Stabilisation and restructuring framework for companies
The new law offers the possibility to restructure companies outside of formal insolvency proceedings, even against the wishes of their creditors.
The law is mainly based on a government draft of 14 October 2020. Most of its provisions implement the "Directive on Restructuring and Insolvency" (EU) 2019/1023 that was adopted by the EU Parliament in March 2019. In addition, the new law contains numerous provisions intended to readjust the existing restructuring and insolvency law on the basis of the evaluation of the Law to Further Facilitate the Restructuring of Enterprises (Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen – ESUG).
Additional temporary adjustments are being made to the restructuring and insolvency law to reflect the current situation caused by the Covid-19 pandemic.
The key features of the law are as follows:
New restructuring framework (StaRUG)
The core of the new law is the Act on the Stabilisation and Restructuring Framework for Companies (Gesetz über den Stabilisierungs- und Restrukturierungsrahmen für Unternehmen – StaRUG), which introduces a legal framework for financial restructuring outside of insolvency proceedings. The new framework is available only upon the impending illiquidity (“drohende Zahlungsunfähigkeit”) within the meaning of section 18 of the German Insolvency Code (Insolvenzordnung – InsO).
The affected creditors vote on the restructuring plan that is presented by the company in different classes (groups) of similar type. The plan is approved if all classes approve with a 75% majority of claims. Under certain conditions the restructuring plan can be approved even if it has been rejected by one or more creditor groups (“cram down”). If not all creditors consent, the plan requires court approval.
The company's managers are obliged to protect the interests of all creditors from the time the restructuring is initiated – but not before. While generally the concept is that the company organises the plan under its own remit and that the court only has a light involvement, the company can also opt and apply for a broader court involvement by way of a module approach. Such “instruments” include a moratorium to cease enforcement and the appointment of a restructuring agent (Restrukturierungsbeauftragter) and a creditors board (Gläubigerbeirat) who supports and facilitates the process. Under certain circumstances the appointment of the restructuring agent is mandatory.
Changes to insolvency law
Numerous changes have been made to German insolvency law.
The requirements for debtor-in-possession (“DIP”) proceedings (Eigenverwaltung) have been adjusted. Among other things, it is to be ensured that only solidly prepared companies may waive the appointment of an insolvency administrator.
In order to distinguish over-indebtedness from impending illiquidity, the examination of over-indebtedness is to be carried out within a forecast period of one year, whereas the examination of impending illiquidity is to be carried out within a two-year forecast period. For the period of the Covid-19 pandemic, the forecast period for the examination of over-indebtedness has been limited to a period of four months.
The application period in the case of over-indebtedness has been increased from previously three to six weeks in order to give the company the opportunity to prepare reorganisations on the basis of the restructuring framework or DIP proceedings.
In addition, certain tax claims and charges of the State are now privileged as claims against the insolvency estate (Masseverbindlichkeiten).
Although the implementation period for the Directive on Restructuring and Insolvency expires in July 2021, the main parts of the new law entered into force on 1 January 2021 after a very short legislative process, so that the restructuring options created are available to companies at an early stage.
Individual provisions, in particular on the public procedure, announcements and the coordination and communication among those affected by the plan via the Restructuring Forum of the Federal Gazette will not enter into force until 17 July 2022.
The original draft law was amended in the course of the legislative process. For example, the originally envisaged possibility of terminating contracts was removed, a creditors board was newly introduced and the catalogue of duties of managing directors was restricted compared to the previous version.
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