Before a debtor can use the procedural mechanisms defined in section 29 (2) of the Act on the Stabilisation and Restructuring Framework for Businesses (Unternehmensstabilisierungs- und ‑restrukturierungsgesetz, StaRUG), section 31 (1) of the Act requires formal notice of the restructuring project to be given to the competent restructuring court.

This notice has two functions.

Firstly, it declares that the debtor intends to undertake a restructuring project, and secondly it states whether any procedural mechanisms available under the Act are to be used, and if so which ones.

Unlike an application, this notice is a unilateral procedural act requiring no response from the court. Consequently, the effects of the notice arise automatically and continue until the notice loses its effectiveness in one of the ways set out in section 31 (4) StaRUG (withdrawal of the notice, decision on plan confirmation becoming final, termination of the restructuring case by the court, lapse of time).

By requiring the notice and the mandatory accompanying documentation specified in section 31 (2) StaRUG, the legislator aimed to provide the court with sufficient information to make an informed decision on any subsequent urgent application to use tools of the stabilisation and restructuring framework.

For this reason, it is recommended that debtors submit their notice as early as possible and in good time before they make their first application, so that – in theory at least – the court has enough time to familiarise itself with the context and legal issues and to make any necessary preparations.

The notice must be accompanied by all of the following documents:

• a draft of the restructuring plan or a substantive and specific concept (No. 1)
• a description of the status of negotiations with parties concerned (No. 2)
• a description of arrangements taken to meet the obligations under section 32 StaRUG.

Under section 31 (2) No. 1, the debtor must submit a draft restructuring plan together with the notice. If at the time the notice is submitted the debtor does not have the information needed to do so, the Act also allows the debtor to submit a sufficiently specific concept. This must describe the restructuring objective and take account of the nature, extent and causes of the crisis. It must also describe the measures that will be taken in order to achieve the restructuring objective. By demanding a draft restructuring plan or sufficiently specific concept, the Act requires the debtor to address seriously the prospects for its restructuring project, and also to present this transparently to the outside world (i.e. to the court).

Because the reality of business recovery is rather different, and because in practice recovery efforts usually begin with a rough concept which is gradually honed into a detailed, verifiable and fully realised concept in the course of negotiations, section 31 (3) StaRUG provides that a restructuring case becomes pending on submission of the notice alone, and not the mandatory accompanying documents.

However, if initial deficiencies in the draft of the restructuring plan or the concept are not remedied when requested by the court as the proceedings progress, this can have a negative effect in terms of the further course of the proceedings, as it justifies the assumption that the debtor does not have the necessary desire to restructure.

The requirement for a description of the status of negotiations with parties concerned (No. 2) was included to enable the court to make an initial assessment of how the restructuring project has been received and the project’s scope.

As well as preparing a draft restructuring plan or concept and describing the status of its negotiations, the debtor must also describe how it will ensure that it meets the extensive obligations provided for in section 32 StaRUG (No. 3).

If the debtor intends to include consumers or SMEs in the restructuring, i.e. if the claims or rights of such parties will be affected by a restructuring plan or stabilisation order in particular, the court must also be informed of this.

The debtor must also state whether it is likely that the restructuring objective will be able to be implemented only against the opposition of one of the groups affected by the restructuring plan (section 9 StaRUG).

Earlier restructuring cases must also be indicated.

If one of the following four conditions for termination pursuant to section 31 (4) StaRUG is satisfied, the notice will lose its effectiveness:

• the debtor withdraws the notice (No. 1)
• the decision on plan confirmation becomes final (No. 2)
• the court terminates the restructuring case pursuant to section 33 (No. 3)
• lapse of time (No. 4).

The debtor can withdraw the notice at any time. That the pendency of the case can be ended in this way is also the expression in statute of the debtor’s control over the proceedings.

If confirmation of the restructuring plan becomes final and binding, all that remains is to implement the plan. In this case, the restructuring case is terminated and the notice simultaneously loses its effectiveness.

A restructuring case can be terminated by the court ex officio in particular if the debtor files an application for commencement of insolvency proceedings or insolvency proceedings are commenced in respect of the debtor’s assets.

A notice also loses its effectiveness if more than six months or, if the notice has been renewed, twelve months have elapsed since the notice was submitted. This provision reflects the legislative intention that debtors should not be able to use procedural mechanisms for an indefinite period. At the same time, however, the legislator does not define what it means by “renewal”. In view of the transparency requirements mentioned above, it can be assumed that a renewed notice should be submitted to the court in any case if there is a significant change concerning the subject of the notified restructuring project.

In summary, to prevent misunderstandings and ensure that documents submitted by the debtor are adequate, it is recommended when advising a debtor to assist them in preparation of the notice and the mandatory accompanying documents at as early a stage as possible.

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

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