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New obligations requiring action and liability risks in restructuring and insolvency law

  • Germany
  • Restructuring and insolvency
  • Tax planning and consultancy


An introduction for the management

With the draft bill of the Act on the Further Development of Restructuring and Insolvency Law ("SanInsFoG") published on 14 October 2020 and the Corporate Stabilisation and Restructuring Act ("StaRUG") contained therein, the planned implementation of the EU Directive on restructuring and insolvency is now on hand. With the stabilisation and restructuring scheme for companies, the management shall, on the one hand, receive a new tool for a restructuring of the company outside of insolvency. On the other hand, the legislator creates additional obligations for the management and also ties personal consequences of liability to such obligations. Managing directors, board members but also supervisory board members should hence familiarise themselves in particular with these obligations in good time. The legislative process is to be carried out shortly; the new regulations are planned to enter into force already with effect from 1 January 2021.

1. Which new possibilities of restructuring proceedings does the management have with effect from 1 January 2021?

| The focus of the restructuring possibilities is the "restructuring scheme" ("RS"). This scheme aims at the conclusion of a restructuring plan by means of which, on the basis of a majority voting, in particular claims of creditors can be reduced or deferred. At the voting, which takes place in groups, a respective majority of 75% of the claims involved must be achieved so that also the objecting creditors or groups of creditors will be bound to the provisions of the plan by court order.

| The restructuring plan is supported by additional measures which will be taken after the competent restructuring court has been notified of the intended restructuring. These include in particular:

  • Prohibition of clauses providing for an automatic termination of a contract in case of an insolvency (ipso facto clauses);
  • Possibility of imposing enforcement and liquidation barriers (moratorium)("stabilisation order");
  • Possibility of terminating mutual contracts not yet completely fulfilled by court decision.

2. Which new obligations does the Act impose on the management?

| For the management of companies with limited liability, there will be a continuing general monitoring obligation for the early detection of a company crisis in the future. The specific implementation (e.g. IT-based) will depend on the size and structure of the company and the industry in which it operates (Sec. 1 StaRUG-E (explanatory memorandum)).

| If the management recognises a risk for the continued existence of the company, suitable countermeasures within the framework of its crisis management must be taken and the controlling bodies of the company must be notified (e.g. supervisory board or advisory board).

| Both obligations – early detection of a crisis and crisis management – are to be understood as minimum statutory requirements. The special statutory provisions regarding the handling of a crisis, e.g. pursuant to Sec. 49 para. 3 of the German Limited Liability Companies Act (GmbH-Gesetz, GmbHG) and Sec. 91 para. 2, Sec. 25a para. 1 sent. 3 of the German Banking Act (Kreditwesengesetz, KWG) continue to apply in addition.

3. Which extended obligations and liability scenarios exist in case of an imminent illiquidity or after the notification of the intended restructuring?

| So far, an imminent illiquidity has already constituted a reason to open insolvency proceedings which, however, is not linked to an obligation to file an application and can only lead to the opening of insolvency proceedings upon application by the debtor. In the future, an imminent illiquidity shall at the same time serve as a decisive criterion for the application of the RS. In this context, the period for the review of the imminent illiquidity (which has so far not been defined by law) is also generally determined to be 24 months.

| An obligation to safeguard the interests of all creditors in case of an imminent illiquidity (Sec. 2 StaRUG-E) will be newly introduced. The controlling bodies such as supervisory board, advisory board or board of directors have to permanently monitor compliance with the extended obligations.

| If the management violates this obligation, the respective management member is subject to a personal liability to pay compensation as part of an internal liability vis-à-vis the company (Sec. 3 StaRUG). Possible loopholes in connection with the intended reduction of the review period regarding the forecast for the continuation of the company within the framework of the over-indebtedness audit to 12 months are thereby avoided.

| In addition, the controlling bodies may be held liable in case of violations of their respective monitoring obligations and the shareholders may be held liable if they fail to ensure the existence of a management which is capable of acting. 

| If the management decides for a restructuring of the company using the new possibilities under the RS, a direct responsibility vis-à-vis the creditors will exist upon notification of the intended restructuring before court. From that point, an external direct and personal liability of the management vis-à-vis the creditors of the company also comes into consideration, in particular in case of a deterioration of the assets (Sec. 45 StaRUG-E).

4. Which extended obligations and liability scenarios exist in case of an illiquidity or over-indebtedness?

| If a company becomes insolvent or over-indebted after notification of the intended restructuring, the management is obliged to notify the restructuring court accordingly (Sec. 34 para. 3 StaRUG-E). If the management fails to make such notification, this might result in a criminal liability in addition to its liability under civil law.

| In case of a violation of the prohibition to effect payments following an illiquidity or over-indebtedness, i.e. payments which lead to a reduction of assets, the management is also personally liable. This applies to all payments which are inconsistent with the care of a diligent and conscientious manager.

5. Which role do the managers and the restructuring representative play according to the RS?

| In principle, the management structures the contents of the restructuring plan with the creditors autonomously and determines the voting and implementation modalities.

| In addition, the company may make use of a restructuring representative who supports the negotiations and assumes a reporting and monitoring function in the relationship with the court.

| The appointment of a restructuring representative may take place upon application by the debtor or by the creditors (if they bear the costs and if they are entitled to 25%+x of the voting rights of the group formed in the restructuring plan). In addition, a restructuring representative must be mandatorily appointed in certain cases, e.g. if a stabilisation order shall have a comprehensive effect or if claims of small and medium-sized companies are concerned.

6. What applies vis-à-vis the strong creditor tax office?

| A restructuring tax law which ensures that companies are not burdened with taxes to be paid for accruing book profits in case of a restructuring and which enables a high level of flexibility in the restructuring still does not exist.

| Based on currently available information, the general tax regulations will hence also apply if the structuring possibilities of the RS are used.

| In this context, a particular problem results from the obligations and liability risks of managing directors in a stage of crisis which already exist pursuant to the German Fiscal Code (Abgabenordnung, AO). To be emphasised in this respect is the obligation of the management to manage a company in a way that taxes can be paid when due. The new obligations pursuant to the StaRUG are not harmonised with these tax obligations, a fact which leads to significant uncertainties in the phase of an imminent illiquidity.

| At the present time, various tax questions related to (cross-border) group financing have also not been finally clarified yet or new questions arise due to upcoming changes in legislation. Without a well-documented, uniform tax and legal advice, it might be difficult for the management in the individual case to provide evidence of whether the company acted in accordance with its duties.

| As things stand at the moment, a liability-oriented, early advice in the individual case is required in order to correctly assess the presumably overlapping legal and tax obligations and to navigate the management as safely as possible through the company restructuring phase.