StaRUG – (Non-) publicity of the procedure


There are certainly situations in which it is not conducive for a company to publicise that it is undergoing restructuring. It may have various reasons for doing so: managing reputation and PR issues or protecting partners and sensitive supply chains.

Take, for example, a crisis that is triggered because a bond is about to become due: If the recovery concept aims at refinancing but leaves supplier and customer relationships unaffected, it is advantageous to be able to conduct negotiations with financial creditors in a non-public format while still enjoying the protection of a moratorium. The risk that suppliers will shift to requiring advance payments or at least shorter payment terms, as well as the risk that customers will begin to doubt the future viability of the product and its warranty, can have an impact on sensitive liquidity planning and in that way seriously disrupt the recovery concept.

Although the ordering of interim self-administration under the Insolvency Code (Insolvenzordnung, InsO) is not published, the commencement of insolvency proceedings, including in self-administration, is publicised in full (section 30 InsO).

Under the Act on the Stabilisation and Restructuring Framework for Businesses (Unternehmensstabilisierungs- und -restrukturierungsgesetz, StaRUG), it is for the debtor company to decide about this, and it can make its own determination about how to frame it and include it in its planning. Neither rehabilitation mediation nor a restructuring case is published ex officio.

The StaRUG does not require that all creditors must be affected by the arrangements. Rather, it allows a differentiation to be made in terms of the type of economic difficulties to be overcome, as well as in terms of the circumstances. This is possible under two different frameworks:

  • rehabilitation mediation under section 96 StaRUG (see our newsletter of 10 March 2021)
  • the restructuring plan under sections 5 et seq. StaRUG (further details will be available in our next newsletter of 21 April 2021).

Rehabilitation mediation has only two points of public contact: First, in cases where the debtor applies for the appointment of a rehabilitation mediator with the court with jurisdiction over restructuring cases (section 94 StaRUG). Rehabilitation mediation itself, i.e. the effort to obtain a solution for overcoming the economic and financial difficulties, takes place without the involvement of the court. The rehabilitation mediator, who is subject to the supervision of the court, is merely obligated to give the court notice if he/she becomes aware of the illiquidity or overindebtedness of the debtor, as well as to report on the progress (section 96 StaRUG). Second, if the company and the creditors determine that it is expedient to have the court confirm the rehabilitation settlement in order to make it resistant to avoidance, the debtor may apply for this (section 97 StaRUG).

In the event that a rehabilitation settlement is not achievable with the approval of all affected creditors, and if the company additionally seeks stabilisation measures and, in particular, a restructuring plan approved by a 75% majority (section 25 StaRUG) and the ability to enforce a cross-class cram-down (section 26 StaRUG), the company must give the restructuring court notice of its restructuring project (section 31 StaRUG). The restructuring case then becomes pending. Moreover, the company can choose whether the restructuring plan is discussed with the creditors and voted on by them in a court-supervised procedure or instead in an out-of-court setting (sections 20, 23, 45 and 45 StaRUG). Where voting is not supervised by the court, the company can and must organise, conduct and document the meeting itself. In that case, however, the court must convene a meeting to hear the parties affected by the plan once more prior to deciding on plan confirmation (section 61 StaRUG). The court will routinely appoint a restructuring practitioner (sections 73 et seq. StaRUG), whose role is similar to that of a supervisor and is also designed to promote the negotiations between the parties involved.

Thus, also for restructuring cases publicity and court contact are also reduced to a minimum.

However, if the restructuring plan is to be implemented outside Germany – for instance because creditors are domiciled abroad, because the bond specifies a place of jurisdiction outside Germany, or because a foreign bank is providing interim or new financing – the company needs to consider whether it is advisable to apply for a public announcement by the restructuring court (section 84 StaRUG). Only the company can make this application. Only with this public announcement will the restructuring case qualify as insolvency proceedings within the meaning of the EU Insolvency Regulation. In this regard, Germany has furthermore advised that it plans to include the restructuring case (Restrukturierungssache) in Annex A of the EU Insolvency Regulation. Consequently, a restructuring case would then automatically be recognised as main proceedings covered by the scope of the EU Insolvency Regulation (Article 19), with the result that the lex fori concurses applies (Article 7), i.e. that the StaRUG applies throughout Europe (other than in Denmark and, following Brexit, the UK). However, the application for public announcement must be made prior to the first decision by the restructuring court. Through public announcement, the decision then becomes a “judgment opening insolvency proceedings” within the meaning of Article 2 No. 7 of the EU Insolvency Regulation, which blocks other main insolvency proceedings in accordance with Article 3 (3) of the EU Insolvency Regulation.

Public announcement is not envisaged for rehabilitation mediation.

However, the rules that enable the public announcement of a restructuring case first enter into force on 17 July 2022 (Article 25 (2) and (3) of the Act on the Advancement of Restructuring and Insolvency Law [Sanierungs- und Insolvenzfortentwicklungsgesetz, SanInsFoG]). The stated reasoning for this is that the IT structure for embedding the German insolvency register (www.insolvenzbekanntmachungen.de) in the joint European insolvency register (Article 24 of the EU Insolvency Regulation) is currently being revised, meaning that the structures for restructuring cases can first be created after the revision work is finished. To this extent, the delay harbours the risk that companies whose restructuring is based on enforceability in Europe may engage in forum shopping in an attempt to use a restructuring framework of another Member State that provides them with early recognition.

Considerations about whether recognition is possible through the provisions of the EU Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters will have to overcome the exception for bankruptcy arrangements. That is probably doubtful. Since the legislators took a cautious approach in delaying the entry into force of sections 84 et seq. StaRUG, it is to be hoped that the technical conditions can be finalised ahead of schedule.

Dr Annerose Tashiro, Attorney at Law in Germany, Registered European Lawyer (London)

You can find further newsletters on the subject of StaRUG at https://www.schultze-braun.de/newsroom/newsletter/internationales/


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