StaRUG: Effects of the confirmed plan

03. November 2021 Newsletter International

This article discusses the effects of the confirmed plan. In the case of a restructuring plan, one point is especially important in this regard: The restructuring plan is effective in part even before confirmation of the plan becomes final and binding. Therefore, in terms of the effect of confirmed restructuring plans, a distinction must be made between the period prior to confirmation becoming final and binding and the period thereafter.

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Dr. Alexandra Josko de Marx, LL.M.
Dr. Alexandra Josko de Marx, LL.M.


I. Substantive effectiveness of the plan

One significant difference between the insolvency plan and the restructuring plan (in the following, “plan” refers to the restructuring plan) is that pursuant to section 67 (1) sentence 1 StaRUG, the restructuring plan comes into effect on a provisional basis, i.e. before confirmation becomes final and binding. Even an appeal pursuant to section 66 (4) does not have any suspensive effect. This mean that the plan becomes (largely) effective from a legal standpoint, irrespective of whether it is legally valid. This is specified in the EU Restructuring Directive and has been adopted by the legislator. The intent is to protect the debtor against troublemakers. If the debtor (who is still facing imminent illiquidity!) were required to wait for confirmation of the plan to become effective, particularly in the case of an appeal, its situation could adversely change to a significant extent during this time, e.g. as a result of customers turning to alternative suppliers. This would pose a considerable risk to the successful conclusion of restructuring proceedings.

Therefore, as a rule, the plan is broadly effective upon confirmation, including against the parties affected by it, other than where the legislator has made such effectiveness expressly contingent on the plan having become final and binding. In particular, the substantive aspects of the plan become immediately effective. If e.g. a deferment was agreed upon, a party affected by the plan is bound by it, even if the plan was unlawfully confirmed. It is therefore bound by the plan until a decision is rendered on appeal. However, parties affected by the plan are not left completely unprotected, since pursuant to section 67 (1) sentence 2, their inclusion in the plan is contingent on their having been properly involved in the voting proceedings.

It should also be emphasized how the plan is effective against persons who are indirectly involved. For instance, in the case of companies without legal personality or partnerships limited by shares, section 67 (2) StaRUG provides that the arrangements in the plan concerning the discharge of liabilities also benefit the personally liable partners, unless agreed otherwise. Under subsection (3), the situation is different for sureties outside the group and other providers of collateral, since unless agreed otherwise, the plan does not exempt them from risks that they voluntarily assumed. The debtor however is discharged vis-à-vis these parties from potential recourse claims.

In some cases confirmation also cures any defects in the plan proceedings. As a result, the parties affected by the plan continue to be bound by it. For instance, pursuant to section 67 (5) StaRUG, the valuation of claims that are converted into share or membership rights is binding, and the relevant party affected by the plan needs to have objected to an incorrect valuation prior to plan confirmation. It is bound in this respect upon confirmation of the plan, with this provision taking precedence over section 70 StaRUG. The confirmed plan is also effective against parties outside the circle of parties affected by the plan. Under section 68 StaRUG, the plan serves as comprehensive proof and overcomes form requirements, such as in the case of dispositions of rights to real estate, since pursuant to section 68 StaRUG form requirements concerning declarations of intent can be deemed satisfied by the confirmed plan.

On the other hand, pursuant to section 67 (6) StaRUG, defects in the proceedings and defects in consent are not cured until plan confirmation becomes final and binding. The importance of this rule should not be underestimated, because it means that avoidance is not permissible after the plan becomes final and binding. Since the plan is a multilateral sui generis agreement, it may (technically) be avoided under sections 119 et seq. of the German Civil Code (Bürgerliches Gesetzbuch, BGB). Accordingly, a mistake within the meaning of section 119 BGB is considered completely eliminated. The only exception to this, as can be seen from the wording of section 90 (1) StaRUG, are defects in consent that can be avoided under section 123 BGB. If a party affected by the plan believes that grounds for avoidance exist, it must comprehensively examine this before the period for lodging an appeal expires. If this first becomes clear to it after the plan becomes final and binding, it can no longer claim avoidance.

II. Scope of the plan

The plan covers the claims of the parties affected by it. Section 70 StaRUG establishes the extent to which the effect of the restructuring plan encompasses claims whose substance is disputed. As is the case throughout the entire restructuring proceedings, the debtor is responsible here for determining this and setting the correct amount. In most cases, the debtor and the party affected by the plan will be in agreement about the amount of the claim. In the case of uncertainty or dispute about the amount of the claim to be included, section 70 (1) StaRUG specifies that claims are covered by the plan in the amount subsequently determined for them but not in excess of the amount on which the debtor based the plan. For instance, if the debtor based the plan on a claim of EUR 75,000 that is subsequently determined to amount to EUR 100,000, the excess EUR 25,000 is not covered by the effect of the plan. The provision indirectly encourages the debtor to recognise a creditor's claims as broadly as possible. In this regard, however, the plan entitles the debtor to rely on the setting of the voting right by the court (which corresponds to the amount of the claim) or subsequently to apply with the court to have it do so. If a subsequent determination results in the claim being higher than the amount on which the plan is based, this does not have an adverse impact on the plan as a whole. This express clarification was also necessary given that default can revive claims pursuant to section 69 StaRUG.

III. Enforcement of the plan

Pursuant to section 71 (1) StaRUG, the plan can first be enforced after it becomes final and binding. This is of crucial importance, because as an enforcement order, the plan is significant for another reason entirely. Under subsection (2), this aspect even covers claims against third parties who are liable alongside the debtor, e.g. sureties, provided that these claims were submitted in writing to the restructuring court.

Pursuant to subsection (4), once the plan becomes final and binding, it supersedes existing orders and replaces them. However, this does not automatically result in annulment of the old order, which can be accomplished only through a court decision. Because of the effect and significance that such an order has in legal transactions, it is necessary for confirmation to have become final and binding. The intent of the legislator here is to provide clarity about legal validity. If a party affected by the plan attempts to enforce the order prior to the plan having become final and binding, the debtor can raise a substantive objection based on the content of the plan; once the plan becomes final and binding, however, enforcement is impermissible per se.

IV. Summary

The confirmed restructuring plan is broadly effective even before confirmation becomes final and binding. While this ensures that the restructuring is not impeded by an appeal, it poses considerable risks for creditors during the period between confirmation and a decision on the appeal.

Once the plan becomes final and binding, its effects become even more extensive: it becomes an order, superseding old orders, and it broadly cures defects in consent. If a creditor intends to object to a restructuring plan, it should ideally do so before plan confirmation becomes active.

Dr Alexandra Josko de Marx, LL.M., Attorney at Law in Germany

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