Peter Struck, parliamentary leader of the Social Democratic Party, a partner in Germany’s coalition government, said Guttenberg’s idea is “very strange. Everybody knows what insolvency in Germany means: A company is bust and goes downhill.”
The debate over the best way to rescue the carmaker reflects Germany’s skepticism about using insolvency to revamp companies. The controversy comes as GM and Germany struggle to reach a deal to rescue the Ruesselsheim, Germany-based unit.
While Germany’s insolvency laws were overhauled 10 years ago to help distressed companies execute a turnaround, the procedure is often ignored, said Christoph Paulus, dean of the law faculty of Berlin’s Humboldt University.
“Germany introduced an instrument that is basically like the U.S. Chapter 11 proceedings and used in the right way you can do miracles,” said Paulus in an interview. “It’s a bit depressing to see that this hasn’t yet reached the level of common knowledge or at least not the level of knowledge among the decision makers.”
Merkel, Labor Unions
Chancellor Angela Merkel, seeking re-election on Sept. 27, is under pressure from lawmakers and labor unions to save 25,000 German jobs at Opel. The German government negotiated in Berlin until the early morning hours yesterday over Opel’s rescue, narrowing bidders for the unit to Fiat SpA and Magna International Inc. Talks are set to resume today.
Merkel and Guttenberg are in the Christian Democrat bloc.
While Guttenberg has said that a “planned insolvency” remains an option, Magna Chairman Frank Stronach told Bloomberg Television yesterday that it would be “irresponsible” to force Opel into insolvency. He said bankruptcy would make Opel a “dead horse.”
Bankruptcy “still carries a stigma, wrongly inferring that it will necessarily kill everything,” said Detlef Specovius, a partner at law firm Schultze & Braun specializing in insolvency. “In Opel’s case, a well-planed and well-structured insolvency may even bring about better solutions than a rush job involving vast amounts of state guarantees.”
SinnLeffers
Specovius advised his client SinnLeffers GmbH, a German fashion retailer, to file for insolvency in August and to use Germany’s insolvency-plan proceedings, the country’s equivalent of U.S. Chapter 11. The company was restructured and came out of bankruptcy in March.
Company management can stay in control during the proceedings, much like the “debtor-in-possession” model in the U.S. That approach was used to reorganize drugstore Ihr Platz GmbH, which was restructured in eight months. Berlin-based Herlitz AG, one of the first publicly traded companies to use the revised law, saw its court-supervised reorganization completed in about six weeks.
Detroit-based GM will file for bankruptcy in the U.S. on June 1, according to people familiar with the situation.
German companies that file for insolvency can get a government subsidy that covers wage costs for up to three months. Pension obligations can be transferred to a rescue fund, helping them get rid of what’s often an onerous liability.
If Opel files for insolvency, other German businesses would have to contribute to cover the carmaker’s pension obligations of 4.7 billion euros ($6.6 billion), Focus magazinereported, citing Martin Hoppenrath, head of the Mutual Pension Assurance Association, which runs the fund.
‘Options’
One reason the new law hasn’t been used widely in Germany is the country doesn’t have centralized bankruptcy courts, said Paulus.
Many judges aren’t insolvency specialists and haven’t become familiar with the new procedure. Insolvency lawyers are also reluctant to use the process because it means more work and a greater risk of liability, Paulus said.
“You have to look at the options rationally: Is it less costly do to it in court or is it better to stay out of court?” said Rolf Rattunde, an insolvency lawyer with Berlin-based Leonhardt Westhelle & Partner, which handled the Herlitz case. “An insolvency isn’t a cure-all, but rather a painful, if not potentially life-threatening treatment.”
While an insolvency at the automaker may dissuade potential car buyers who worry that they will lose service warranties, Germany shouldn’t rule out the option, said Rattunde.
“If you rule out the insolvency option, you pretty much raise the price you have to pay to convince any investor to step in,” said Rattunde. “If you tell them you won’t let Opel go bankrupt, they can just lean back and ask for more.”
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