Working End > Insolvency > Absorption Company

Absorption Company

Definition, Explanation

When a company must file for bankruptcy, an absorption company can be founded in order to keep the business running. It is founded in collaboration by the debtors and the creditors, partially with governmental participation. The valuable parts of the bankrupt company are transferred to the new one. The absorption company takes over the production facilities and employees, but not the obligations. Any profits that may be earned will be deduced to the bankrupt company.

Motives for founding an absorption company:

• Continuing the business in case of bankruptcy
• Avoiding bankruptcy in case of impending insolvency of a company
• Within social programs of companies going to go bankrupt, qualifying employees and supporting their changing into new employment relations

Prerequisites an absorption company being founded:

• There are competitive products or services provided
• Taking over of the clients and the assets enables the business to be continued
• Necessary creditors (banks and suppliers) consider the absorption company able to survive

Consequences of an absorption company:

• Tariff agreements apply no longer
• The employees are neither dismissed nor do they get severance money, but a cancellation agreement with fixed term employment contract in the absorption company
• Transfer short time work money can be granted on application
• When an employee’s employment has ended, the employee still gets an unemployment benefit based on the prior post-tax income outside holiday pay and Christmas-money

Often, the absorption company is called employment company or transfer company because the conditions and procedures are the same. You can find further information, there.

Tips, Checklist

• To change into an absorption company is voluntary
• Think whether you want to be taken over in the absorption company or a dismissal for operational reasons is more beneficial for you
• Apply for new jobs immediately

Last update: 08/03/2010