The new Act on the Stabilisation and Restructuring Framework for Businesses (StaRUG – Unternehmensstabilisierungs- und -restrukturierungsgesetz), which came into force on January 1, 2021, creates the legal framework for the preventive restructuring of companies. The aim is to enable restructurings out of court and avoid insolvency proceedings with the consent of the majority of the affected creditors. The StaRUG provides that the parties involved can adopt a restructuring plan with a majority of 75% in each group, which is binding for all plan-affected parties involved and their claims and rights.
The stabilisation and restructuring framework created by the StaRUG also provides for the possibility of court stabilisation orders such as enforcement and liquidation injunctions to safeguard the restructuring plan.
In addition to the claims and collateral of the creditors included in the plan, the restructuring plan can also include shareholders’ equity and multilateral legal relationships (in particular syndicated loan agreements).
A company in crisis can be assigned a restructuring officer by court order to support and, if necessary, monitor the management. The instruments of the StaRUG offer extensive new possibilities for restructuring companies but are only available if the company is “only” threatened with insolvency. Restructuring under the StaRug regime can thus avoid insolvency proceedings.
The prerequisite for using the instruments made available by the stabilisation and restructuring framework is the existence of imminent insolvency. If there is purely a threat of insolvency, the debtor will therefore be able to choose between insolvency proceedings and preinsolvency restructuring under StaRUG in the future.
The central instrument of StaRUG is the restructuring plan, which is largely modeled on the insolvency plan. The restructuring plan can be put to the vote and accepted both in an out-of-court procedure and in a court vote. In the restructuring plan, claims and securities of the creditors included in the plan, shareholders’ equity rights and multilateral legal relationships can be structured. Multilateral legal relationships are, for example, syndicated loan agreements and agreements between creditors on ranking and distribution of proceeds (intercreditor agreements). Other financing arrangements with a large number of creditors, such as promissory notes or bonds and debentures, are also covered. In addition, it is possible for a restructuring plan to include collateral that has been granted by affiliated companies, e.g. joint liability of subsidiaries for financial liabilities of the parent company. A release of such intra-group third-party collateral is possible in the restructuring plan, provided that the collateral takers are adequately compensated.
Employee claims, including pension commitments, cannot be regulated in the restructuring plan.
In order to stabilise the company, the competent court may order a (temporary) freeze on enforcement and liquidation.
The competent court must appoint a restructuring officer to support and, if necessary, monitor the company and its management in overcoming the crisis if a) the rights of consumers or small to medium-sized enterprises are affected by the restructuring, b) a stabilisation order relates essentially to all claims against the debtor or if c) it is foreseeable that the restructuring plan can only be adopted with a majority decision across the group.. The restructuring officer is under the supervision of the court and has certain reporting obligations to it. The appointment of a restructuring officer is likely to be the norm, outside of purely financial restructurings involving companies in the financial sector.
One Square acted as financial advisor in the restructuring of ETERNA, the first major StaRUG proceeding.