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The new Restructuring Framework from a Creditor's Perspective

  • Germany
  • Coronavirus - Country overview
  • Restructuring and insolvency


On 14 October 2020, the German Federal Government presented its draft bill of the law on the further development of the restructuring and insolvency law (Gesetz zur Fortentwicklung des Sanierungs- und Insolvenzrechts SanInsFoG). The draft bill in particular implements the EU Directive 2017/1132 on Restructuring and Insolvency and is intended to already enter into force on 1 January 2021. This bill considerably amends and extends the currently applicable insolvency law. The core element here is the introduction of the law on the stabilisation and restructuring framework for companies (Gesetz über den Stabilisierungs- und Restrukturierungsrahmen für Unternehmen StaRUG).

1. What is new about the restructuring framework?

| Currently, restructuring measures such as a partial waiver of claims against the will of individual creditors or groups of creditors are only possible within the framework of insolvency proceedings. This approach is now being amended with the new stabilisation and restructuring framework to enable reorganisation measures also outside of the insolvency against the resistance of individual creditors.

2. How does the restructuring plan work?

| The so-called restructuring plan (Secs. 4 et seqq. of the StaRUG draft [StaRUG-E]) is a core element of the stabilisation and restructuring framework and resembles a settlement taking into consideration the groups of creditors affected by the plan in which the non-consenting creditors are bound to the plan agreed upon by a majority decision by a confirming order of the court. Materially, the approval of the plan requires that the non-consenting group must not be put in a worse position by the restructuring plan than without it. Certain claims, however, are excluded from the plan in the first place, in particular employees' and pension claims (special salary payments for employees in the case of insolvency (Insolvenzgeld) and the respective pre-financing will therefore not be available for the new restructuring framework either, at least not separately).

| The technical regulations, i.e. the regulations for forming the groups of creditors which decide on the plan, and the voting procedures are based on the regulations of the insolvency plan. However, they differ significantly: Instead of a cumulative majority per capita and the total number (50% + 1) in the individual groups in case of a classic insolvency plan, the restruc-turing plan provides for a qualified majority of 75% of the claims in the individual groups. In contrast to the insolvency plan procedure, StaRUG-E determines that the decision on modalities of the voting process and its implementation are left to the debtor as long as certain minimum requirements – such as adequate information, the possibility to participate in discussions and vote on the plan, protection of any involved smaller-sized enterprises etc. – are adhered to.

3. Which other restrictions of creditors' rights are possible?

In addition to the confirmation of the plan by a court, the restructuring framework introduces other instruments (Secs. 31 to Sec. 79 StaRUG-E) which the debtor can use at its own discretion. As a prerequisite, the competent restructuring court must be notified of the restructuring project, providing information regarding the status of the negotiations (Sec. 33 StaRUG-E).

| Termination of mutual, partly fulfilled contracts if the creditor is unwilling to adjust or rescind the contract (Sec. 51 StaRUG-E). Contracts where it is possible to refuse performance in case of insolvency (Sec. 103 of the German Insolvency Statute [Insolvenzordnung – InsO]) or which can be terminated pursuant to Sec. 109 InsO can therefore generally be terminated before the agreed date. The court decides on such applications simultaneously with confirming the plan. The contractual partner's compensation claim due to non-performance of the contract can also be defined in the restructuring plan.

| Ban of enforcement and utilisation measures which can hamper or thwart the envisaged restructuring solution ("Stabilisation order", Sec. 56 StaRUG-E). The provisions to put a ban of enforcement and utilisation in place are based upon the respective bans in preliminary insolvency proceedings. If a company is already in default with payments to employees, social insurance providers, tax offices or suppliers or the company has failed to comply with its accounting obligations in the past three years, such bans are only intended to be available if, despite such circumstances, it can be expected that the debtor is willing and able to carry out the restructuring taking into consideration the creditors' interests.

| Ban of ipso facto clauses (i.e. clauses providing for an automatic termination of a contract in case of an insolvency (Lösungsklauseln). Creditors' rights to alter a legal relationship by unilateral declaration (e.g., termination of contract, calling in receivables or a refusal to perform) cannot be exercised in a pending restructuring matter (Sec. 46 StaRUG-E). Insofar, an agreement on contractual clauses providing for an automatic termination of the contract in case of an insolvency is inadmissible.

4. Which role does the restructuring representative play?

| The StaRUG-E creates the new position of a restructuring representative. The restructuring representative must be a natural person who is independent from both the creditors and the debtor and must be experienced in restructuring and insolvency matters (Sec. 81 StaRUG-E).

| Upon the debtor's or any creditors' request (the latter only if they bear the costs and this is supported by more than 25% of the voting rights within a group), a restructuring representative can be appointed to assist with the negotiations. In addition, a mandatory appointment per curiam is provided for if:

  • a stabilisation order is intended to apply vis-à-vis (essentially) all creditors,
  • there are doubts whether the requirements of the stabilisation order are met (and if a confirmation of a fulfilment of the order requirements by a person experienced in insolvency matters is not provided),
  • a termination of contract is applied for, or
  • the consent of individual creditor groups is to be replaced against their will.

| In this regard, additionally a wide spectrum of tasks determined by the court may be allocated to the restructuring representative. For instance, the restructuring representative has the task to monitor that the access requirements to the restructuring framework remain fulfilled and to report to the court in this respect. Apart from that, the restructuring representative may in particular be entrusted with the task of reviewing the financial situation of the debtor and monitoring the debtor's management as well as of receiving payments on behalf of the debtor.

5. When can companies benefit from the new restructuring framework?

| Access to the new restructuring law will only be possible if a company is faced with "imminent illiquidity" (Sec. 18 InsO). Specifying this, a period of 24 months is determined for the assessment of the illiquidity. Companies which are already illiquid (Sec. 17 InsO) or over-indebted (Sec. 19 InsO) can hence not resort to the new law. As before, the only course of action for these companies are insolvency proceedings.

| If a company becomes illiquid or over-indebted during the restructuring proceedings, it is obliged to notify the restructuring court accordingly (Sec. 34 para. 3 StaRUG-E). If the managing directors fail to make a respective notification, they will be liable to prosecution. The notification thus replaces the request for the opening of insolvency proceedings in ongoing restructuring proceedings. The court will in principle suspend the proceedings once the company becomes illiquid or over-indebted (Sec. 35 para. 2 sent.1 no. 1 StaRUG-E). The court may, however, abstain from a suspension if the restructuring is soon to be completed and a suspension is obviously contrary to the interests of the creditors as a whole.

6. What responsibilities do the managing directors have?

| Pursuant to currently applicable law, managing directors are obliged to continuously monitor developments putting the continued existence of the legal entity at risk and to take measures against such developments, if necessary. This is expressly provided for in Sec. 1 StaRUG-E. In addition, managing directors of legal entities are subjected to an obligation to protect in particular the creditors' interests becoming applicable already in case of an imminent illiquidity (Sec. 2 StaRUG-E). They are then no longer merely bound by the company's interests, although an imminent illiquidity does not suffice to trigger an obligation to file for insolvency.

| In case of a failure to take the creditors' interests into consideration, the managing directors may be held liable for damages (Sec. 2 para. 3 StaRUG-E). This is particularly relevant for decisions which can entail a deterioration of the creditors' situation. Essentially, the managing directors' liability is an internal liability vis-à-vis the corporate entity which, however, the latter cannot waive to the detriment of the creditors.

| Should the debtor, however, make use of the instruments of the restructuring framework and thereby infringe the creditors' rights, the latter may directly assert a liability (Sec. 45 StaRUG-E).

| Also in case of insolvency proceedings in self-administration (debtor-in-possession proceedings), a liability of the managing directors directly vis-à-vis the creditors is intended to be possible. In such case, the same liability regulations as for the insolvency administrator will expressly apply in the future (Sec. 276a para. 2 sent. 1 InsO-E).