Implementing the Restructuring Directive in Germany

At the beginning of the year, the German legislature implemented the Directive by way of the Law on the Stabilization and Restructuring Framework for Companies (StaRUG). The StaRUG, which entered into force on 01.01.2021, should give companies and entrepreneurial individuals threatened by imminent insolvency the opportunity to carry out restructuring on the basis of a restructuring plan at an early stage and shielded from the public.

The centrepiece of the restructuring procedure under the StaRUG is a restructuring plan designed by the restructuring company itself, which strongly conforms to the content of the previously known insolvency plan. In contrast to the insolvency plan, the restructuring plan does not have to extend to all creditors of the company, but rather it is at the discretion of the company whether the plan should affect all or only selected creditors.  Furthermore, the implementation and enforcement of this plan does not require the consent of all creditors concerned; the restructuring project can be enforced against the resistance of a minority of the creditors, provided that this is approved by a qualified majority of the creditors (so-called cross class – cram-down procedure) and is confirmed by the restructuring court over the course of this process.

Not only the initiative and the design of the restructuring plan but also its implementation and the business of the company during the ongoing restructuring process are essentially in the hands of the company itself that is in need of restructuring. A transfer of administrative powers and the power of disposition to an officially appointed administrator, as in the insolvency proceedings according to the InsO, is not provided for according to the StaRUG. Although the restructuring court can appoint a restructuring officer and equip him with certain information rights, the competence of the restructuring officer is essentially limited to a consulting and monitoring function, while the management of the company continues the operational activities independently and largely without external instructions.

A few months after its entry into force, the new law was subjected to a practical run-through. Thus, what was probably the first restructuring procedure according to the new StaRUG was confirmed by the District Court of Hamburg in April, 2021. In addition to a concept for the settlement of creditor claims, the restructuring plan also contained Corporate Law measures, such as the reduction of the share capital, the replacement of the shareholders and the takeover of new shares by an external investor. The restructuring plan was approved not unanimously by the creditors but rather by a majority of them in conformance with StaRUG. Only two weeks after the discussion and voting date, the restructuring plan was confirmed by the restructuring court and was also legally valid after the expiry of the two-week appeal period. With the judicially confirmed restructuring plan, the Debtor succeeded in averting an imminent insolvency.

This initial practical experience has thus shown that the preventive restructuring procedure is suitable as a fast and inexpensive instrument for the early restructuring of companies. With simplified access to self-administration, this practice should give the managers in particular positive incentives to initiate restructuring measures early on. However, whether the concept of the new procedure has been completely successful or has weak points will have to be shown in further practice.

Autor: Dr. Sabine Freytag