Act on the Stabilisation and Restructuring Framework for Businesses: Rehabilitation with a mediator

Pursuant to section 94 (1) StaRUG, rehabilitation mediation can be applied for by a debtor that is not illiquid or overindebted. Rehabilitation mediation can be an incentive to eliminate imminent illiquidity, which in contrast to restructuring proceedings does not constitute a prerequisite.

Pursuant to section 94 (2) StaRUG, the debtor’s application must include the following information:

  • the object of the business
  • the nature of the economic and financial difficulties
  • list of creditors
  • list of assets
  • declaration of the debtor that it is not illiquid/overindebted

Pursuant to section 94 (1) StaRUG, the competent restructuring court (sections 34 et seq. StaRUG) is to appoint a

  • suitable
  • natural person,
  • particularly one who is experienced in business matters and
  • independent of the creditors and of the debtor,

as rehabilitation mediator. The procedure is initiated exclusively on application by the debtor. Even though this is not expressly addressed in the statute, there is much to suggest that the debtor can, with the application, also make a proposal that is binding on the court with respect to the person who should be appointed as the rehabilitation mediator, provided that the proposed person is suitable, experienced, and independent. Pursuant to section 100 (2) StaRUG, the rehabilitation mediator may also be subsequently appointed as the restructuring practitioner, and the legislators expressly provided for the right of the debtor to make a binding proposal concerning the choice of the restructuring practitioner (section 72 (2) sentence 1 StaRUG).

Pursuant to section 95 (1) sentence 1 StaRUG, the rehabilitation mediator is to be appointed

  • for a period of up to three months, in order to obtain a resolution as quickly as possible.
  • On application by the mediator, the period may be extended by up to an additional three months with the approval of the debtor and the creditors involved.

Pursuant to section 95 (2) StaRUG, the appointment is not to be published so as to avoid the (confidential) procedure from being exposed to a negative public reaction.

The aim is to create a relationship of trust between debtor and creditors, as well as between each of them and the rehabilitation mediator, thereby laying the foundation for developing a mutual solution for overcoming the debtor's financial difficulties.

The key task of the rehabilitation mediator is to promote rehabilitation by liaising between the parties involved in a neutral manner (section 96 (1) StaRUG).

To do so, the rehabilitation mediator will first familiarise himself/herself with the debtor’s financial situation and identify the interests of the parties involved. Pursuant to section 96 (2) StaRUG, the debtor is obligated permit the mediator to inspect its books and records and provide him/her with the appropriate information he/she requests. On this basis, the rehabilitation mediator is in a position to discuss openly with the parties involved, either separately or jointly, how best to achieve a restructuring, with the aim of promoting a settlement between them.

Pursuant to section 96 (3) StaRUG, the rehabilitation mediator reports once a month to the court in writing. The report must contain the following (minimum) information:

  • the nature and causes of the economic and financial difficulties
  • the group of creditors and other participants involved in the negotiations
  • the subject and objective of the negotiations
  • the likely progress of the negotiations

This information is intended to enable the court to gain an insight into the proceedings and to make an appropriate decision on this basis.

The reports are to be made available to the involved creditors upon request. Pursuant to section 96 (4) StaRUG, the rehabilitation mediator is required to notify the court if he/she becomes aware of the illiquidity or overindebtedness of the debtor. However, the rehabilitation mediator is not obligated to monitor the situation on an ongoing basis. He/she must give notice of such circumstances only if they are obvious.

Pursuant to section 96 (5) StaRUG, the rehabilitation mediator is subject to the supervision of the restructuring court, which may remove him/her for good cause. Good cause is considered to exist, for example, if the mediator is not independent or fails to meet his/her reporting obligation. The court is to hear the rehabilitation mediator prior to its decision. Other sanctions are not available. In particular, no special liability is provided for. The parties themselves are responsible for the substance of concluded settlements.

Pursuant to section 97 (1) StaRUG, on application by the debtor, the restructuring court may confirm a rehabilitation settlement, which may also include the involvement of third parties. Although it has no impact on the effectiveness of the settlement, court confirmation is refused if

  • the rehabilitation concept underlying the settlement is not coherent or
  • is not based on actual circumstances or
  • has no reasonable prospect of success.

Pursuant to section 97 (2) StaRUG, the task of the rehabilitation mediator in this regard is to comment on the prerequisites or the refusal grounds in his/her capacity as expert. In doing so, he/she must discuss in detail whether the described measures can, in his/her opinion, permanently eliminate the presented cause of the crisis or are instead manifestly insufficient. If the rehabilitation mediator took part in the negotiations between the parties involved, the application for court confirmation may be accompanied by the mediator’s stated position.

The advantage to court confirmation of the rehabilitation settlement is the limited ability to avoid it, which pursuant to section 97 (3) StaRUG is possible only under the conditions specified in section 90 StaRUG. Therefore, effective avoidance is possible only if

  • confirmation of the rehabilitation settlement was based on incorrect or incomplete information provided by the debtor and
  • the other party was aware of this.

It should be pointed out that the settlement could entail the risk of the avoidance of acts of satisfaction, since even though these normally take place on its basis, they are outside the scope of the actual agreement.

Pursuant to section 98 (1) StaRUG, the reasonable remuneration of the rehabilitation mediator is calculated based on the expenditure of time and materials for the duties associated with mediation. In addition, sections 80 to 83 StaRUG are applicable with the necessary modifications, according to which remuneration is based on a standard hourly rate of at most EUR 350. If the debtor is in agreement, and if the special aspects of the given procedure warrant this, other remuneration models may be agreed upon that provide for correspondingly higher remuneration.

The office of rehabilitation mediator ends when the period of the appointment expires or when the rehabilitation mediator is dismissed. Pursuant to section 99 (1) No. 1 StaRUG, the mediator is to be dismissed on his/her own application or on application by the debtor, e.g. if the relationship of trust has broken down. The application may be made at any time without providing reasons. Pursuant to subsection (2), the debtor is free to apply for the appointment of another mediator. Creditors have no influence on either the appointment or the dismissal, since the procedure is a debtor-initiated one. Pursuant to section 99 (1) No. 2 StaRUG, the rehabilitation mediator is to be dismissed ex officio if he/she gave notice of the debtor’s material insolvency.

In addition, a fluid transition is possible between rehabilitation mediation and the tools of the stabilisation and restructuring framework (sections 29 to 72 StaRUG). If use is made of these tools, the rehabilitation mediator remains in office until the end of the three-month period (section 95 StaRUG) or until he/she is dismissed or is appointed as the restructuring practitioner in accordance with sections 73 et seq. StaRUG.

Dr H. Philipp Esser, LL.M. (Chicago), Attorney at Law

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Schultze & Braun GmbH & Co. KG
Eisenbahnstr. 19-23, 77855 Achern/Germany
Phone: +49 7841 708-0
Fax: +49 7841 708-301

Susanne Grefkes, Schultze & Braun GmbH & Co.KG,
Eisenbahnstr. 19-23, 77855 Achern/Germany
Phone: +49 7841 708-0
Fax: +49 7841 708-301

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