Restructuring without insolvency, while using key advantages of insolvency
The German Corporate Stabilisation and Restructuring Act (StaRUG) provides for restructuring proceedings that are open only to companies facing impending illiquidity but not yet obliged to file for insolvency.
The core element of the restructuring framework is the so-called restructuring plan. With the restructuring plan, companies can avert insolvency without damage to their reputation and restructure with the consent of a majority of creditors.
Out-of-court restructuring attempts often fail, resulting in insolvency, because individual creditors do not accept the dividend offered to them. The new restructuring plan is different: it allows a restructuring to be imposed even on dissenting creditors.
Under the restructuring plan, companies can in particular intervene in claims and in rights that would entitle the holder to separate satisfaction (Absonderung) in insolvency proceedings. A typical example is creditors' collateral, in particular loan collateral. Membership rights and shareholdings in the company can also be addressed in a restructuring plan. The restructuring plan does not, however, permit any intervention in employees' wage and salary claims or in pension claims.
Within specified limits, the restructuring plan makes it possible to include only individual creditors in the plan. For example, claims of banks can be included while suppliers' claims remain unaffected. The restructuring plan is managed by the company's management on its own responsibility. Only in exceptional cases is the appointment of a restructuring officer provided for, whose role is essentially one of supervision.
In particular, the restructuring plan must disclose the company's economic circumstances and set out how the company's impending illiquidity will be eliminated (restructuring concept). In addition to integrated profit and loss and liquidity planning, this requires a presentation of the operational and financial restructuring as well as the necessary accompanying restructuring measures. The creditors must approve this plan.
For the vote on the plan, the creditors are divided into groups. Each group must be composed homogeneously on the basis of the legal and economic interests of its members. As a rule, a majority of 75 per cent must be achieved in each group. The decisive factor here is the amount of each creditor's claim. Similar to an insolvency plan, the lack of approval by a group can be overridden if the members of the group concerned are not placed in a worse position by the plan than they would be without it.
In the interest of a successful restructuring, the legislator has created options for court involvement:
The competent restructuring court can be involved if not all creditors have approved or participated in the restructuring plan and the restructuring plan is also to take effect vis-à-vis these creditors. If the company expects resistance from individual creditors from the outset, it may make sense to conduct the vote on the restructuring plan as court proceedings from the start. A preliminary court review of the restructuring plan and of the planned voting process may also be requested in order to obtain guidance from the court on issues relevant to a later confirmation of the plan.
Furthermore, a stay of enforcement measures and a suspension of the realisation of secured assets for up to three months can be requested from the restructuring court as a stabilisation measure.
In the cases mentioned above, the restructuring court additionally appoints a restructuring officer, whose task is in particular to assess the restructuring plan that has been drawn up. Where appropriate, the court may also grant the officer further powers. If a creditors' advisory board is set up, it can propose the restructuring officer by unanimous resolution, and this proposal is binding.
For smaller companies, the law provides for the use of restructuring moderation. A neutral mediator works out a restructuring settlement, which can then be confirmed by the court.
For the first time, this law gives companies the opportunity to implement restructuring concepts by majority vote without insolvency – if necessary even against the will of individual affected parties, provided that the restructuring plan does not place them in a worse position. As a result, the financial restructuring measures can be implemented that are required, in addition to the operational measures, for the restructuring to succeed. At the same time, the legislator has given the management bodies of companies a new set of duties, as failure to make such restructuring efforts will in future give rise to liability. This will lead to a drastic change in restructuring culture.
