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German scheme under the StaRUG (draft bill)

Germany uses the implementation of the EU directive to make a bold move: As from January 2021, German companies too can successfully carry out their restructurings with cram-down decisions, moratorium and other instruments outside insolvency.

In brief

The draft bill of the restructuring framework has the quality, in the event of its implementation, to (finally) furnish Germany with an efficient and practicable restructuring instrument outside insolvency and to change the restructuring landscape.

Key strengths:

  • Early availability: The restructuring framework is already available upon imminent illiquidity (i.e. no more than 24 months prior to illiquidity).
  • Modular proceedings led by the debtor: In light of the restructuring concept to be negotiated with the stakeholders, the debtor decides which plan will be submitted to the creditors for voting and which modules of the restructuring framework are required by it (cram-down plan, initial review, moratorium, termination of agreements, new financing as part of the plan) and confirmed by the court, if necessary.
  • Dual PIL approach: The debtor decides whether or not the proceedings are deemed to be insolvency proceedings within the meaning of EUInsVO. - Plan only for relevant legal relationships: The restructuring plan can only apply to certain legal relationships or creditors and thus allows for tailored solutions.
  • (Broad) cram-down mechanism: Minorities blocking the vote can be outvoted both within a group with a majority of 75%  and by a cross-class cram down. The principle of priority is modified („relaxed“priority rule).

NOTE: Should the ambitious timetable be implemented and StaRUG take effect on 1 January 2021, the rough roadmap for companies in difficulties is set up as well.  Now at the latest, in the last three months of suspension of over-indebtedness as reason to file for insolvency, it is important to start working on a restructuring concept in order to be able to make a positive going-concern prognosis for avoiding over-indebtedness then required again and to make use of the restructuring framework from January 2021 onwards.

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