GERMANY Law and Practice Contributed by: Konrad Schott, Jan Brinkmann and Johannes Vogel, Freshfields
2.9.5 Other Effects of a Lessee’s Insolvency Lease agreements concerning registered aircraft generally survive the opening of preliminary German insolvency proceedings and the formal opening of insolvency proceedings concerning the lessee. Once insolvency proceedings are formally opened, the insolvency administrator of the lessee has an extraor - dinary statutory termination right. The lessor is barred from terminating the lease agreement on the grounds of payment defaults or general deterioration of the lessee’s creditworthiness prior to the insolvency filing. Upon termination of the lease agreement, the insol - vency administrator has to surrender possession of the aircraft to the lessor. Factual circumstances such as engine replacements, or a lack of the necessary licences, insurance coverage or trained personnel may prevent or delay such redelivery. During preliminary insolvency proceedings and pro - vided that the insolvent lessee’s operations continue, the insolvency court can order – at the request of the preliminary insolvency administrator – that the aircraft shall temporarily remain with the lessee irrespective of the termination of the lease agreement if the aircraft is material for the lessee’s operations. As a practical observation, insolvency administrators of German airlines were generally co-operative in past cases, given the risk-adjacent nature of an aircraft and its operation. 2.9.6 Risks for a Lender if a Borrower, Guarantor or Security Provider Becomes Insolvent The effects of the insolvency of the borrower under an aircraft financing depend on the collateral granted. While the right to realise an aircraft mortgage remains with the secured party, the realisation of any other collateral in possession of the administrator vests in the insolvency administrator, who deducts a percent - age fee and VAT (if applicable) from the realisation proceeds before remitting them to the secured party. Access to the aircraft, the aircraft documentation and the (off-wing) engines may de facto be impeded in insolvency.
2.9.7 Imposition of Moratoria in Connection With Insolvency Proceedings German law does not provide for a moratorium in con - nection with the insolvency of an entity that is not a financial institution or insurer. However, any enforce - ment measures taken against an insolvent borrow - er would cease automatically upon the opening of insolvency proceedings against the borrower, as the right to realise collateral would generally vest in the insolvency administrator, who would then have to turn over the net realisation proceeds (minus a percent - age fee and VAT, if any) to the secured creditor. The enforcement of in rem security over registered aircraft is exempt from this rule (as is the enforcement into real estate) and may continue unless the insolvency administrator applies for its discontinuation. 2.9.8 Liquidation of Domestic Lessees Airlines can be subject to German insolvency pro - ceedings if their centre of main interest is in Germa - ny. Each third-party creditor can apply for insolvency proceedings upon the debtor’s illiquidity ( Zahlung- sunfähigkeit ) or over-indebtedness ( Überschuldung ) (ie, balance sheet insolvency together with a nega - tive continuation prognosis for the operations). The directors of a company generally have to apply for insolvency in these circumstances as well (subject to a relatively short grace period) and may choose to file for insolvency upon the company’s imminent illiquidity ( drohende Zahlungsunfähigkeit ). Solvent liquidation of a company outside insolvency requires a shareholder resolution. Subject to certain requirements, secondary insolvency proceedings can be opened over branches or assets of foreign airlines in Germany. 2.9.9 Ipso Facto Defaults In the insolvency of a lessee of an aircraft, the les - sor may repossess the aircraft upon the termination of the underlying lease agreement. Also, during pre - liminary insolvency proceedings and following the opening of insolvency proceedings, the aircraft lease agreement can generally be terminated by the lessor in accordance with its terms and the aircraft can be repossessed as a consequence of such termination, provided that:
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