Meaning
German insolvency proceedings govern how assets subject to security rights are liquidated and distributed by the appointed insolvency administrator. Under inso section 166, the administrator possesses the exclusive right to realize or sell any movable assets that are in their possession but subject to security rights. This statutory control limits the ability of secured creditors to independently seize and sell their collateral.
Liquidating Action
Secured lenders and suppliers with chattel mortgages cannot freely repossess assets once insolvency proceedings are officially opened. Instead, inso section 166 transfers the power to sell the secured inventory to the insolvency administrator. This mechanism ensures that the debtor’s business can be sold as a going concern.
Expense Recovery
Administrators charge fees for the appraisal and realization of the secured assets before distributing the remaining proceeds to the secured creditor. Under the statutory rules of inso section 166, the administrator deducts a flat percentage for the costs of realization and a further percentage for appraisal fees, which are deducted directly from the sale proceeds. This deduction reduces the net recovery for the supplier or lender, who must factor these statutory costs into their initial credit and risk models.
Fund Allocation
Balance sheets of secured creditors are directly affected by the timing and size of distributions following the sale of collateral. After the administrator makes the authorized deductions under inso section 166, the remaining funds must be paid to the secured creditor without delay. This distribution helps the creditor recoup their losses, although the statutory fees mean the returned amount is always lower than the gross value of the liquidated stock.
