Understanding Section 35 Paragraph 2 InsO in German Insolvency Law – Creditor Protection and Release of Self-Employed Activity

1. Introduction

In German insolvency law, Section 35 Paragraph 2 InsO represents an important regulation that deals with the debtor’s independent activity during the insolvency proceedings. A central aspect of this regulation is the possibility for the insolvency administrator to release the debtor’s independent activities (see Section 36 Para. 2 InsO). With regard to the released assets, the debtor is in the same position as if no insolvency proceedings were ongoing. He has full authority.

This article examines the question of whether and to what extent a creditor can prevent this release by objecting. This is particularly important if the creditor suspects that the debtor is not properly transferring seizable income shares to the insolvency estate and that the released activity reduces potential seizable income through business expenses.

2. Section 35 Paragraph 2 InsO and the release of self-employment

According to Section 35 Paragraph 1 InsO, all of the debtor’s assets that the debtor already has and that he acquires during the insolvency proceedings fall into the insolvency estate.

This includes income from self-employment.

However, the insolvency administrator can decide to exempt this activity from the insolvency proceedings so that the income from it does not form part of the estate.

This release enables the debtor to take up or continue self-employment without the resulting income being counted as part of the insolvency estate.

A release must be checked by the insolvency administrator and decided on at his best discretion. If the release causes damage to the creditors, the insolvency administrator is personally liable in accordance with Section 60 InsO.

3. Creditors’ right to object

The key question now is whether creditors can object to the insolvency administrator’s decision to release the self-employed activity and prevent release. In principle, the insolvency administrator’s decision is a discretionary decision that should be made in the best interests of all parties involved, including the creditors (see under 2.).

The legislature has not stipulated any right of objection for creditors here. The reason and ulterior motive are the personal liability of the insolvency administrator as compensation and the constitutionally guaranteed right of the debtor to freely practice his or her profession in accordance with Article 12 of the Basic Law. The latter must not be affected by insolvency proceedings that have been opened.

4. Meeting of creditors and committee of creditors

However, the creditors have indirect influence via the creditors’ meeting and the creditors’ committee.

You can use these channels to express your concerns and ask the insolvency administrator to reconsider his decision.

In practice, a responsible insolvency administrator will take the opinions and interests of the creditors into account and, if necessary, refrain from releasing them if the creditors’ arguments are appropriate.

5. Conclusion

In summary, it can be said that the creditors do not have a direct right to object to the release of the debtor’s independent activity according to Section 35 InsO.

However, the creditors have indirect influence via the creditors’ meeting and the creditors’ committee.

In addition, the creditors can hold the insolvency administrator personally liable if the insolvency administrator suffers (proportional) damage as a result of the release of self-employed activity in accordance with Section 35 Paragraph 2 InsO.

These regulations ensure that the interests of creditors are appropriately taken into account and granted in insolvency proceedings, while at the same time the debtor is given the opportunity to exercise his constitutionally guaranteed right to practice his profession in accordance with Article 12 of the Basic Law and to improve his economic situation through self-employment.

This article does not represent specific and individual legal advice, but rather only provides a rough initial overview of the very complex legal matter described. You can only obtain legal certainty for your specific case constellation through coordinated examination and advice from an expert lawyer.

I would be happy to assist you as a lawyer and specialist lawyer for a legal assessment and assessment of your case and represent your interests assertively and resolutely. (Co)creditors, the insolvency debtor, the insolvency court and the insolvency administrator. Please feel free to contact me by phone or write to me.

I advise nationwide on site or via Zoom as a specialist lawyer in the legal areas of corporate law, tax law and insolvency law, including in the cities and metropolitan areas around Stuttgart, Heilbronn, Karlsruhe, Freiburg, Ulm, Augsburg, Munich, Frankfurt, Wiesbaden, Saarbrücken, Kaiserslautern, Bonn, Wuppertal, Duisburg, Nuremberg, Münster, Saarbrücken, Düsseldorf, Cologne, Dortmund, Hanover, Kassel, Leipzig, Dresden, Bremen, Hamburg and Berlin.

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