Amicable settlement proceedings
Amicable settlements are a cost-effective way of dealing with companies that are only affected by over-indebtedness
Amicable settlement is based on voluntary participationUnlike the formal company reorganisation, amicable agreements are based on voluntary agreement between the company liable for payment and its creditors. The procedure is not governed by law but is based entirely on civil law agreements between the parties involved. This in turn means that the procedure is relatively inexpensive in relation to the costs of formal company reorganisation. Since the procedure is not ordered by the court, it can often be carried out directly by the entrepreneur or with a cheaper resource than a specialised lawyer.
How long does an amicable settlement take?
The amicable settlement is usually much quicker than formal company reorganisation, which is full of procedural issues that have to be overcome. An amicable settlement can be implemented in just a few weeks. Similarly, to company reorganisation, there is no obligation to address the underlying problems that have led to the over-indebtedness problem. Entrepreneurs, however, may have every reason to remedy the problems. Otherwise, there is risk that the amicable settlement would solve an over-indebtedness situation only temporarily.
How much does an amicable settlement cost?
The more extensive amicable settlements are usually carried out by law firms, but there is no obstacle, for example, that prevents an accounting firm or a company representative from carrying out the work itself. The latter has a clear cost-saving effect. If a law firm is employed for the settlement, the lawyer will always require compliance with the principle of equal treatment and with the settlement being based on the provisions of the Priority Rights Act.
What are the drawbacks of amicable settlement?
However, amicable settlements entail certain significant drawbacks vis-à-vis company reorganisation. The main disadvantage is that the company does not enjoy any protection against bankruptcy or special enforcement (confiscation) during the proceedings; on the contrary, default as a result of suspension of payments gives rise to a presumption of insolvency. Such a presumption may be used for hostile purposes by a creditor who wishes to bankrupt the company. Another drawback is that there is no salary guarantee and unknown creditors are not bound. The amicable settlement is based on full agreement. If a creditor does not accept the agreement, the entire arrangement falls unless the other creditors voluntarily agree to special treatment for a creditor. In company reorganisation, on the other hand, a minority can be voted on by a majority.
However, amicable settlements entail certain significant drawbacks vis-à-vis company reorganisation. The main disadvantage is that the company does not enjoy any protection against bankruptcy or special enforcement
Among the amicable settlements are the moratorium agreements, which provide for deferral of payment without concessions in the capital section. Although these agreements do not help in the event of lack of capital, they can be a good and powerful tool in connection with liquidity. A specialist can always answer what applies to your particular company.
When is the amicable settlement fitting?
When choosing between amicable settlement and company reorganisation, it is usually a case of a review and diagnostics of what measures are appropriate for your company. Does the company have a critical capital shortage or are there only liquidity problems? Are there any outstanding guarantees? Do we need bankruptcy protection or perhaps a salary guarantee? How can the settlement be financed? Most settlement specialists offer a free first meeting to investigate the company.