A draft law prepared by Germany’s Federal Ministry of Justice would create a legal framework for insolvency administrators and other officeholders. Supporters point to the importance of their work, which can affect creditors, employees, industries and entire regions. The profession is currently subject to comparatively limited nationwide regulation.
Stefan Denkhaus, a Hamburg lawyer and spokesperson for the Gravenbrucher Kreis, strongly rejects the draft in its current form. He argues that the proposal contains 167 paragraphs for a profession with only around 400 to 500 specialists, describing it as excessive regulation at odds with the government’s stated goal of reducing bureaucracy.
Denkhaus’s main objection is that the legislation would not prevent poor professional conduct. Misconduct already occurs despite oversight by insolvency courts, creditors’ committees and creditors’ meetings. In some cases, insolvency administrators have received prison sentences for misappropriating assets entrusted to them. In Denkhaus’s view, the proposed law would not solve that problem.
The draft responds to concerns about the current appointment system. Around 150 local courts maintain regional lists of potential insolvency administrators, while the responsible court is generally free to select an administrator for an individual case. The Federal Constitutional Court questioned aspects of this system in decisions issued in August 2004. The proposed framework is also intended to meet the transparency requirements of the European Union’s restructuring and insolvency directive. Professional bodies were invited to submit comments by October 23.
Denkhaus says the draft places insolvency administrators under general suspicion. He particularly criticises proposed fines of up to five million euros, noting that auditors can face fines of up to 500,000 euros. He also objects to recording fines in the official list of approved administrators before they become legally final, arguing that such entries could effectively amount to a professional ban and conflict with the presumption of innocence.
The Association of Insolvency Administrators and Trustees in Germany supports the creation of professional rules in principle. Its chairman, Christoph Niering, has nevertheless called for sanctions to be proportionate and limited to specific professional violations. He says a modern framework should safeguard the quality and independence of the profession without creating unnecessary bureaucracy or duplicate structures.
As a possible compromise, Denkhaus proposes a professional licensing chamber that would handle both the admission and withdrawal of insolvency administrators according to defined criteria.
He also criticises the draft for failing to address insolvency proceedings under self-administration. Companies increasingly bring in restructuring specialists during a crisis, appointing them as general authorised representatives or as chief restructuring officers. These individuals can perform functions similar to those of an insolvency administrator alongside a court-appointed trustee, but they would not be covered by the proposed law. Denkhaus estimates that roughly two thirds of insolvencies in Germany are now handled through self-administration.
In his view, strengthening the courts responsible for supervision would be more urgent than introducing the proposed professional law. He points to the workload and training needs of court officers and to staff shortages in court administrative units. At Berlin-Charlottenburg Local Court, he says, only five of around two dozen service-unit positions are currently filled.
Sources: FAZ.