StaRUG: Plan monitoring

Plan monitoring – an optional tool

In accordance with section 72 (1) StaRUG, the constructive part of the restructuring plan may provide that fulfilment of the plan will be monitored. Monitoring is therefore an optional tool which must be explicitly provided for in the plan. If it is not, the standard statutory arrangements apply, meaning that monitoring will not take place. Because formal plan monitoring pursuant to section 72 StaRUG must be agreed in the plan confirmed by the court, it cannot be ordered subsequently. No further confirmation procedure is provided for in the Act.

Monitoring is carried out by the restructuring practitioner. If a restructuring practitioner has already been appointed in the course of the proceedings, he or she will normally also be instructed to carry out the plan monitoring. If no restructuring practitioner has been appointed previously, the court can appoint one to monitor the plan during the proceedings. A restructuring practitioner who has already been appointed cannot simply be replaced by a new restructuring practitioner for the plan monitoring. This is only possible if the original practitioner is dismissed because the conditions set out in section 75 (2) StaRUG are satisfied.

Section 72 (3) StaRUG provides that the restructuring practitioner must report to both the creditors and the court. This function of the restructuring practitioner as the monitoring organ of the court (which also monitors him or her) pursuant to section 75 (1) StaRUG continues during plan monitoring. The court can request additional information from the restructuring practitioner in accordance with section 75 (1) sentence 2 StaRUG, but must do so explicitly. The job of monitoring includes assessing whether the debtor is able to satisfy the claims, meaning that the restructuring practitioner can also examine the debtor’s liquidity and provide a substantiated liquidity forecast. The purpose of the plan monitoring procedure is to protect the creditors, and the debtor must enable the restructuring practitioner to do this. By including monitoring in the plan, the debtor implicitly undertakes to provide this information for the duration of plan monitoring.

The legislator also permits the debtor, as the driving force behind the proceedings, to agree the substance of the plan monitoring activities together with the creditors. It is clear from section 72 (3) StaRUG that plan monitoring need not cover every claim, as it states only that the restructuring practitioner must report on claims “which are being monitored for fulfilment”. Here the legislator makes it clear that monitoring can be customised and in particular restricted. It would be possible here for plan monitoring to focus on the claims of individual creditors, or to be restricted to certain elements and sections of the agreements in the plan, provided that this is capable of achieving the agreement of a majority of creditors.

Termination of plan monitoring 

Section 72 (4) StaRUG sets out when plan monitoring must be terminated ex officio. A similar provision, section 268 of the Insolvency Code (Insolvenzordnung, InsO), applies to insolvency plan proceedings.

The debtor and the creditors can agree that monitoring will end at an earlier time. So subsection (4) sets out when plan monitoring must be terminated. Of course, this does not prevent the parties from carrying out further monitoring outside of the formal plan monitoring arrangements, perhaps in the form of monitoring by the creditors.

The conditions for application of subsection (4) are clear: 

• No. 1 provides that monitoring must terminate after the claims subject to monitoring have been fulfilled. In this case, creditors no longer merit particular protection as their claims have been satisfied or security for them has been promised in the plan.
• No. 2 states that monitoring must be terminated three years after confirmation of the plan becomes final and binding. Here there is an irrebuttable presumption that monitoring is no longer required after three years’ “good conduct”, even if the arrangements in the plan extend beyond this period. Section 268 (1) No. 2 InsO likewise provides for a maximum period of three years for monitoring of the insolvency plan.
• No. 3 specifies that commencement of insolvency proceedings in respect of the debtor’s assets or refusal of commencement due to insufficient assets are grounds for termination of monitoring. In this case, the purpose of the monitoring has ceased to apply, firstly because administration of assets passes to the insolvency administrator, and secondly because creditor claims must now be satisfied according to the rules applicable to insolvency proceedings. If commencement of insolvency proceedings is refused, plan monitoring ends because there is clearly no prospect that claims will be satisfied as provided for in the plan and monitoring is therefore no longer required.

This list of grounds for termination of monitoring by court order is final and cannot be altered subsequently. Customisation of restructuring arrangements must be carried out beforehand; after the plan is confirmed monitoring can only be terminated as set out in section 72 (4) StaRUG, and cannot be changed or terminated at an earlier point. The court must also examine ex officio whether the grounds set out above are actually present and satisfy itself as to this. If one of the grounds for termination under section (4) is present, the court will decide by way of a court order. This decision cannot be appealed.

Summary

Plan monitoring fulfils a necessary desire of creditors for control: after all, they are renouncing a legal position and must place their trust in a debtor facing imminent illiquidity. Section 72 StaRUG sets out rules for monitoring in proceedings regulated in law, arrangements for which can be determined by the debtor and the parties affected by the plan, but which must be terminated if the conditions set out in section 72 (4) StaRUG are satisfied. Other monitoring mechanisms can also be agreed, however, and to this extent the manner in which plan monitoring is carried out outside of the formal procedure provided for in section 72 StaRUG can also be customised. This offers the debtor the option of offering alternative means of monitoring. In practice, this will frequently depend on whether the parties involved are willing to bear the costs of formal plan monitoring, or to include these costs in the plan.

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

More newsletters about StaRUG are available at https://www.schultze-braun.de/newsroom/newsletter/internationales/