The StaRUG Restructuring Plan: Companies have the choice how to reorganize their future business

Which rules apply to the Restructuring Plan?

The objective of the StaRUG (Unternehmensstabilisierungs- und -restrukturierungsgesetz) is to help companies to restructure at an early stage, when insolvency is impending but has not yet occurred. The company shall continue to trade as normal wherever possible. Accordingly, the StaRUG allows debtors to include only selected creditors or groups of creditors in the restructuring plan – the so-called “Parties Affected by the Plan” (Planbetroffene). Other creditors and creditor groups are not addressed by the plan and not involved in the – usually court-supervised – restructuring. All is determined by the restructuring plan.

The restructuring plan deals primarily with the debtor’s payment obligations – the “Restructuring Claims” (Restrukturierungsforderungen) – and personal or in rem security granted by the debtor – the “Separate Satisfaction Rights” (Absonderungsanwartschaften). Restructuring claims can, for example, be deferred, subordinated or (partly) waived. Separate satisfaction rights can be modified e.g. to extend their duration or secure new loans. The restructuring plan can also convert liabilities into equity – the debt-to-equity swap –, releasing the collateral provided for those liabilities.

The StaRUG now allows the debtor to modify even further terms of contractual agreements: Agreements between the debtor and multiple creditors – e.g. syndicated financing structures –, debt instruments under section 2 (1) No. 3 of the German Securities Trading Act (Wertpapierhandelsgesetz) – e.g. certain bonds –, contracts with multiple creditors and identical terms – e.g. Schuldscheindarlehen (special German law transferrable loan agreements) and intercreditor agreements. Clearly, included are complex financing structures in any form. The restructuring plan can amend any contractual terms, e.g. financial covenants, general terms and conditions, termination rights, sanctions, etc.

In addition, a restructuring plan can modify intra-group third-party collateral, i.e. collateral provided to the debtor’s creditors by an affiliate of the debtor. Affiliates are thus released from guarantees, liens or other security provided to the debtor’s creditors without having to go through a restructuring procedure themselves. However, creditors must be appropriately compensated for the loss of their security.

Finally, like the insolvency plan, the restructuring plan can modify equity or membership rights (cf. debt-to-equity swap).

Especially the ability to modify contractual agreements and to include collateral granted by an affiliate gives debtors broad opportunities for financial restructuring. Of course, the parties affected by the plan must be properly selected. If the debtor randomly curtails the rights of individual creditors while leaving others unaffected, the debtor jeopardises creditor approval and court confirmation of the plan. Here, the restructuring concept should provide the necessary guidance.

At the same time, the StaRUG sets clear limits: A restructuring plan is not permitted to modify claims of employees (including pensions). Claims arising under general mutual contracts can only be affected if they relate to benefits already provided to the debtor. Third-party rights – e.g. retention of title, rented items, IP licences (e.g. a shareholder’s trademark) – are equally excluded, as well as the termination of unattractive contracts. Moreover, as a general principle, no creditor may be left worse-off than without restructuring.

To summarise, within the framework of the StaRUG, debtors now have a broad choice. Companies with a perilous financing structuring are encouraged to use the reorganisation options that the restructuring plan offers. Through the restructuring plan, companies can secure their viability for the future – not least for the benefit of those they do business with.

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

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Schultze & Braun GmbH & Co. KG
Eisenbahnstr. 19-23, 77855 Achern/Germany
Phone: +49 7841 708-0
Fax: +49 7841 708-301

Susanne Grefkes, Schultze & Braun GmbH & Co.KG,
Eisenbahnstr. 19-23, 77855 Achern/Germany
Phone: +49 7841 708-0
Fax: +49 7841 708-301

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