StaRUG: Plan confirmation

1. Purpose of plan confirmation

Confirmation of the plan by the court is required if even one party affected by the plan (Planbetroffener) votes against it. Otherwise, the plan is not binding on anyone, either the debtor or the parties affected by the plan, whether they accepted or rejected it. Confirmation by the court is also necessary if the plan provides for new financing within the meaning of section 12 StaRUG.

The objective of confirmation of the plan by the court (“plan confirmation") is thus to make the plan binding on all parties affected by it, including those who voted against it. Unlike the Directive, StaRUG does not contain clear rules specifying the cases in which a plan must be confirmed. However, from a reading of Articles 10 and 11 of the Directive together with sections 17 and 18 of StaRUG, it is clear that confirmation of the plan by the court is required whenever a party affected by the plan has voted against it or the plan provides for new financing. This means that the debtor – who will normally have only limited insight into how the parties affected by the plan will vote – must make plans for navigating the confirmation process as successfully as possible.

2. Confirmation proceedings

a) Proceedings by application only

Plan confirmation proceedings are initiated by application. In accordance with section 60 StaRUG, only the debtor is entitled to make such an application. Confirmation by the restructuring court ("court") without an application would be a procedural error which would leave the confirmation order open to challenge.

b) Section 60 StaRUG

Section 60 StaRUG introducing the confirmation proceedings is a procedural provision which must be viewed in conjunction with the other procedural provisions concerning hearing the parties affected by the plan (section 61 StaRUG), the conditional restructuring plan (section 62 StaRUG) and the conditions for confirmation of the plan (section 63 StaRUG). The confirmation proceedings end with the remedy of immediate appeal against plan confirmation in accordance with section 66 StaRUG.

c) Further requirements for confirmation

In accordance with section 63 StaRUG ("Refusal of [plan] confirmation"), an application for plan confirmation (which is not subject to any deadline) is admissible only if all of the following requirements are met:

• the debtor is not facing imminent illiquidity,
• there are no significant breaches concerning the content and procedural handling of the plan or acceptance of the plan by the parties affected by it and
• it can be assumed that the claims assigned to the parties affected by the plan in the constructive part of the plan can be satisfied.

If these requirements are not met, confirmation of the plan must be refused ex officio. The same applies if the plan provides for new financing but the restructuring concept lacks coherence, is not based on actual conditions and/or has no prospect of success (section 63 (2) StaRUG). Finally, plan confirmation must also be refused if the acceptance of the restructuring plan was improperly obtained, for example by the preferential treatment of a party affected by the plan (section 63 (4) StaRUG).

In addition to this, confirmation of a plan which meets the requirements of sections 60, 63 StaRUG can be prevented by an application for minority protection in accordance with section 64 StaRUG (see the newsletter on "Protection of minorities”).

3. Appeals against plan confirmation/refusal of plan confirmation

The remedy of immediate appeal in accordance with section 66 StaRUG is available against plan confirmation. In order for a party affected by the plan to bring an immediate appeal, that party

• must have objected to the plan in the voting proceedings,
• must have voted against the plan and
• must demonstrate to the satisfaction of the court that it will be placed in a substantially worse position as a result of the plan than it would be in without the plan and that this disadvantage cannot be compensated for by a payment out of the funds specified in section 64 (3) StaRUG (for more information, see the newsletter on "Protection of minorities").

The debtor has the right of immediate appeal only if confirmation of the restructuring plan is refused.

An immediate appeal does not usually have suspensive effect (section 66 (4) StaRUG). This means that the effects of a confirmed plan are realised before the plan becomes final and binding. However, whether or not the plan is final and binding is relevant in terms of protection against avoidance (see section 90 StaRUG).

4. Issue of confirmation order/effects

Once the court issues the confirmation order, the plan is binding on both the debtor and all parties affected by it, even if the plan is not/not yet final (see the end of point 3 above).

5. Summary

The restructuring plan becomes binding on all parties affected by it upon confirmation by the court. The confirmation proceedings also involve examination of the arrangements in the plan, formation of the groups, plan acceptance, provision of information to parties affected by the plan and – if an application to this effect is made – the prohibition of less favourable treatment (Schlechterstellungsverbot) in accordance with section 64 StaRUG. However, for a party affected by the plan, the actual prospects of preventing an admissible application for plan confirmation are likely to be rather modest. The debtor can thwart even an admissible and well-founded section 64 application for minority protection by making funds available in the constructive part of the plan for the event that an affected party proves less favourable treatment (see the newsletter on “Protection of minorities”). Furthermore, the legal hurdles for an immediate appeal under section 66 StaRUG are so high that in case of doubt a party affected by the plan can only overcome them if the debtor has acted improperly or the sum provided for in the constructive part of the plan for satisfaction of affected parties who object to the plan is merely symbolic and not remotely adequate.

Dr Annerose Tashiro, Attorney at Law in Germany, Registered Foreign Lawyer (SRA)

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