StaRUG: Stabilisation


In essence, there are three types of stabilisation measures envisaged in sections 49 to 59 of the Act on the Stabilisation and Restructuring Framework for Businesses (Unternehmensstabilisierungs- und -restrukturierungsgesetz, StaRUG). First, section 49 (1) No. 1 StaRUG provides that on application by the debtor, compulsory enforcement measures can be prohibited or temporarily suspended. The restructuring court is given the power to order this. Second, creditors, in particular credit institutions and suppliers, may be prohibited from exercising their realisation rights. This particularly concerns collateral that in subsequent insolvency proceedings would be subject to segregation or to separate satisfaction. This can also jeopardise simple retention of title. Finally, section 55 StaRUG places limits on retention rights and rights to modify contracts.

In practice so far, debtors have applied for stabilisation measures only against individual creditors. At first glance, this is somewhat surprising, since section 49 (2) sentence 2 StaRUG provides that a stabilisation order may be addressed to all creditors. It can even cover creditors who would not be affected by a restructuring plan. However, this type of stabilisation would have disadvantages. To begin with, it is unclear how the debtor could demonstrate the necessity for the order. Under section 51 (1) No. 4 StaRUG, the order applied for must be necessary, which is to be demonstrated with respect to each creditor. Particularly with regard to small creditors, it would be hard for the debtor to justify that the order is necessary for the restructuring objective, since those creditors would be of only minor relevance in financial terms. In addition, it is in the debtor's interest to carry out the restructuring project in a non-public setting. If it attempts to push through restructuring against financing credit institutions, the procedure will generally go unnoticed by other business partners, the media and the general public. But the situation would be different if measures were aimed at a large group of creditors, such as suppliers, meaning that a wide variety of creditors would become aware of the procedure.

Thus, stabilisation is primarily used to protect against enforcement in specific cases and to prohibit realisation by credit institutions. However, it is risky to carry out restructuring projects without any stabilisation measures whatsoever, because only stabilisation measures can protect the debtor against third-party applications by creditors directed at the commencement of insolvency proceedings (section 58 StaRUG).

If the restructuring court orders stabilisation measures, then from the creditor’s perspective, the question arises as to how these can be terminated and how interference with its legal position can be prevented. The creditor has no legal remedy in the narrow sense. However, under section 59 (2) StaRUG, it can apply to have the stabilisation order annulled. For this purpose, the creditor must demonstrate that the debtor is unwilling or unable to align its management with the interests of all creditors, in particular because the restructuring strategy is based on inaccurate facts in material respects or the debtor’s accounting and bookkeeping are incomplete or flawed in the manner described in more detail in section 59 (1) No. 4 letter b StaRUG.

If the creditor is unable to prevent the stabilisation measures from being applied, it is protected by section 54 StaRUG in the case of a realisation prohibition. This provision imposes an obligation to pay compensation. For instance, the creditor is to be paid the interest due, and the loss of value resulting from use is to be compensated. However, this regulation may run empty if the debtor does not succeed with its restructuring and has to lodge an application for commencement of insolvency proceedings. In such case, the creditor would be allocated a portion of its claims at the end of the insolvency proceedings (as a non-subordinated creditor). It is therefore in the creditor's interest for the debtor to meet its obligations to pay compensation as quickly as possible in order to lower the risk to the creditor of default.

In terms of time, it should be expected that the stabilisation measures under section 53 (1) StaRUG may last up to three months, depending on how quickly the restructuring project is implemented. If the debtor begins the procedure with a finalised restructuring plan, stabilisation will also be limited in time, meaning less interference with creditor rights.

The stabilisation order may remain in effect only for as long the restructuring case still has prospects for success. This is lacking where the requirements according to section 33 StaRUG are met for termination of the restructuring case, e.g. where the debtor has seriously breached the obligations of co-operation and disclosure that it owes to the court or a restructuring practitioner. Section 59 (1) No. 4 StaRUG lists as a further ground for termination circumstances indicating that the debtor is unwilling or unable to align its management with the interests of all creditors. If on the other hand -the rehabilitation is successful and the restructuring plan is confirmed, there is also no longer any need for a stabilisation order (section 59 (4) StaRUG).

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

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