What is temporary relief

Overview of the process and success factors of protective shield proceedings

Through the law to further facilitate the restructuring of companies (ESUG), the protective shield procedure (§ 270b InsO) and the provisional self-administration (§ 270a InsO) were taken over into the German insolvency code. Both procedures enable companies in a crisis to have new restructuring options and offer crisis-ridden companies the opportunity to stabilize themselves again through planned insolvency proceedings under their own control. The existing company management remains in the "driver seat" throughout and can bring the desired administrator in the protective shield proceedings themselves. In addition, the company does not have to pay any wages or salaries during the arrangement of a protective screen, as this is where the insolvency money comes in. As a result, and through further facilitation, sufficient liquidity is generated so that the operational restructuring can usually be financed without additional funds. When implementing the restructuring, too, the company is granted advantages that would hardly be conceivable outside the procedure: For example, adjustments to the personnel structure can be implemented more cost-effectively and unpleasant contracts can be terminated. After all, existing liabilities (insolvency claims) are initially not paid and cannot be enforced by force (moratorium). Only at the end of the proceedings will these liabilities be proportionately satisfied by the insolvency plan. In addition to the operational restructuring, the liabilities side will also be reduced and equity will be upgraded.

Classification of protective shield and provisional self-administration

What both proceedings have in common is that they are orders for preliminary insolvency proceedings. This first examination phase before the actual insolvency proceedings was always in the hands of preliminary insolvency administrators until 2012. A break in the company's management and an external decision maker were therefore inevitable consequences of an application for bankruptcy. Both procedures, protective shield and provisional self-administration, eliminate this inevitable break in company management: The insolvency court orders that the existing management continues to retain complete control over their company. With a provisional trustee, the court only provides accompanying supervision. The main difference between the two procedures is the entry requirements.

Protective shield proceedings are only ordered if there is no insolvency (Section 270b (1) sentence 1 InsO). For this purpose, an independent expert must certify that a renovation is not obviously hopeless (Section 270b (1) sentence 3 InsO). The company can appoint the trustee for this, as long as he is not obviously unsuitable (Section 270b (2) sentence 2 InsO) and must submit an insolvency plan within three months (Section 270b (1) sentence 2 InsO). On the other hand, provisional self-administration can always be ordered, unless its arrangement is likely to lead to disadvantages for the creditors (§§ 270a Paragraph 1 Sentence 1, 270 Paragraph 2 Item 2 InsO). In summary, high demands are made on a protective shield process; success depends largely on professional preparation. A restructuring concept must already be in place, at least in the main, and prove that the restructuring is not obviously futile. For this, the debtor can bring his trustee with him and the name of the procedure sounds better in the first few months. After the application process, which usually takes two to three months, both types of procedure lead to insolvency proceedings, which can then be opened as self-administration. The two procedures do not differ from the opening of the procedure.

Certificate in the protective shield procedure § 270b InsO

The prerequisite for applying for protective shield proceedings is a reasoned certificate from a tax advisor, auditor or lawyer with experience in insolvency matters, which must be attached to the actual application. This certificate must first show that there is a threat of insolvency or over-indebtedness, but not insolvency. In addition, it must be justified why the restructuring of the debtor company is not obviously hopeless. Along with this, numerous questions have to be clarified, some of which have not yet been clarified in a uniform manner. For example, the suitable group of people in addition to professionals has not yet been fully clarified. However, the necessary independence of the certifier in particular regularly leads to a need for clarification with the court. According to the wording of Section 270b (2) sentence 1 InsO, the certifier may not be the same person as the proposed provisional administrator. There is also unanimous agreement that the certifier and provisional administrator should not come from a law firm. However, it now seems clear that the certificate can also come from a consultant of the company. The wrong choice of the certifier can have fatal consequences. Therefore, on the one hand, it is important to choose a safe option and, on the other hand, early coordination with the bankruptcy court is essential. Even a delay in the decision-making process can seriously disrupt the continuation of operations. Finally, it should not be overlooked that the creation of the certificate entails additional time and additional costs in the preparation of the procedure. If you choose the safe variant and do not have the certificate issued by the renovation consultant, additional costs and usually at least one week of additional preparation time will be incurred. Finally, the certifier also has to familiarize himself with the topic.

The application for protective shield

The actual application for protective shield proceedings is divided into at least three applications: (1) Application to open insolvency proceedings due to impending insolvency or overindebtedness (2) Application for self-administration and (3) Application for setting a deadline for submitting an insolvency plan. The debtor must submit the previously executed certificate together with the opening application (Section 270b (1) sentence 3 InsO). The coordination process with the court is important here. In particular, it must be clarified whether the certificate should be checked again by an expert. This costs the debtor company valuable time in continuing operations and should be avoided if possible. So if a preliminary talk with the responsible judge is not possible, the safest option should be chosen. In particular, the restructuring advisor and certifier should not be identical or come from the same group.

When applying for protective shield proceedings, the debtor is entitled to propose a temporary administrator. A proposal should therefore also be attached to the application. The court may only deviate from this if the proposed person is obviously unsuitable. As a rule, it is therefore advisable to propose insolvency administrators who are experienced in restructuring and who are appointed to the competent bankruptcy court. It should be noted that the decision of the bankruptcy court on the suitability of the provisional trustee is a non-judicable discretionary decision and only needs to be justified (Section 270b (2) sentence 2 InsO). An early coordination with the court prevents a discussion about this issue at all.

The debtor can request that mass liabilities can be justified in the preliminary proceedings. With this authorization, certain liabilities may also be serviced by the debtor after they have been opened. This is useful when suppliers insist on additional protection for their delivery.

The debtor can only suggest further provisional security measures. So it will usually make sense that a foreclosure block is already ordered in the preliminary proceedings (Section 21, Paragraph 2, Sentence 1, No. 3 InsO). As a rule, a prohibition on the exploitation of third-party equipment (e.g. a leased vehicle) can facilitate the continuation of operations (Section 21, Paragraph 2, Sentence 1, No. 5 InsO).
From a certain size of the debtor, the insolvency court must set up a provisional creditors' committee (cf. § 22a para. 1 InsO - mandatory committee), below this size a provisional creditors committee can be set up (§ 22a para. 2 InsO - optional committee). As a rule, the court will follow the debtor's suggestion if the application names persons who are eligible as members and whose declaration of consent is already attached to the application. The views on a provisional creditors 'committee, which is put together before the actual application is made (so-called presumptive provisional creditors' committee), are not uniform. Decisions made by such a body do not have any legal effect. At most, they can express that they intend to repeat certain decisions according to a constitution after the application has been submitted. However, none of the parties to the proceedings is bound by this. Such a preliminary committee is sometimes assigned relevance when proposing a trustee.

The arrangement of a protective screen

If the requirements of Section 270b InsO are met, the court will issue several decisions on this. The bankruptcy court will (1) appoint a provisional administrator, § 270b para. 2 i. V. m. 270a para. 1 InsO and (2) order a deadline for submitting an insolvency plan, § 270b para. 1 p. 1 and 2 InsO. In addition, there may be (3) further provisional security measures (Section 21 (2) InsO), (4) the establishment of a provisional creditors' committee (Section 22a InsO) and (5) the authorization to establish mass liabilities (Section 270b (3) InsO) . In summary, one speaks of an ordered protective shield or protective shield procedure, although the term is not mentioned in the law itself. The legislature has left open whether this decision should be published. But even without the publication of the decision, the procedure cannot be concealed from the creditors - and whether it makes sense is very questionable. Because the decisive success factor for the reorganization of a company is transparency towards all stakeholders. Only through a well thought-out and open communication concept is it possible to regain trust that was lost in the protective shield proceedings, especially those of the creditors.

The debtor remains authorized to administer and dispose of as part of protective shield proceedings. The role of the temporary trustee employed is primarily limited to examining the debtor's economic situation and monitoring the management and, if necessary, expenses for the debtor's lifestyle (cf. § 270b, Paragraph 2, Sentence 1 in conjunction with §§. 270a para. 1 sentence 2, 274 para. 2 InsO). As a rule, the preliminary trustee is commissioned by the insolvency court to provide an expert opinion on the reasons for filing for insolvency and the coverage of the costs of the proceedings.

Caution is advised with the application for authorization and the subsequent resolution to establish mass liabilities. In particular, if the bankruptcy court generally orders that the debtor is authorized to establish mass liabilities, undesirable liabilities also threaten to be elevated to the rank of mass liabilities. In the protective shield proceedings, for example, tax liabilities do not actually count as mass liabilities and may no longer be paid in the opened proceedings or can be challenged in the opened proceedings (arg. Ex. § 55 para. 4 InsO, which expressly speaks of the provisional insolvency administrator). In the case of a blanket authorization to establish mass liabilities, such a preference of the procedure can then be canceled again without further ado. On the other hand, the occasional justification of mass liabilities can also be used to gain trust with suppliers.

Of course, the regulations on insolvency money (§§ 165ff SGB III) also apply in protective shield proceedings. In this way, the insolvency money can - and is usually - pre-financed in the protective shield proceedings. As a result, employees receive their wages and salaries up to the income threshold as usual, even before insolvency proceedings are opened (= event triggering insolvency money). The debtor must finally repay the insolvency default money, but only as a proportionate insolvency claim (Section 55 (3) InsO).

If the insolvency occurs during the protective shield proceedings, the proceedings will not be terminated prematurely. Nevertheless, the insolvency must be checked regularly and the occurrence of the insolvency court reported. If a provisional creditors' committee has been appointed, the insolvency must also be reported to the. In practice, this hardly has a negative impact on the process if a protective shield process is implemented professionally.


In summary, with professional preparation and support from the protective shield, the debtor has the opportunity to work out a sustainable restructuring plan within a few months, free of enforcement measures and with considerable liquidity conservation, and to implement it as an insolvency plan in the opened proceedings. The company management controls the process continuously and can bring the desired administrator in the protective shield procedure itself. The insolvency money usually generates sufficient liquidity to finance the operational restructuring even without additional funds. The law then facilitates the implementation of the renovation through additional or modified renovation measures. The moratorium and the proportional satisfaction of the insolvency claims ultimately lead to an appreciation of equity.