Insight

Corporate acquisition of a company in insolvency

The process of a distressed M&A transaction, asset deal, liability risks, employees, assumption of contracts and negotiations with the insolvency administrator.

24 July 2026 | Reading time 8 min. | Author: Johannes Egelhof LL.M.

The acquisition of a company in insolvency does not usually follow the traditional M&A process involving lengthy exclusivity periods and comprehensive lists of warranties. This is because the insolvency administrator must stabilise business operations and secure liquidity while achieving the best possible realisation of assets for creditors. In practice, acquisitions usually take the form of asset deals, where the purchaser acquires the specific assets necessary for operations whilst liabilities generally remain with the insolvent legal entity. Acquisitions from the insolvency estate are, in principle, excluded from liability arising from the continuation of the business under section 25 of the German Commercial Code (HGB) and the purchaser’s tax liability under section 75 of the German Fiscal Code (AO). However, employment contracts are transferred to the purchaser under section 613a of the German Civil Code (BGB) where business operations continue. By contrast, contracts are not automatically transferred and generally require the consent of the contracting party. Furthermore, particularly significant legal acts by the insolvency administrator require the consent of the creditors’ committee in accordance with section 160 of the Insolvency Code (InsO).

How does a distressed M&A process work?

The process often begins as early as the insolvency proceedings. A provisional insolvency administrator or the management team under provisional self-administration assesses whether business operations can be continued and whether an investor can be sought. M&A advisers approach potential buyers, provide initial information following the signing of a confidentiality agreement, and request indicative offers.

The due diligence process is usually significantly shorter than in a ‘normal’ transaction. It focuses on the assets the buyer actually requires, ownership structures, security interests, employees, key contracts, necessary regulatory approvals and short-term liquidity requirements. At the same time, the buyer must develop a business continuity plan. The insolvency administrator wants to see the purchase price and also needs to know whether the financing, transfer of operations and closing can be practically arranged.

A binding offer is followed by contract negotiations and consultation with secured creditors, the creditors’ committee and, where applicable, other parties involved in the proceedings. The decision is often not based solely on the highest nominal purchase price. Transaction certainty, speed, going-concern costs, the transfer of employees and the likelihood of a smooth completion all influence the economic value of the offer.

Why do acquisitions usually take the form of an asset deal?

In an asset deal, the buyer can, in principle, put together the assets to be acquired themselves. They take over, for example, machinery and plant, stock, trademarks, domains, software, customer lists or land, without acquiring all the historical liabilities of the insolvent company. The insolvent legal entity continues to exist and is usually wound up following the realisation of its assets.

Each asset must be sufficiently specified in legal terms and transferred effectively. In the case of movable property, ownership and possession must be clarified. Land requires notarisation and registration in the land register. Trademarks, patents, domains and software licences are subject to their own rules of transfer. Claims may be assigned, but may be subject to prohibitions on assignment, objections or security interests.

A share deal may also be considered, particularly in the case of regulated companies, licences that are difficult to transfer, or a solution that is appropriate under company law. However, this involves taking over the company along with its liabilities and encumbrances under insolvency law. The economic benefit of a targeted limitation of liability is therefore reduced.

What liability risks remain in an asset deal?

The basic principle is that the purchaser is only liable for the liabilities expressly assumed. In the case of the acquisition of a trading business from insolvency, the Federal Court of Justice has, in principle, ruled out general liability arising from the continuation of the business under section 25 of the German Commercial Code (HGB). This also applies in the case of a sale by the debtor under self-administration. Under the law, the purchaser’s liability for tax purposes under Section 75 of the German Fiscal Code (AO) also does not apply to acquisitions from an insolvency estate.

However, this does not resolve all liability issues. Employment relationships may be transferred by operation of law under Section 613a of the German Civil Code (BGB). Liabilities under environmental or public law may be linked to land ownership, the operation of facilities or actual control over assets. Product liability, warranties for products delivered after closing, data protection, contaminated sites and the continuation of brands or customer communications must be examined separately.

Particular caution is required if the acquisition is to be completed before the commencement of insolvency proceedings or if it is not clearly made from the insolvency estate. In such cases, the privileges under insolvency law may not apply in the same way. Furthermore, effectively anticipating the acquisition prior to closing may create new risks.

What role do third-party security interests play?

Machinery, stock and receivables are not always freely available to the insolvency estate from an economic perspective. Suppliers may assert retention of title. Banks often hold security transfers of ownership, blanket assignments or mortgages. Leased assets are usually owned by the lessor.

The insolvency administrator may realise certain assets subject to security interests, but must take into account the rights of those entitled to separate satisfaction. It is crucial for the purchaser that they acquire unencumbered ownership or a precisely defined legal position. The purchase agreement should therefore specify which releases are required, who is responsible for obtaining them, and whether the purchase price is paid in full or in part directly to secured creditors.

A mere list in the data room is not sufficient. Chains of title, serial numbers, security agreements and release declarations must be traceable right up to closing. Otherwise, there is a risk that assets essential to operations may be in use but cannot be effectively acquired.

Are customer and supply contracts automatically transferred?

In an asset deal, contracts do not, as a general rule, automatically pass to the purchaser. The transfer of a contract usually requires the consent of the other party to the contract. This applies in particular to customer contracts, supply agreements, tenancy agreements, maintenance services, software licences and finance agreements.

In the case of reciprocal contracts that have not yet been fully performed, the insolvency administrator has a discretion under section 103 of the Insolvency Code (InsO) as to whether to demand or refuse performance. However, this discretion under insolvency law does not replace the consent required for the transfer to a purchaser. The purchaser must therefore clarify at an early stage which contracts are indispensable and which contracting parties may be approached.

In practice, the assumption of contracts is frequently structured as a closing condition, a catch-up obligation or a transitional arrangement. The seller may temporarily continue to perform obligations in its own name, provided this is legally and operationally permissible. Such transitional arrangements should be strictly time-limited, as the insolvent legal entity is not permanently available as a contractual platform.

What are the implications for employees during a corporate acquisition following insolvency?

If a business or part of a business is taken over whilst retaining its identity, the associated employment relationships are, in principle, transferred to the purchaser in accordance with Section 613a of the German Civil Code (BGB). Whether a transfer of undertaking has taken place does not depend on the wording of the purchase agreement. What is decisive is the actual takeover and continuation of the economic entity.

Insolvency does not preclude a transfer of undertaking. However, according to labour court case law, the distribution rules under insolvency law limit the purchaser’s liability for certain claims that, in economic terms, relate to the period prior to the commencement of proceedings. New claims and the continuation of employment relationships from the date of the transfer, on the other hand, generally affect the purchaser directly.

Personnel measures taken prior to the sale must be coordinated with the insolvency administrator, the works council and the transaction structure. The Insolvency Code contains specific rules on notice periods, the reconciliation of interests, lists of employees and social plans. A purchaser may not simply determine the selection of employees to be taken on in isolation from the law governing the transfer of undertakings. Dismissals solely on the grounds of the transfer are invalid.

How are licences, certifications and public-law positions handled?

Not every licence can be transferred to a new legal entity. Some permits are tied to the operator as a person, whilst others are linked to the facility or must be reapplied for. This is particularly relevant in the case of industrial plants, waste and environmental law, medical devices, financial services, aviation, energy, transport and safety-related activities.

The buyer should draw up a licensing matrix at an early stage. This sets out which licences are required for the first day of operation, and whether a simple notification is sufficient or a full authorisation procedure is necessary. Consultation with the relevant authorities may be necessary between signing and closing. If an essential authorisation is missing, the acquired machinery alone will not be of any use.

Certifications, customer approvals and audit statuses can also be crucial from a commercial perspective, even though they do not constitute government authorisations. The purchase agreement should specify the level of support to be provided by the insolvency administrator and the target company in relation to new applications or the transfer of authorisations.

How does the purchase agreement differ from a standard corporate acquisition?

The insolvency administrator typically sells the business with warranties and liability largely excluded. They do not have first-hand operational knowledge of the business and are not permitted to burden the estate with far-reaching guarantees. The buyer therefore receives significantly less contractual protection than under a standard M&A agreement.

This makes the precise description of the assets being acquired, the deed of transfer and the closing conditions all the more important. The contract must clarify which assets are being transferred free from third-party rights, how stock is to be counted, how receivables are to be delineated and how portions of the purchase price are to be allocated. For essential facts, objective conditions precedent may be more appropriate than indemnity guarantees.

Purchase price mechanisms are often simpler and more payment-oriented. Insolvency practitioners prefer a fixed purchase price that is fully available at closing. Escrow arrangements, earn-outs or long-term deferrals of the purchase price are only accepted if they do not unduly jeopardise the proceeds of realisation.

How do you negotiate with the insolvency administrator?

A robust offer addresses the interests of the proceedings. This includes the purchase price, financing security, the planned scope of employee transfers, any transitional benefits required, regulatory conditions and the earliest possible completion date. Unresolved financing or committee reservations significantly weaken an offer.

At the same time, the insolvency administrator requires a fair and documentable process. In the case of particularly significant legal acts, Section 160 of the Insolvency Code (InsO) requires the consent of the creditors’ committee or, if no such committee has been appointed, the creditors’ meeting. Secured creditors must be involved if their rights are affected. The buyer should therefore not assume that reaching a commercial agreement with the administrator alone will automatically lead to the bid being accepted.

Successful negotiations often stem from thorough preparation. Those who present a complete list of assets, a realistic takeover date and clear contractual terms at an early stage reduce the risk of the transaction falling through. This can be of greater economic value than a higher, but uncertain, purchase price.

What needs to be safeguarded between signing and closing?

This period should be kept short. Up until closing, customers may withdraw, employees may resign, stock may be used up or orders may be lost. The purchase agreement therefore needs to include provisions for business continuity, the preservation of assets and the exchange of information. At the same time, the buyer must not assume operational control prematurely.

The necessary approvals for the assumption of contracts, the release of security interests, merger control and, where applicable, investment control must fit within the timetable. In the event of a transfer of business, arrangements must be made to inform employees. IT migration, bank accounts, insurance policies and the ability to fulfil orders on the first day after closing require a dedicated implementation plan.

A distressed deal rarely fails because of a single legal clause. What is far more critical is whether the asset transfer, staff, contracts, approvals and financing all come together on the same day. The legal structure must therefore be developed with the desired operational start date in mind.

About the author

Johannes Egelhof LL.M.

Partner · M&A & Company Law

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Johannes Egelhof, LL.M., advises investors, companies and insolvency practitioners on distressed M&A transactions and cross-border restructurings. He combines expertise in transaction structuring, insolvency law and operational implementation planning.

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Frequently asked questions about corporate acquisitions out of insolvency

Why is an insolvent company usually sold as an asset deal?

The purchaser may acquire specific assets necessary for the business’s operations, whilst the historical liabilities generally remain with the insolvent legal entity. Nevertheless, statutory transfers of liability and specific risks under public law must be examined.

Is the buyer liable for the company’s past debts?

In principle, only if he expressly assumes them or if statutory liability applies. Employment relationships, environmental liability or other consequences prescribed by law may be independent of the contractual selection of assets.

Are customer contracts automatically transferred to the buyer?

No. In the case of an asset deal, the consent of the contracting party is usually required. Essential contracts should therefore be identified at an early stage, and their transfer should be secured as a condition of closing or a transitional provision.

Which employees must the buyer take on?

In the event of a transfer of a business or part of a business, the associated employment contracts are transferred by operation of law. The decisive factor is the economic entity that is actually being continued, not a selection clause in the purchase agreement.

Does the insolvency administrator provide any guarantees?

Usually only to a very limited extent. The subject matter of the acquisition, the transfer of ownership, approvals and conditions precedent must therefore be regulated with particular precision and verified during the due diligence process.

Who decides on the sale?

The insolvency practitioner, or the debtor in the case of self-administration, conducts the proceedings. In the case of particularly significant realisation measures, the creditors’ committee or creditors’ meeting must generally be consulted. In addition, secured creditors may be required to give their consent.

How quickly can a corporate acquisition be completed following insolvency?

The process can be significantly quicker than a standard corporate acquisition. The actual duration depends primarily on financing, the transfer of contracts, employee-related issues, the release of collateral and regulatory approvals.