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StaRUG Restructuring Facilitation
The best way to strike a balance between creditors and debtors in the current crisis
At the end of 2020, the German Act on the Stabilisation and Restructuring Framework for Companies, in short: StaRUG, was adopted almost without being noticed by the “affected parties” as the most important part of the German Act on Updating Restructuring and Insolvency Law – SanInsFoG legislative package. It entered into force on 1st January 2021 and, for the first time in the Federal Republic of Germany, provides statutory provisions for restructuring companies outside insolvency proceedings. In contrast to protective shield proceedings, which are often mistakenly considered an alternative to insolvency proceedings and which merely represent a special form of insolvency under self-administration, these proceedings can be conducted either in court or out of court.
The law is intended to implement the EU’s Restructuring Directive, which actually aimed at creating simple restructuring proceedings that can also be used by small-scale and microenterprises. So far, the law has failed to achieve the success hoped for by its initiators. Even one and a half years after it entered into force, only around 25 known proceedings have come to light. Critics are not surprised by this, because they had noticed from the outset that the regulations in Germany, which are strongly based on insolvency plan proceedings, have become far too complicated for the intended purpose. Our partner Attorney at law Lutz Paschen, who had been consulted as an expert by the Legal Affairs Committee of the Bundestag in the course of the legislative proceedings, had also commented on this during the hearing in the Committee.
In doing so, he had pointed out, as he has been doing during numerous specialist events as well in the meantime, that in his opinion, restructuring facilitation “hidden” in the third part of the law alone had the potential to achieve the intended effect, at least to a certain extent.
An agreement between the parties using this special form of proceedings requires unanimity. The proceedings begin with applying for the appointment of a restructuring facilitator at the competent court that deals with restructuring matters. The application has to include declarations on the subject matter of the company and its economic problems, a list of creditors and the company’s assets as well as the applicant’s declaration that they are not (yet) insolvent.
In addition to knowledge of insolvency law, the restructuring facilitator who is to be appointed by the court that deals with restructuring matters must also have business skills and entrepreneurial experience as well as the ability to mediate between the parties involved.
Although the costs of his work are to be remunerated with up to €350.00 per hour, the law provides that remuneration to be set by the court at the beginning should take into account the size of the company in addition to the nature and scope of the economic difficulties of the company and the qualifications the restructuring facilitator has, but above all the court is required to set a maximum limit for the fee at the beginning, so that the risk of the proceedings becoming a money pit is avoided.
The applicant may withdraw their application at any time without any justification.
The creditors to whom the proceedings extend are freely determined by the affected company, which is why not all creditors are usually affected, unlike in insolvency proceedings.
In the event of a confirmation by the court on the restructuring settlement reached in accordance with Section 97 StaRUG, they will benefit from protection against legal contest. This means that payments obtained on the basis of the settlement are regularly non-contestable even in the event of subsequent insolvency of the company.
Such a settlement is not achieved against the will of an affected creditor. In fact, it is stated that in this case the proceedings can be continued as regular StaRUG proceedings, in which individual affected parties can be overruled. However, this creditor risk cannot be prevented in any case.
If it is strictly ensured that the restructuring settlement is made dependent on a confirmation by the court, the suggestion of restructuring facilitation in the current crisis situation, in which previously healthy companies are faced with the risk of becoming insolvent, so to speak, is therefore a real option for creditors who want to help their contractual partner in need without themselves having to take unpredictable risks of legal contest.
We at PASCHEN will be happy to help you with this. You can find more information on How the new restructuring framework works and what creditors should pay particular attention to here.