Germany's current insolvency law, in effect since 1999, consolidated the provisions of several older laws, including the Bankruptcy Act, the Composition Act, and the Collective Enforcement Act (which had governed East German insolvency proceedings). The thrust of the new law is to shift the emphasis of the insolvency regime from liquidation to reorganization, according to reports from the World Bank and others. In 2003, the European Commission's Expert Group reported that, of the 41 Principles and Guidelines for Effective Insolvency and Creditor Rights Systems set forth by the World Bank, Germany has fully adopted 21, almost fully adopted 10, partially adopted 8, and not adopted 2. The cost, in time and money, to complete business closing proceedings in Germany approximates the average experienced in member states of the Organization for Economic Cooperation and Development (OECD). It takes an average of 1.2 years to finalize the proceedings in Germany, compared to 1.3 years for the OECD, and costs average 8% of the debtor estate, compared to 7.5% for the OECD. However, returns to creditors are significantly lower, averaging 53.4 cents on the dollar in Germany versus 74.1 for the OECD average.

General Overview

In its 2003 report for the "Best Project on Restructuring, Bankruptcy, and a Fresh Start," the Expert Group commissioned by the European Commission reported that Germany has fully adopted 21, almost fully adopted 10, partially adopted 8, and not adopted 2 of the World Bank's Principles and Guidelines for effective Insolvency and Creditor Rights Systems (p. 55). In 2008, the World Bank reported on its Global Insolvency Law Database (GILD) website that Germany adopted a new Insolvency Statute (Insolvenzordnung) in 1999, the provisions of which have, since that time, governed corporate insolvency proceedings. According to a 2005 report by Schultze and Braun, this new law aims to change the focus of the insolvency from its previous emphasis on liquidation to a more reorganization-oriented approach, with provisions similar to the Chapter 11 procedure found in United States insolvency law. It also "somewhat diluted" what the authors called a "clear debtor focus" (p. 1) and enhanced the powers of the administrator or trustee in the area of contract termination.

Philippe & Partners and Deloitte & Touche (PP&DT) reported on the 1999 German Insolvency Statute in their 2002 "Bankruptcy and a Fresh Start" publication. They noted that the 1999 Statute consolidated several earlier laws, including the Bankruptcy Act, Composition Act, and Collective Enforcement Act (which had governed East German insolvency proceedings). The report noted that the new law focuses more heavily on the restructuring of troubled but nonetheless viable firms, and specifies that there are three general paths open to insolvent firms or their creditors: out-of-court settlement, liquidation, reorganization, or an asset-deal arrangement arrived at through the work of an insolvency trustee. The World Bank GILD website noted that insolvency proceedings may be brought against most types of business entities, but that there are certain categories of enterprise that are exempt, including public entities of the federal, state, and local government. General insolvency proceedings are commenced on the request of either the creditor or the debtors. The World Bank report further noted that there is generally no problem with regard to institutional integrity in Germany's insolvency practice, although isolated instances of corruption have occurred. In the recent past, only two such cases were reported in the media, and in both cases the judges involved were dismissed from their offices and received significant prison sentences for their actions.

In addition, the GILD website points out that the German Insolvency Court has full judicial independence. It is not subject to oversight other than by appealing its decisions in the District Court. While the Insolvency Court and a formally constituted committee of creditors act in a supervisory capacity for an insolvency administrator, nonetheless, there is no formal supervisory framework for this function, and there is no legal requirement that administrators be licensed or registered. There are non-binding guidelines for administrator conduct that have been developed by professional associations, however. Further, the GILD website discloses that in 2003 a draft amendment to the Insolvency Statute and other relevant legislation was circulated for preliminary discussion by the Justice Departments of the Länder and other interested parties. The amendment was expected to clarify the criteria by which insolvency administrators are chosen and appointed, and to restrict the announcement of insolvency court findings to dissemination over the internet. It was also to create rules for the disposition of debtor assets and the interception of debtor mail, and included other clarifying provisions as well. Finally, the World Bank report notes that since May 31, 2002, European Council Regulation No. 1346/2000 has governed the relations between the German insolvency regime and the regimes of its fellow European Union member states (excluding Denmark). This is in conjunction with Germany's Introductory Act to the Insolvency Statute (Article 102, sections 1 through 11). The report adds that relations with the Danish insolvency regime and all other countries outside of the EU are governed by specific sections in the German Insolvency Statute. According to an undated report by the International Association of Restructuring, Insolvency, and Bankruptcy Professionals (INSOL), a 2003 amendment to German insolvency legislation has added further cross-border provisions, containing a Chapter specifically dealing with the subject. Provisions in the amendment directly deal with EU regulations, but contain some differences, "particularly with regard to the formalities governing reciprocal recognition and enforcement of court decisions in insolvency proceedings" (p. 111). The report further notes that, in contrast to EU regulations, German law does not stipulate special rules for insolvencies involving banks and insurance companies.

The World Bank's 2008 "Doing Business in Germany" snapshot of the process for closing a business measures Germany's performance according to three criteria: the time in years to complete the process, the cost of the procedure as a percentage of the debtor's estate, and the recovery rate to creditors, expressed in cents on the dollar. For Germany, it takes 1.2 years, on average, to complete the closing of a business, as compared to the 1.3 year average for Organization for Economic Cooperation and Development (OECD) member states. The cost averages 8% of the debtor's estate, compared to an OECD average of 7.5%. Creditor recovery rates average 53.4 cents on the dollar, compared to the 74.1 cents averaged by OECD.