Protective shielding procedures also leave many victims behind, often including landlords of shops.
(Photo: imago images/Arnulf Hettrich)
At first glance, the term sounds harmless: protective shield proceedings. And that was exactly the intention of the legislature when it was included in insolvency law a good ten years ago. Companies should be relieved of the fear of insolvency so that they can use this tool in good time for restructuring.
Now it turns out that the legislature has let a genie out of the bottle that has developed a dangerous life of its own. Especially in retail and especially in the fashion industry, bankruptcy seems to be the method of choice for some company managements. Because this is a great way to correct the consequences of one’s own management mistakes – even at the expense of the taxpayer.
The management does not even have to hand over control to an insolvency administrator, because the protective shield procedure takes place in self-administration. This means that the existing management team is only accompanied by a trustee.
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The fashion trade is currently experiencing a domino effect of insolvencies, the number rose by 107 percent in the first quarter. This not only has to do with the difficult economic conditions. The more companies file for bankruptcy, the greater the incentive for competitors to do the same.
On the one hand, the reputation risk is no longer as high if you are not the only one choosing this path. On the other hand, insolvency means a major competitive advantage. Anyone who has managed seriously and does not use this emergency exit is ultimately stupid.
At Galeria alone, the public pays almost a billion euros
But the worst thing is that companies harm many people in this way, not just suppliers, landlords and employees who have to forego claims. The insolvency money and unpaid social security contributions are also depriving the public sector of millions.
It was extreme at Galeria Karstadt Kaufhof. The damage to the public from two previous insolvencies through state aid and insolvency money adds up to almost one billion euros.
And Galeria is not the only company that has chosen this path more than once. Since the protective shield procedure was introduced, more than 130 companies have applied for insolvency proceedings at least a second time, and some even a third time.
There are numerous examples where companies could be saved through good restructuring in insolvency proceedings and in this way high costs for the general public were avoided. But one should not make it too easy for the management of ailing companies to repair their own mistakes on the backs of others.
Perhaps it would be a start to call the protective shield procedure what it actually is: an insolvency.
More: The biggest loser of the Galeria bankruptcy is the taxpayer