As you already know, PAYMILL has decided to file for preliminary insolvency proceedings under self-administration. The desired outcome of this decision is to find the best solution for PAYMILL and for all stakeholders involved.
In this post we would like to highlight the legal background about Germany’s insolvency law, PAYMILL’s latest actions into the insolvency plan and what a merger and acquisition process looks like.
Germany’s insolvency law
Since Germany introduced the Act for Further Facilitation of the Restructuring of Companies (Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen, ESUG) on March 1, 2012, a large number of companies has taken advantage of the new restructuring and reorganization opportunity. Reasons being that the new code significantly strengthens the rights of debtors in insolvency proceedings in order to maintain the enterprise.
One of the most recent acts in the German Insolvency Law allows for the company to enter into self-administration with the support of an insolvency administrator in an executive role, similarly to Chapter 11 of the US Insolvency Law, and a trustee, appointed by the insolvency court. Together, the executive administrators restructure the business using all instruments allowed under the German Insolvency Law.
Introduction to an insolvency plan
During the insolvency procedure, an insolvency plan is prepared by the insolvency administrator or by the debtor. However the creditors may also instruct the insolvency administrator to prepare an insolvency plan. The plan has to include a descriptive part summarising the debtor’s reasons for entering insolvency proceedings, their business and a suggestion for saving the company.
The interesting part of the plan outlines the measures which are needed to reorganise the business. The plan can decrease the rights of lenders, might reduce claims of lenders or sell assets of the debtor. But the law stipulates that the members of the groups need to have common interests to see the plan through.
An insolvency plan is particularly suitable if the company has the intention to be preserved as a legal entity. Under the insolvency plan, the most frequent method of saving a company is through a sale of parts or of all the assets to a newly established legal entity.
The plan needs the acceptance of all groups, but the court can overrule a dissenting group by establishing they are not made worse by the plan.
PAYMILL’s insolvency case
PAYMILL’s insolvency case complies with the latest insolvency act, meaning that the company is running in self-administered management to ensure our business operations can be seamlessly continued to its full extent. The decision to file for preliminary insolvency in self-administration, under the management team of Mark Henkel and insolvency restructuring expert Vincenz von Braun, has been supported by the Munich insolvency court. This procedure was accepted by the court as there are realistic chances to continue business operations.
PAYMILL’s actions in the Past two weeks
After the official registration for preliminary insolvency at the insolvency court, all relevant stakeholders were informed: employees, customers, partners and creditors. We have had meetings with all main creditors, to ensure stable business operations and we are very grateful to all committed to us and who support us to keep the business running.
In parallel, it was important to guarantee our employees’ salaries. We found great support with our lawyer and new Managing Director, Vincenz von Braun, and his team. The search for experienced partners was also part of the early days, to be ensured, we have professionals on our side, going through this process, especially in preparation for a M&A process.
In addition to administrative tasks, such as an inventory and HR related topics, the external communication was crucial to explain the current situation and what that means for our stakeholders. Our plan was – and still is – to be as transparent as possible during the whole process, to give you the chance, to ask questions and also to stay updated.
The next steps are mostly influenced by the M&A process which has started last week.
PAYMILL’s steps into the M&A process
PAYMILL’s next steps includes finding a buyer for the company in a merger & acquisition (M&A) process aiming for an asset deal, where the buyer takes over all valuable company assets.
But what does this mean in practice? PAYMILL has shortlisted businesses who would be interested in purchasing the company’s assets and begun reaching out to them. However, this also works the other way around with interested parties initiating the first contact.
At the same time a pitch deck, which is essentially a presentation highlighting the company’s state, business performance and products is prepared. This can also happen in collaboration with an experienced consulting agency, in our case this is KPMG, who are specialists in M&A processes. This deck is then later sent over to parties who have shown an interest.
Once talks have progressed, interested parties will issue a letter of intent to commence with an M&A transaction, followed by a due diligence process involving lawyers, accountants, tax advisors, and other professionals from both sides to assess any proposed deal.
With due diligence completed – depending on the structure of the transaction – both parties can start drawing up a contractual agreement, known as a “merger agreement”, “share purchase agreement” or “asset purchase agreement”. These contracts focus on defining the terms of the transaction between the two parties.
Thanks for your trust in PAYMILL. We will keep you updated for more information on this insolvency process.