The New StaRUG and the Restructuring Plan

When designing the rules for the restructuring plan in the StaRUG, legislators drew guidance from the provisions relating to the insolvency plan, which were also amended in parallel with the introduction of the StaRUG. In particular, the Act on the Advancement of Restructuring and Insolvency Law (Sanierungs- und Insolvenzfortentwicklungsgesetz, SanInsFoG) provides that intra-group third-party collateral can be included in the restructuring plan. Moreover, the declaratory part of the insolvency plan must now also contain a comparative analysis of potential restructuring or liquidation scenarios.

In a restructuring procedure the debtor decides which creditors it wishes to include in the recovery process. Therefore, in the restructuring plan, the debtor has discretion to choose from which creditors it wants to request contributions to its recovery efforts. By contrast, the purpose of insolvency proceedings is the satisfaction of all creditors.

Some claims are excluded from the scope of the restructuring plan from the outset, for example claims of employees. Otherwise, the debtor is essentially free to choose which creditors it wants to include in the restructuring plan and what measures to suggest. Options include partial or full waivers of claims, deferral of payment dates and changes to contract terms. The debtor need only be sure that the measures taken are likely to achieve the objective sought and that they will attract at least the required 75% majority in each voting group.

Again in contrast to the insolvency plan, debtors can vote on the StaRUG restructuring plan procedure on their own and without court involvement. As soon as a plan needs to be accepted and confirmed against the opposition of creditors, however, the involvement of the restructuring court is necessary to effect a “cram down”. In this case, a dissenting creditor can appeal on grounds of protection of its minority rights if the arrangements set out in the plan leave that debtor in a worse position than without a plan.

This underlines the importance of the comparative analysis of restructuring alternatives that the debtor is required to prepare as part of the restructuring concept. If the restructuring plan is the centrepiece of the stabilisation and restructuring framework, the comparative analysis is the centrepiece of the restructuring plan.

The comparative analysis is part of the declaratory part of the restructuring plan and must compare the result of the plan for creditors affected by the plan with the likely result of other restructuring alternatives. Since the restructuring plan provides for continued operation of the debtor’s business, the comparative scenario must also be based on continued operation. Thus, debtors cannot refer to a liquidation scenario in order to negotiate waivers out of the creditors even though the debtor in fact continues its business.

How the comparable continuation scenario is determined is not regulated in statute and will depend on the specific case at hand. EU Directive 2019/1023, which the StaRUG transposed into German law, refers to the “next-best-alternative scenario” which the plan must be compared against. Thus, a plan should always be compared against the most likely scenario in the circumstances of the particular case and which would offer the second-best solution for creditors after the restructuring plan. This can be an insolvency plan procedure with self-administration, continuation and/or sale of the undertaking without insolvency/restructuring proceedings, or reorganisation by business transfer in the course of insolvency proceedings or an assignment based on trust.

To win creditor support for the plan and minimise the risk that the plan will fail upon review before the court, debtors are well advised to establish a realistic comparison scenario and to evaluate it in line with market conditions. One particular question is whether, a formal M&A process is necessary in order to determine a realistic purchase price (so-called “dual track” procedure). This would run counter to the possibility in the StaRUG of engaging in StaRUG proceedings with as little publicity as possible. It could also produce delays jeopardising the recovery objective and generate avoidable costs. A market appraisal carried out by a suitable expert, ideally one experienced in distressed M&A, should therefore be sufficient to provide the necessary factual basis and transparency around the potential option of the sale of the undertaking.

Further developments in this central issue relating to the StaRUG are therefore awaited with interest.

We will cover further aspects of the restructuring plan in future issues of our StaRUG Newsletter.

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

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Eisenbahnstr. 19-23, 77855 Achern/Germany
Phone: +49 7841 708-0
Fax: +49 7841 708-301

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