Lenningen-based Papierfabrik Scheufelen initiated preliminary insolvency proceedings on 30 January. The company said talks with potential investors are continuing but that production is temporarily suspended as insolvency proceedings get under way from Sunday (1 April).

The “vast majority” of its employees, who have had their salaries paid by the Federal Employment Agency’s insolvency allowance for the past two months, have been temporarily released for the time being and will receive unemployment benefits in April.

The preliminary insolvency administrator, Tibor Braun, informed the workforce last week at a staff meeting attended by representatives of the labour administration and the trade union, IGBCE.

Scheufelen, which currently has 340 employees, said it had been trying to counteract the negative trend caused by both increased raw material prices and a decline in margins on coated papers since the end of 2016.

The company pushed ahead with the development of printable grass paper to help it escape the price pressure on pulp supply in particular, but ultimately ran into financial problems.

Chief executive Stefan Radlmayr said: “On the home stretch, we ran out of money. This is very unfortunate given the huge customer interest.

“Scheufelen is currently the only manufacturer who is able to produce the paper produced on 50% of grass and 50% of pulp on an industrial scale with offset printing capabilities, thus meeting the high demands of the packaging industry.”

The firm said it had been hopeful that a competitor would acquire the business to take advantage of its grass paper development. But despite “considerable political efforts” from the federal government and the state to assist in the search for investors, this has not yet been realised.

“One gets the impression that the industry and the pulp industry do not want to help this sustainable and disruptive technology to become a success,” said Braun.

“Money pots can only be opened when an investor is on board. In the current situation, however, nobody is helping the employees and the company.”

He added: “With the help of a €3m [£2.6m] mass loan and because the salaries of employees were paid by the Employment Agency, the provisional insolvency administrator and the management, after filing for insolvency, were able to resume production and continue until today.

“The efforts were supported by the customers. In particular, the important distribution partner Igepa Group, for which the coated, high-white, Heaven 42 fine paper is manufactured, has used the company to a considerable extent with orders.?

“In the opened insolvency proceedings, however, no losses may be made to the detriment of the creditors. We were therefore forced to make a decision and at least temporarily discontinue paper production at Scheufelen.”

Braun said customers for grass paper, especially from the food industry, are “queuing up” but expect an investor in place before they change their packaging.

“25,000 to 30,000 tons of grass paper could be easily sold in the first year but possible investors are still hesitating. However further negotiations are timely limited. We need the solution by the end of April,” he said.

Feldmuehle Uetersen, based just outside Hamburg, initiated its provisional insolvency proceedings the week before Scheufelen on 24 January.

Like Scheufelen, its staff have had their salaries paid by the Federal Employment Agency’s insolvency allowance for the past two months and the company will open its bankruptcy proceedings on 1 April, though the situation there is looking more hopeful.

In a statement, Feldmuehle said: “According to plan, the business will be reorganised by way of a transfer of business (asset deal) on 1 May 2018.”

German website shz.de reported that on 16 March the Pinneberg district court enabled preliminary insolvency administrator Tjark Thies further rights that would make it easier for him to settle liabilities after the opening of bankruptcy, including old debts that the company incurred before 24 January.

“Several investors [are] said to be interested in taking over the paper mill,” according to shz.de.