numbers and reporting to the parent company. If the investor moves manufacturing abroad, supply relationships arise within the group. These require arm’s-length transfer prices; how the model works is described in our article Produce Abroad, Sell in Germany.
“When buying out of insolvency, sequence is everything. If you only think about bookkeeping, taxes and IT after closing, you lose the first few months.”
Fatma Tabak, tax advisor · TABAK Steuerberatung
That is why we work with integrated concepts rather than individual services. TABAK Consulting coordinates structure, bookkeeping and IT. Tax advice is provided by our partner tax firm TABAK Steuerberatung. Our team sets up the bookkeeping in DATEV and connects it to the parent company’s ERP system. The goal: in 15 minutes, you understand what is happening in your German company. What that looks like is shown in the article Understand Your German Subsidiary in 15 Minutes. We handle questions of insolvency and employment law together with specialised lawyers.
We advise you in English — directly, without intermediaries.
The process in six steps
- Clarify the procedure and your counterpart: insolvency administrator, monitor or management
- Prepare the acquisition vehicle in Germany
- Assess investment screening and notify if required
- Short due diligence: customers, contracts, workforce, brands, systems
- Purchase agreement with the consent of the creditor bodies; headcount plan with the works council
- Closing after the proceedings open, then set up bookkeeping, taxes and reporting
Frequently Asked Questions
If I buy out of insolvency, do I take on the company’s debts?
In an asset deal, generally not. The debts remain with the insolvent company. For business taxes, § 75 Abs. 2 AO excludes liability for acquisitions from the insolvency estate; for continuation of the trading name, the Federal Court of Justice has ruled out liability under § 25 HGB. Employment relationships, however, do pass to you under § 613a BGB.
What is the difference between self-administration and standard insolvency?
In standard insolvency, a court-appointed insolvency administrator runs the company. In self-administration, the existing management stays in office and is supervised by a monitor. For buyers, the main change is who you negotiate with.
How long does a purchase out of insolvency take?
That depends on the procedure. In protective shield proceedings, the court allows a maximum of three months for an insolvency plan. If investment screening is required, it can add time: up to two months until a review is opened, then four months from receipt of the complete documents, extendable in individual cases.
Can I cut jobs after the purchase?
A dismissal solely because of the transfer of the business is invalid. Dismissals for other reasons, such as relocating manufacturing, are possible. In insolvency, a reconciliation of interests with a list of named employees and the short notice period of no more than three months make implementation easier.
Can I also buy the company’s brand?
Yes. Trademarks, patents and domains are assets and can form part of the asset deal. Check beforehand that they belong to the company and are not pledged or licensed out.
Sources
- § 270d InsO – protective shield proceedings
- § 160 InsO – consent of the creditors’ committee
- § 29 StaRUG – instruments of the restructuring framework
- § 75 AO – liability of the acquirer of a business
- § 613a BGB – transfer of undertaking
- BGH, judgment of 03.12.2019 – II ZR 457/18 (full text)
- Federal Labour Court, press release 2/21 – liability of the acquirer of a business in insolvency
- § 165 SGB III – insolvency benefit
- § 55 AWV – cross-sector investment screening
More than 20 years advising entrepreneurs, investors and family businesses. Reserved tax services are provided by our partner tax firm, TABAK Steuerberatung.
Author profile →Taking over a company out of insolvency?
We coordinate the acquisition structure, investment screening, bookkeeping and IT – tax support is provided by our partner tax firm TABAK Steuerberatung.