Insolvency and sequestration practitioners: Prohibited legal fees and litigation

Corruption in insolvency administration:

In August 2005, the Handelsblatt reported on a corruption case.
The basis was the observation that an insolvency administrator had paid money for the procurement of orders. Public prosecutor’s investigations can not only be directed against insolvency administrators – forced administrators can also be in the fire here.

Rich insolvency administrator – poor creditors:

Affected creditors, including investors, sometimes observe that the settlement of some insolvencies often drags on for many years.
Meanwhile, many an insolvency administrator is conducting one lawsuit after another – and many a receiver is supposed to proceed in a similar manner. The accusation then is that money was literally (from the creditors’ perspective) thrown out the window.

 

Prohibition of activity using the example of an accounting limited liability company:

By judgement of 27.03.2003 (AGH II-1/03) a lawyer was punished with a reprimand, among other things, who had initially prepared an accounting for a client via his accounting limited company (he was its managing director). Even before the end of this activity, he began to prepare related tax returns in his office. The court clarified (BRAK-Mitt. 2003, p. 182 ff.) that no activity that is lawyerly in the narrow sense (e.g. preparation of annual financial statements) may be taken on as long as the “non-lawyerly” office or the “second-professional” activity has not been completely terminated.

 

Prohibition of activity in the compulsory and insolvency administrator:

In this sense, receivers and insolvency administrators are also not allowed to act before such courts where lawyers are compulsory.
If they nevertheless take action, for example by conducting proceedings before the Regional Court or Higher Regional Court, they are in breach of their professional duties. The profession of an insolvency administrator or, for example, a sequestrator, should not be abused to obtain additional income through litigation or lawyers’ fees.

 

Options for investors and their advisors:

As a rule, such violations lead to the loss of insurance coverage and therefore create the appearance of unreliability. This offers capital investors the possibility of a
Request change of administrator. via a new administrator or the supervision of the court, the mass to be distributed may increase again if unnecessary legal costs have to be reimbursed.

 

by Dr. Johannes Fiala

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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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