The umbrella associations of Germany’s social insurance system have submitted comments, including proposed amendments, on the proposal for preventive restructuring and second chance (available in German language only).
The European Commission’s proposal for a directive on ‘preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU’ is currently under discussion as part of the European legislative procedure. The aim of the initiative is to create a European framework for the early restructuring of companies in economic difficulties. Entrepreneurs who are already insolvent are to be given a second chance to make a fresh start. We previously reported on the details of the European Commission's proposal for a Directive in May 2018.
Review by the German Social Security
The umbrella associations of Germany’s social insurance system have carefully examined the impact of implementing the legislative initiative on Germany’s social security system. The German Social Security is critical of the initiative because the interests of creditors and the interests of the Member States, in terms of a well-functioning social security system, have not been sufficiently taken into consideration in the proposed Directive. Overall, the initiative is imbalanced and focuses only on discharging debtors from their debts.
Creditors’ interests not taken into account
The German Social Insurance is of the opinion that the proposal for a Directive sacrifices the protection of creditors in favour of restructuring measures for debtors. The first to be hit by the proposed procedures would be public creditors, including the German social security institutions, because they are unable to protect themselves against bad debtors because of their statutory obligation to enter into a contract. These creditors already bear the brunt of restructuring proceedings to discharge debt as provided for by the German Insolvency Statute. The umbrella associations of Germany’s social security system fear that bad debts could increase even further with the establishment of additional early restructuring measures – contrary to what the European Commission believes.
Negative consequences not considered
The German Social Insurance believes that the effect on competition between businesses who are in a restructuring phase that favour’s the debtor or grants them a second chance and other businesses that are in competition with these debtors has not been taken into account.
The proposed restructuring framework is intended to allow debtors to apply to creditors for a stay of enforcement actions while negotiating a restructuring plan. The German Social Insurance sees negative effects of this because escaping into restructuring would allow a debtor to avoid paying social security contributions, particularly those for protecting their workers, at least temporarily. Thus, restructuring measures might not only be at the expense of national social security systems and the protection of workers and the self-employed who have compulsory insurance, they could also disadvantage companies that take responsibility for social security systems.
Amendments proposed by the German Social Insurance
The umbrella associations of Germany’s social insurance system are currently involved in discussions regarding the legislative initiative in the committees of the European Parliament. They have proposed amendments which reconcile the interests of all those involved in restructuring, insolvency and discharge proceedings.
The focus of the proposed amendments is on excluding contributions to national social security schemes from the stay of enforcement measures and second chance debt relief, or to allow national legislators to exempt these from restructuring and debt relief measures.
The aim of the proposed amendments is to protect the interests of creditors from national security systems in order to prevent them from suffering difficulties as a result of restructuring and insolvency proceedings.