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Andreas Dunte
Leipzig. He advises every entrepreneur to file for insolvency in good time. "Take care of it in good time, don't go to the dentist when the tooth is black, otherwise it can no longer be saved," says insolvency administrator Lucas Flöther in the LVZ interview:
Question: The number of insolvencies is rising. Is your law firm also busier than in the past?
Lucas Flöther: Yes, we have more work to do. More than 22,000 corporate insolvencies are expected across Germany this year - that would be an increase of more than 20 percent compared to the previous year.
Which companies are particularly affected?
This needs to be viewed in a differentiated way. There is the normal insolvency business, which affects small and medium-sized companies with up to 30 or 40 employees. We have noticed a significant increase in this area in recent months. However, our law firm also deals with much larger and more complex insolvency proceedings. We are not seeing any spikes here - such proceedings have also occurred to a similar extent in the past.
Do you expect a wave of insolvencies in the coming weeks and months?
There will be a further increase. But it won't turn into a tsunami or a wave of insolvencies. In percentage terms, the insolvency figures have been rising at a double-digit rate for two years. This is not surprising, as we had almost significantly fewer insolvency cases in coronavirus times because the government had partially suspended the obligation to file for insolvency. For far too long, by the way, and in such a complex way that in the end hardly any managing director knew which obligations actually applied to them.
What was wrong with the idea that the state helped companies through the coronavirus crisis with guarantees or cheap loans?
The idea was good at first, but the suspension was linked to different conditions and extended again and again. Too often and for too long. The obligation to file for insolvency has an important reason: companies without a functioning business model are taken off the market as a result. Insolvent companies with a fundamentally sound business model, on the other hand, can reposition themselves through insolvency proceedings in order to become competitive again. However, if we artificially keep zombies without a viable business model alive through state loans, this is unhealthy for competition and harms creditors.
Because companies that go bankrupt later have burned through more money?
Exactly. The suspension of the obligation to register has led to the misconception among companies that they no longer need to think about restructuring at an early stage. Someone will help. This has destroyed what was increasingly prevalent before coronavirus and what we preached like a prayer wheel: take care of your business in good time, don't wait until your tooth is black to go to the dentist, otherwise it can no longer be saved. However, the current rapid rise in insolvencies is also the result of the crises we are currently experiencing, such as the war in Ukraine, inflation, price increases in all areas, high energy costs, rising interest rates and a shortage of skilled workers. All of this is now coming together with the banks' reluctance to lend.
Which sectors are particularly affected?
Retail, automotive suppliers, the healthcare sector, industrial companies, the service sector and, last but not least, the construction industry.
It is said that many companies no longer feel comfortable in Germany, some are even thinking about leaving - what are your experiences?
Only a few people are able to relocate a company abroad. Small and medium-sized companies are more likely to simply cease trading. This has become increasingly apparent in the recent past and is not even recorded in the insolvency statistics. Many are finding it increasingly difficult to keep their once successful business model alive. In addition, many entrepreneurs are unable to find a successor and therefore simply close down.
Those who built up a business after reunification are reaching retirement age.
Yes, and many work well beyond retirement age. We see this particularly in Saxony, Saxony-Anhalt and Thuringia. And they can't find anyone to sell or transfer their business to.
Not even to their children?
When we rescue an insolvent company, transferring it to the children is often an option. However, experience shows that they are usually not interested in sacrificing themselves like their parents and working ten or twelve hours a day. We often hear that they don't want to do this to themselves, that they have other ideas about working life. In addition, there is often a lack of willingness to take risks.
What advice do you give company owners in such cases?
They should consider their situation at an early stage and make the necessary decisions. Under no circumstances should they go to the insolvency court until all their reserves have been used up and they are accused of delaying insolvency. This can then be painful and, above all, there is usually no chance of continuing the business.
Sole proprietors are liable with their private assets. What about the owner of a GmbH?
In the case of a GmbH, the shareholder is initially only liable with his capital contribution. However, if he has assumed guarantees for the company or made mistakes and a breach of duty can be proven, he may also be liable with his private assets. This applies in particular if the owner is also the managing director.
When does such a case occur?
If, for example, the managing director has filed for insolvency too late, then he is liable for the losses incurred by the creditors as a result. I can therefore only advise every entrepreneur to strictly adhere to the deadlines and to enter into orderly insolvency proceedings at an early stage.
Anyone who is unable to pay 90 percent of their debts within three weeks is considered insolvent - isn't the time window too short?
If someone is no longer able to pay their bills, they should seek professional help and go to the insolvency court in good time. Entrepreneurs like this should no longer operate on their own. In doing so, they also harm others. The three weeks are therefore justified. Incidentally, many people forget that over-indebtedness is another reason for insolvency. This is more dangerous because over-indebtedness may not be noticed. In a nutshell, over-indebtedness under insolvency law is when a company is not fully financed for twelve months. As a company, I must therefore always draw up an up-to-date plan of how my turnover, income and costs will develop. The legislator - now it's getting legal - refers to this as a positive going concern forecast. If this is not available, I usually have to file for insolvency.
Who controls this?
Nobody checks this externally; it usually only becomes apparent when I am insolvent. And then comes the accusation from an insolvency administrator or a public prosecutor: You were already over-indebted. Anyone who continues to run their company despite being over-indebted is personally liable for this - and not just for the damage incurred. The managing director is then generally liable for all payments after the company has become insolvent. And that can be hundreds of thousands of euros even for a medium-sized company.
With constantly changing consumer behavior, such planning is not easy?
That's right, planning in today's highly volatile world is difficult. Costs suddenly double, sales collapse, supply chains break down. It's certainly not easy. That's why you should constantly update your business continuity forecast. But the entrepreneur needs this planning because it is required by insolvency law and thus encourages the entrepreneur to pull the ripcord at an early stage.
Are companies increasingly filing for insolvency too late?
Before corona, we were on the right track. Now it is indeed the case that managing directors often file for insolvency too late. With serious consequences: The best restructurer in the world can no longer help if the employees have not received any money for four months. If many of them have already left as a result, and if the trust of customers and suppliers has been destroyed. Before corona, this had become increasingly clear in the minds of managers and entrepreneurs. Then the state intervened by suspending the obligation to register. That set us back many years.
You once said that you also get cases that are exciting and personally and professionally challenging. Can you explain that?
There are insolvency proceedings that fulfill a purely regulatory and hygiene function. Companies that no longer have a sound business model are taken off the market. This is also part of our business. There are also companies whose insolvencies are mainly for external reasons. These are usually larger companies. This is where a creative insolvency administrator can come into play, trying to turn a broken business model back into a sustainable one. For me, helping rather than winding up is the nicer task. In central Germany, for example, this was the restructuring of the online travel company Unister with well-known platforms such as ab-in.den-urlaub.de and fluege.de.
What was it like in this case?
The company was completely tailored to the founder and was already insolvent. When the founder died in a tragic plane crash, Unister was practically without a manager. The company was on the brink of collapse. Nevertheless, together with the management, we succeeded in continuing the Group and its various operations in full and ultimately in selling most of it to various investors.
What advantages do you see in the protective shield procedure?
The protective shield procedure is a so-called self-administration procedure in which the management organizes the restructuring itself and uses insolvency as a temporary means of repositioning itself - in line with American insolvency law, by the way. It motivates the entrepreneur to take action at an early stage. This step is intended to signal to customers and suppliers: This is only a short phase of repositioning, but things will continue. In addition, wages are also paid by the employment agency for three months during the protective shield procedure. The companies can restructure themselves fundamentally - and largely on their own initiative - and then make a fresh start.
Does this apply to every company?
No. The most important prerequisite is that the persons concerned take action in good time. A certain company size is also crucial. You must not forget: In protective shield proceedings, there are two positions under insolvency law: the so-called self-administrator, who supports the management, and the administrator, who monitors the interests of the creditors on behalf of the court. This incurs costs. Self-administration is rarely used for companies with fewer than 20 to 30 employees.
Not every company in self-administration can be helped - see Air Berlin?
With 1.3 million creditors, the proceedings are considered one of the largest and most complicated in German economic history. There are several reasons why the airline as such could not be saved. The fact that the damages proceedings against the former major shareholder Etihad Airways were withdrawn from the German courts was also a setback. However, I see it as positive that the airline continued to fly even in insolvency. We also managed to do that with Condor. That would have been unthinkable before 2017.
About the person
Lucas Flöther was born in Leipzig in 1974, studied law in Halle and took on his first case as an insolvency administrator at the age of 25, having just completed his doctorate. He is now a professor and gives lectures on insolvency law in Halle, where his law firm is also based. Prominent cases include the insolvencies of Unister, Mifa, Air Berlin and Condor.
Why?
Every textbook up to that point stated that an insolvent airline is economically unreliable. And if an airline is economically unreliable, the Federal Aviation Authority must revoke its operating license. The fact that we managed to maintain flight operations in the first few weeks despite the ongoing insolvency proceedings with the help of a government-ordered loan is a first in Germany. This was only possible thanks to self-administration. Incidentally, a hospital also loses its license if it is economically unreliable. What patient wants to have an operation in a hospital where medicines and staff may already be in short supply?
Is it different with self-administration?
Self-administration is the only way to continue such companies in insolvency. As a lawyer, I cannot assess which operations are necessary. If the board and management remain on board, they are still responsible for proper operations. They are also liable. In the hospital, they ensure that operations are carried out in the usual way. At the airline, they ensure that there is enough kerosene in the plane and that all safety measures are adhered to. The administrator only supports them in this.
But the option of self-administration hasn't just been around since 2017, has it?
It was introduced by law in 1999. But for the first few decades, it remained dormant. It was only in the 2000s that the legislator tightened things up and suddenly the princess was awake. The protective shield procedure really took off with such prominent proceedings as that of Air Berlin and Condor. Today, self-administration is commonplace even for medium-sized companies and is even the rule for larger insolvencies.
Who decides whether insolvency on one's own responsibility is possible?
Ultimately the court. It checks whether all requirements are met and then orders self-administration. The courts take a very close look and ask the creditors for their opinion. After all, it's their money that's at stake.
Aren't they passing the buck with self-administration - after all, the management of the hospital, for example, is responsible for the current situation?
Creditors therefore weigh up very carefully whether they trust the management again to restructure the business without an insolvency administrator. In most cases, however, they opt for self-administration, supervised by a trustee.
What would happen if they did not agree?
The court then orders so-called standard insolvency proceedings and initially appoints a provisional insolvency administrator who examines the restructuring prospects and secures the assets in the interests of the creditors. An insolvency administrator has not usually studied medicine and then seeks specialist support to ensure that the restructuring can still succeed. If an experienced interim manager is on board, this sends a signal to the medical staff, suppliers and, in fact, all contacts: the business will continue.
The number of clinic insolvencies is piling up - will we see more bankruptcies?
There are many reasons for the increasing number of hospital insolvencies. There is a shortage of specialists, poor funding from the health insurance funds and an oversupply of inpatient capacity. The special regulations for hospitals during Corona also still play a role from time to time. Some hospitals have already been in financial difficulties for some time. However, I do not expect a wave of insolvencies in this area either.
