Can you explain German bankruptcy law to me?

Factual Questions
1

Take a look at these news reports (in German):

http://www.br-online.de/bayern-heute/artikel/0502/17-imax/index.xml
http://www.region-muenchen.de/index.php?site=news&news_ID=263

The story (some of which I have from personal contacts, not just the news reports) is as follows: the Forum of Technology in Munich, which includes an IMAX theater, two conventional cinemas, a planetarium, and meeting facilities, has declared insolvency after losing money for a couple of years. The insolvency manager decides to close the facility and auction off the property (I assume to satisfy the creditors).

The Forum is closed on 23 February and the auction is set for two days later. (This strikes me as incredibly speedy.) Several hundred people are present for the auction, and although the properties are listed in the auction catalog as hundreds of separate items (projectors, amplifiers, mixers, etc.), at the auction it is announced that they will be joined into five or six big lots.

All of the lots are won by the same unidentified bidder for a total of 265,000 euro. Almost no one else bids. It’s all over in 15 minutes.

It later turns out that the winning bidder is Alexander Brochier, the owner (in part, at least) of the Forum’s bankrupt operating company!

IANAL in the U.S. or Germany, but how could this happen? I thought that if you’re bankrupt, you have no money or assets to pay your creditors, so how could he buy his own property? Even if this was done through separate entities that weren’t part of the bankruptcy, doesn’t the law presume that someone involved in the bankrupt company wouldn’t be an appropriate buyer?

Would this be possible under U.S. law?

Also, the speed with which the auction took place, and the way it was set up, has suggested to some of the people who were present that it was all contrived to allow Brochier to win the auctions. Is this possible? Legal? Common?

I am a journalist covering this story, and with no background in German law (or U.S. law for that matter), I thought I’d see if there’s anyone here who can throw a little light on the subject.

Thanks.

2

I think you are going to need a German lawyer to help you out. I walked over to my library’s set of “Digest of Commercial Laws of the World”. Most countries get a summary of about 40-50 pages.

Germany gets a whole volume for itself.

3

Bankrupt doesn’t mean completely without funds. It means without funds to credibly be expected to repay your obligations.
He may have taken out non-recourse loans. In that kind of loan, they can take your business, but not (for instance) your house or your car.
Let’s imagine he has a dwelling worth 500,000 Euros and a non-recourse loan.
Let’s imagine he got a loan against his home, then went to go try to buy his old business at auction. It seems possible that he MIGHT just be able to repurchase his old business, especially if the kind of businessmen who could afford to buy his old business consider it unprofitable. I know a couple of restaurants that wind up getting bought and sold like hot potatos every 4 years when the new owners discover that the location is unprofitable, yet somehow convince another restarauteur to buy it off of them.
I gotta’ say though, this is screwball. Your next step should probably be calling a lawyer to get a consult on whether or not any of this is legal.
A lot of questions will hinge on the nature of his business interest.
In the US, if it’s a sole proprietorship, this whole thing would seem very weird.
If it was an LLC (Limitied Liability Company), it wouldn’t seem that odd. After all, the business debts of an LLC don’t encumber the owner(s) unless those owners explicitly choose to sign papers making them personally liable.
I’d try calling up a nice German law professor who likes seeing his name in the papers and see if I could weasel the information out of him.

4

Jonathan Woodall presents a plausible scenario under which an owner might be a bidder for the assets of his company’s bankrupt estate.

As to the larger question of German insolvency law, I think that BobT has the answer, unfortunately. I’ve been involved in bankruptcies in several countries, including some where the company had assets in several countries, and the only thing I ever learned about German bankruptcy law is “we’ve got to find a way not to put the German subsidiaries into bankruptcy!”

5

IANAL (just a bit familiar with insolvency proceedings from press reports on such). Some points from the linked articles:

From what the articles say it’s not as speedy as that. The company applied for insolvency in September 2004 (i.e. was run by the court-appointed insolvency administrator since then). The insolvency administrator seems to have told a meeting of the creditors in January 2005 that the cinema should be closed in order not to go further into the red (the employees’ wages are guaranteed for three months from unemployment insurance funds, and this period seems to have elapsed without a turnaround for the company in sight). That means there was ample time to prepare for and announce the auction when the cinema was still running. There is no mention in the articles of a claim from a creditor that the insolvency administrator acted improperly.

The prosecutors’s office are currently investigating, according to the press articles, whether the criminal offence of Insolvenzverschleppung (failure to apply for insolvency in time) was commited - a company’s management must apply for insolvency (at the competent local court) as soon as insolvency is inevitable; this is to protect the creditors’ interest.

Some information from other sources: the web site of the venue says it plans to open the cinema again on 21 March (it’s not clear from that if the IMAX cinema is included in that). The domain of this web site is registered to a company named * Forum am Deutschen Museum Betriebsgesellschaft mbH*. If that is the company that has gone into insolvency it has in fact limited liability (GmbH = corporation with limited liability - liable only to the amount of its capital; the minimum capital that a GmbH can be registered with is 50,000 EUR - the capital of a GmbH is on record at the court where it is registered.)

BTW, according to Aktuelle Nachrichten, Hintergründe und Kommentare - SZ.de the building is owned (separately from the operating company) also by the Brochier family.

6

Correction: the minimum capital of a GmbH is 25,000 EUR (not 50,000 EUR)

7

tschild said almost everything I was about to say. I can only agree to his post.

This is actually very much common in Germany and there is nothing wrong about it. No one is excluded from an auction, not even the (possibly insolvent) previous owner. In private insolvency, that is, when it is about the private property of a person (not a company), even then the owner could bid in the auction (if he proves in advance, that he can pay, for example because a third party guarantees it). This essentially means he can raise the auction price for his property. However, he is usually not interested to actually win the auction, because this would just mean he will loose even more money.

If a company is involved, it is most likely a GmbH (the German version of an LLC and the second most popular version of a company in Germany) or any other kind of “Kapitalgesellschaft”. A “Kapitalgesellschaft” (other than a “Personengesellschaft” *) is a legal person of its own. Therefore if a “Kapitalgesellshaft” goes bankrupt, then this legal person goes bankrupt and not the owners of this legal person. The owners usually only loose the money the have put into the founding of this “Kapitalgesellschaft”, so it is no surprise, that Broicher still had money to bid in the auction.

*) A “Personengesellschaft” is not a legal person, there is always at least one (legal or natural) person that is fully liable (i.e. with his own money and without a limit) The most popular version of a company is the “Einzelfirma”. Almost every small business is a “Einzelfirma”, i.e. restaurants, kiosks, all kinds of little shops, etc. So if one of these “Einzelfirmen” goes bankrupt, the owner will have to pay with his own money, but AFAIK only rarely the debts of a bankrupt “Einzelfirma” are higher than 200,000-300,000 EUR (The price of a house over here.) Still a tragedy for the owners, though.

IANAL but a German.

If you want to go public, please follow Jonathan Woodall’s advice to actually call up a lawyer.

cu