I. Objective of the stabilisation framework

Under section 29 (1) StaRUG, debtors can make use of the tools provided for in subsection (2) to permanently eliminate imminent illiquidity within the meaning of section 18 (2) of the German Insolvency Code (Insolvenzordnung InsO). This is not just a straightforward description of the purpose of the procedural mechanisms available. Rather, it is a written statement of the statutory objective and applies to the stabilisation and restructuring framework as a whole. This statement of interpretation of and clear guide to the scheme of the Act is, regrettably from a technical perspective, not placed prominently and unmissably at the beginning of the Act, and inconveniently does not appear until section 29 (1). Nevertheless, this statement of objective sets out the general requirements for use of the specific tools:

• Voluntary nature of the notice to the court

The wording (“may”) shows clearly that the tools are voluntary and require an application by the debtor and that, in any event, third parties have no right to make such application. As a rule, the debtor alone decides whether it wishes to use restructuring tools, and if so which ones. However, it follows from the voluntary nature of the tools that the debtor must generally give notice of the restructuring project to the court (for more about this notice, see the newsletter of 17 March 2021).

• Imminent illiquidity

The stabilisation and restructuring framework may be voluntary, but a debtor cannot access help from the courts unless it faces imminent illiquidity (drohende Zahlungsunfähigkeit). Pursuant to the new section 18 (2) InsO, imminent illiquidity is determined “in general, based on a forecast period of 24 months”. If a debtor is already overindebted or illiquid, its only option for recovery is standard insolvency proceedings. On the other hand, a debtor which is not yet in a situation of imminent illiquidity can only take the existing path of pursuing a settlement with its creditors out of court. Even here, however, debtors are at liberty to take steps towards recovery at an early stage. Where appropriate, debtors can initiate court-supervised rehabilitation mediation pursuant to section 94 et seq. StaRUG. This proceeding is designed for debtors experiencing economic and financial difficulties before imminent illiquidity occurs.

• Permanent elimination of the crisis

The criterion of the “permanent elimination” of the crisis is merely a statement of objective without legal consequences and, as this term is not defined in more detail in the Act, serves only as an aid to interpretation when considering, among other things, the plausibility of a restructuring strategy or the lack of prospects of a restructuring project.

Consistent with the 24-month forecast period provided for in section 18 (2) InsO, the purpose of this provision in particular indicates that rehabilitation efforts must likewise extend over a two-year timeframe.

II. The tools in detail

Subsection (2) of section 29 lists the judicial tools of the stabilisation and restructuring framework available on application by the debtor. These tools are as follows:

- under No. 1, voting on the restructuring plan in court-supervised proceedings (section 45 et seq.),

- under No. 2, preliminary review of the restructuring plan and the intended voting process in order to receive advice from the court on issues relevant for subsequent confirmation of the plan (section 47 et seq.),

- under No. 3, the ordering of prohibitions on enforcement and realisation to avert measures of individual enforcement of rights likely to hinder or frustrate the intended restructuring solution (stabilisation orders pursuant to section 49 et seq.) and

 - under No. 4, the confirmation of a restructuring plan which has been accepted by the parties affected by the plan with the necessary majorities (section 60 et seq.).

• Court supervised plan voting (No. 1)

The restructuring court can hold a court-supervised discussion and voting meeting (gerichtliche Planabstimmung) on application by the debtor in accordance with section 45 (subject to section 76 (2)). At this meeting, the parties affected by the restructuring plan can vote on it, unless the debtor has chosen the free plan voting route pursuant to section 17 et seq. As intended by the legislator, debtors have a free choice as to whether they wish to organise voting without court supervision or apply for a court-supervised discussion and voting meeting.

• Preliminary review of the restructuring plan by the court (No. 2)

Before the restructuring plan is presented for voting to the parties affected by it, the debtor can submit the plan to the restructuring court for preliminary review (Vorprüfung) within the meaning of section 47 et seq. In practice, this appears to be a good idea if the debtor wishes to obtain preliminary clarification by way of an indicative ruling on specific issues essential for later confirmation of the restructuring plan.

• Court stabilisation order (No. 3)

To aid it in its restructuring negotiations, the debtor can apply for prohibition or temporary suspension of measures of individual enforcement of rights by its lenders (enforcement and/or realisation prohibitions) in accordance with section 49 et. seq. (Stabilisierung). The moratorium provided for here is analogous to the ordering of protective measures in preliminary insolvency proceedings.

• Confirmation of the plan by the court (No. 4)

Once a restructuring plan has been accepted with the required majorities by the parties affected by it, the restructuring court, on application by the debtor, can confirm the plan in accordance with section 60 et seq. (Planbestätigung) and so bring about the effects provided for in section 67 et seq.

Future newsletters will take a closer look at the individual tools and their specific features.

III. Modular “recovery tool kit”

Under section 29 (3), a debtor can use the tools of the stabilisation and restructuring framework – which are listed exhaustively – independently of one another, unless otherwise provided elsewhere in the Act. The legislator purposely decided to impose no legal requirements on the debtor as to whether the tools are used, selection of tools, and the order in which they are used, and leaves it to the debtor to structure and organise them autonomously. It presents the tools as modules – elements of a “recovery tool kit” as it were – that the debtor can choose from freely, and regards them as aids offered by the legal system to support implementation of a restructuring project rather than as parts of a linear scheme prescribed by statute to be worked through from start to finish.

IV. Summary

In sum, the legislator has all in all produced a flexible framework for action: The StaRUG limits the material scope of the tools of the stabilisation and restructuring framework, enumerates them exhaustively, and places control of the proceedings in the hands of the debtor. Thus, advisors can apply the tools to respond to debtors’ individual rehabilitation requirements. In particular, the option for debtors to stop using individual tools at any time provides an extremely effective legal framework for recovery in the early stages of distress which can be flexibly adapted to the individual needs of debtors.

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

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