Insight

Debtor-in-Possession Proceedings and the Insolvency Plan

Requirements, procedure, the role of management and the distinction from regular insolvency and StaRUG.

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

In brief

Debtor-in-possession proceedings are insolvency proceedings conducted under the debtor's own management. Under Section 270 InsO the business remains entitled to administer and dispose of the insolvency estate under the supervision of a monitor where the insolvency court orders debtor-in-possession proceedings. Management thus remains in office and continues to run the business. From the opening of the proceedings, however, its decisions are guided by the best possible satisfaction of the creditors and the approved restructuring path. Shareholder interests alone are no longer decisive.

The insolvency plan may reorder liabilities, security interests and company-law positions. It is not confined to debtor-in-possession proceedings, though it is used there particularly often, because operational management and legal restructuring can be coordinated in one hand. Whether this model is suitable depends on the causes of the crisis, liquidity, data quality, creditor confidence and management's ability to steer demanding proceedings transparently.

In debtor-in-possession proceedings the company remains entitled under Section 270 InsO to administer the insolvency estate under the supervision of a monitor. Management stays in office.
The proceedings require a debtor application accompanied by planning under Section 270a InsO, including, among other things, a six-month financial plan and a concept for conducting the proceedings.
The monitor supervises the economic situation and the management. The court may lift debtor-in-possession proceedings where duties are breached or creditors face disadvantage.
An insolvency plan under Sections 217 et seq. InsO may reduce, defer or convert claims. A dissenting group's consent can be substituted under the conditions of Section 245 InsO.
StaRUG applies before the onset of illiquidity and may be limited to particular creditor groups. Debtor-in-possession proceedings, by contrast, open the full toolkit of the Insolvency Code.

What is the essential difference from regular insolvency?

In regular insolvency, the power to administer and dispose of the assets belonging to the insolvency estate passes to the insolvency administrator on the opening of proceedings under Section 80 InsO. The former management remains in office under company law but can no longer dispose of the estate independently. The insolvency administrator runs the business, decides on contracts and develops the realisation or restructuring strategy.

In debtor-in-possession proceedings this power remains with the debtor. Instead of an insolvency administrator, the court appoints a monitor. He examines the economic situation, supervises the management and the development of liquidity and reports to the court and the creditor bodies. For material measures, consent requirements may apply.

The difference therefore concerns above all the conduct of the proceedings, not the application of insolvency law. The filing of claims, equal treatment of creditors, avoidance in insolvency, employment-law instruments and the insolvency plan continue to follow the Insolvency Code.

What requirements apply to debtor-in-possession proceedings?

Debtor-in-possession proceedings are ordered only on the debtor's application. Under Section 270a InsO the application must be accompanied by debtor-in-possession planning. Among other things, this must contain a financial plan for six months with a robust presentation of the sources of financing, a concept for conducting the proceedings and a presentation of the state of negotiations with creditors and other parties.

The court examines whether the planning is complete and comprehensible and whether circumstances are known that give reason to expect disadvantages for the creditors. Deficient accounting, incorrect planning assumptions, unresolved claims for directors' liability or a lack of alignment with the creditors' interest may tell against debtor-in-possession proceedings. Remediable defects may, under the statutory conditions, be cured within a short period.

In practice, preparation therefore begins well before the insolvency application. Liquidity planning, integrated business planning, an analysis of the causes of the crisis, a restructuring concept, stakeholder mapping and procedural documentation must fit together. Debtor-in-possession proceedings that are improvised only once acute illiquidity sets in quickly lose the confidence of the court and the creditors.

How do preliminary debtor-in-possession proceedings proceed?

Between the insolvency application and the opening of proceedings, the court may order preliminary debtor-in-possession proceedings. Management continues to run the business, while a preliminary monitor supervises the financial position and the course of action. On application, the court may authorise the debtor to incur liabilities of the estate. This is often decisive for supply relationships and the continuation of the business.

In this phase, liquidity is stabilised, the pre-financing of insolvency compensation is arranged, operational measures are prepared and discussions with material creditors are deepened. At the same time, the opening of proceedings must be prepared. Contracts, security interests, the workforce structure and possible avoidance claims are analysed.

Preliminary debtor-in-possession proceedings are not an automatic interim step. The court may lift them where the requirements cease to be met, duties are breached or disadvantages for the creditors are threatened. Transparent reporting and robust figures are therefore the foundation of the proceedings.

What is the protective shield procedure?

The so-called protective shield procedure is a special form of preparing a restructuring under debtor-in-possession proceedings. It comes into consideration only where the business is not yet illiquid, but imminent illiquidity or over-indebtedness exists, and the intended restructuring is not manifestly hopeless. A suitable certificate must confirm the requirements.

The court sets a deadline for the submission of an insolvency plan and may, on the debtor's proposal, appoint a preliminary monitor, provided the proposed person is not manifestly unsuitable. The protective shield is frequently used where an insolvency plan is already well prepared and the business does not wish to await the onset of illiquidity.

The term can be misunderstood. It does not generally protect against creditors and does not replace financing. The procedure only works where liquidity for continued operation is secured and the plan becomes ready for a vote within a short time.

What role does management play?

Management remains operationally responsible. It must steer liquidity, stabilise the business, inform employees and customers and implement the restructuring measures. At the same time, it cooperates with the monitor, the creditors' committee, the court and advisers.

Its duties shift. Decisions must be aligned with the interests of the creditors as a whole and documented comprehensibly. Payments, new obligations, realisations and the treatment of affiliated companies require an insolvency-law review. Old decision-making routines or a one-sided focus on preserving the existing shareholder position are not tenable.

In many proceedings, the existing management is supplemented by a restructuring-experienced CRO or general representative. This can close professional gaps and build confidence. The responsibility of the formal corporate officers does not, however, thereby disappear.

What is the task of the monitor?

The monitor supervises the economic situation and the management of the debtor. He examines whether the debtor-in-possession proceedings are running properly and whether the interests of the creditors are safeguarded. In the opened debtor-in-possession proceedings, the claims of the insolvency creditors are filed with the monitor.

The monitor is not merely an adviser to management. He has an independent supervisory function and must react to problems. Depending on the court's order or the state of the proceedings, individual dispositions may require consent. Where duties are breached or the creditors' position deteriorates, the debtor-in-possession proceedings may be lifted.

A constructive relationship presupposes clear roles. Management develops and is responsible for the restructuring, the monitor examines and supervises. Where these functions are mixed, conflicts of interest and problems of confidence arise.

How does the creditors' committee participate?

The preliminary or final creditors' committee bundles the differing creditor interests and accompanies material decisions. It should represent in particular large insolvency creditors, creditors entitled to separate satisfaction, small creditors and employees. In the case of larger businesses, a preliminary creditors' committee is generally to be established under the conditions of Section 22a InsO.

The committee may influence the selection of the monitor or insolvency administrator, support the debtor-in-possession proceedings or speak against them and examine particularly significant measures. These include, for example, sales of the business, extensive financings or settlements.

For the business, the committee is a central legitimising body. Those who inform it early, fully and comprehensibly can accelerate decisions. Those who disclose material risks only late endanger the proceedings.

What can an insolvency plan regulate?

Under Sections 217 et seq. InsO the insolvency plan permits a regulation deviating from the statutory realisation and distribution. It may reduce claims, defer them or convert them into other rights. Security interests and group-related rights may be included under the statutory conditions. The shareholding and membership rights of the shareholders may also be shaped.

The plan consists of a descriptive and a structuring part. The descriptive part explains the initial situation, the measures and the comparison calculation. The structuring part determines how the rights of the parties change. Those affected are divided into groups and vote within those groups.

If a group rejects the plan, its consent may be substituted under the conditions of Section 245 InsO. The prerequisite is, in particular, that the group is not likely to be placed in a worse position by the plan than without it and that it participates appropriately in the plan value. This possibility prevents individual groups from blocking an economically viable restructuring without objective reason.

How does the vote on the insolvency plan proceed?

After a judicial preliminary examination, the plan is discussed and put to a vote. In each group, the head-count and sum majorities required by law must be achieved. The court then examines whether the plan is to be confirmed and whether minority protection or grounds for refusal stand in the way.

The vote is only the visible endpoint. Successful plans are negotiated beforehand with financiers, suppliers, employee representatives, secured creditors and shareholders. The comparison calculation must show credibly what quota and what prospect the parties would have without the plan.

Once confirmation becomes final, the effects determined in the structuring part take effect. The plan may provide for supervision of its performance. The insolvency proceedings are lifted where the statutory requirements are met. Financing and operational implementation must then already be in place.

How does the insolvency plan differ from StaRUG?

StaRUG applies before the onset of illiquidity. It is aimed at businesses that are facing imminent illiquidity and wish to restructure their financial liabilities or security interests in a targeted manner. The procedure may be limited to particular creditor groups and need not be conducted publicly like insolvency proceedings, provided no public restructuring matter is applied for.

Debtor-in-possession proceedings, by contrast, are insolvency proceedings. They open the full toolkit of the Insolvency Code, including special rules on contracts, employment and avoidance. In return, more far-reaching transparency, judicial control and the inclusion of all insolvency creditors apply.

StaRUG is particularly suitable for early financial restructurings where the operating business is fundamentally viable. Debtor-in-possession proceedings and the insolvency plan become relevant where a more comprehensive restructuring is required, insolvency-law instruments are needed or illiquidity has already occurred. The stage of the crisis and the restructuring need determine the right choice.

When are debtor-in-possession proceedings not the right solution?

They are practically ruled out where there is no reliable accounting, liquidity cannot be secured or management has lost the confidence of material creditors. Serious breaches of duty, unresolved conflicts of interest or substantial claims against serving corporate officers may likewise tell against continuation under the debtor's own management.

Regular insolvency may then enable the more credible fresh start. An independent insolvency administrator takes decisions unburdened by earlier conflicts and can pursue liability or avoidance claims without structural impediments. For a sale of the business, debtor-in-possession proceedings are likewise not necessarily superior.

The decision on the procedure should be taken early and with an open outcome. Debtor-in-possession proceedings are an instrument, not an end in themselves. Their value lies in preserving existing operational knowledge and implementing a prepared restructuring efficiently.

About the author

Johannes Egelhof LL.M.

Partner · M&A & Corporate

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Johannes Egelhof LL.M. advises companies, managing directors, shareholders and investors on restructurings, debtor-in-possession proceedings and insolvency plans. His focus lies on combining restructuring strategy, financing and company-law implementation.

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Frequently asked questions about debtor-in-possession proceedings and the insolvency plan

Does management remain in office in debtor-in-possession proceedings?

Yes. It continues to run the business and administer the insolvency estate, but is subject to the supervision of a monitor and must align its decisions with the interests of the creditors.

Is a business entitled to debtor-in-possession proceedings?

Debtor-in-possession proceedings are ordered on application where the statutory requirements are met and no circumstances are known that give reason to expect disadvantages for the creditors. Robust debtor-in-possession planning is central.

What does the monitor examine?

The monitor supervises the economic situation, the management and compliance with insolvency-law duties. He reports to the court and the creditor bodies and can intervene in the event of adverse developments.

What can an insolvency plan achieve?

It can reduce or defer claims, shape security interests and shareholder rights, bring in new investors and create the legal basis for the continuation of the business.

Can a dissenting creditor group be outvoted?

Under the conditions of the statutory prohibition on obstruction, the court may substitute the consent of a dissenting group. In particular, the group must not be placed in a worse position than without the plan.

What is the difference between the protective shield and debtor-in-possession proceedings?

The protective shield is a special preparatory phase for an insolvency plan in the case of imminent illiquidity or over-indebtedness, as long as illiquidity has not yet occurred. Debtor-in-possession proceedings are the overarching procedural framework.

When is StaRUG better suited?

StaRUG may be suitable where the business is only facing imminent illiquidity and above all needs to restructure financial liabilities in a targeted manner. Where comprehensive insolvency-law instruments are needed, there is more to be said for debtor-in-possession proceedings and the insolvency plan.