On 14 October 2020, the Federal Ministry of Justice and Consumer Protection presented the government draft of alaw on the further development of restructuring and insolvency law (SanInsFoG). Two months later, on 17 December 2020, the Bundestag adopted the bill as amended by the Legal Affairs Committee. This law creates pre-insolvency restructuring measures for the first time in German law.
The main implementation into national law was to take place through the Corporate Stabilisation and Restructuring Act (StaRUG). The StaRUG is considered the essential core of the Act on the Further Development of Restructuring Insolvency Law.
The SanInsFoG was largely enacted on 1 January 2021. The standards on public restructuring cases, sections 84 et seq. StaRUG, are not to enter into force until 17 July 2022. The early enactment of a major part of the law is intended to benefit in particular companies that are only threatened with over-indebtedness but are not already insolvent within the meaning of section 17 InsO. This is intended to enable these companies to restructure without insolvency proceedings.
We have compiled and explained important aspects and factors of the Act on the Further Development of Restructuring and Insolvency Law (SanInsFoG) for you.

Duty to file for insolvency in the Corona crisis – COVInsAG

In principle, the representative of a legal entity (e.g.: AG or GmbH) is obliged to file the insolvency petition.
The Act on the Temporary Suspension of the Obligation to File for Insolvency and on the Limitation of Directors’ and Officers’ Liability in the Event of Insolvency Caused by the COVID 19 Pandemic (COVInsAG) suspended the obligation to file for insolvency until 31 December 2020.
At the beginning of 2021, over-indebted companies will again be obliged to file for insolvency. An exemption of COVInsAG exempts, under certain circumstances, over-indebted or insolvent companies that applied for aid under state aid programmes on the occasion of the Corona pandemic between 01.11.2020 and 28.02.2021, or for which it was impossible to submit the application in the time window, from the obligation to apply.

The restructuring framework with restructuring plan

The StaRUG is intended to make it possible for the first time to intervene in creditors’ rights outside of insolvency plan proceedings. At the heart of the restructuring framework is the restructuring plan. The restructuring plan represents an out-of-court agreement between creditors and the affected company. Among other things, it regulates which payments are to be made on which “simple claims” (restructuring claims). Moreover, it is not necessary to involve all creditors in the plan.
This means: Companies are enabled to achieve restructuring outside of insolvency proceedings with this restructuring plan, which is confirmed by a majority of the creditors concerned, and then to prevent the opening of insolvency proceedings from the outset.
In principle, companies have access to the restructuring framework, but so do entrepreneurially active natural persons, according to Section 30 (1). StaRUG.
It is noteworthy, however, that employee and pension claims are not taken into account in the restructuring. If comprehensive action in these areas becomes necessary, it must be implemented outside the restructuring plan. Alternatively, the reorganisation can be carried out within the framework of self-administration proceedings or regular insolvency proceedings. For employee and pension claims, the draft law does not offer any possible solutions.

Restructuring framework in early crisis situation

The so-called restructuring procedure applies to companies that are only threatened with insolvency, section 18 InsO. Imminent insolvency is given if insolvency threatens to occur within the forecast period of basically 24 months.
The SanInsFoG illustrates the difference to over-indebtedness in that the forecast period in the case of over-indebtedness pursuant to section 19 para. 2 sentence 1 InsO is only determined for 12 months. For companies whose over-indebtedness was caused by the Corona pandemic, the shortened forecast period of 4 months applies until the end of 2021, see § 4 COVInsAG.

Role of the court in restructuring

It is important in pre-insolvency reorganisation and restructuring that the management can continue to act fully: The initiative for the restructuring plan as well as the preparation of the restructuring plan must come from the over-indebted company itself, section 17 (1). StaRUG.

However, a court may also be involved in the restructuring proceedings. This is then at the discretion of the affected companies as to whether they seek the assistance of a restructuring court during the preventive reorganisation. The centrally competent district courts are the respective restructuring courts.

The duties of the court in restructuring proceedings include:
– the implementation of the court-ordered plan reconciliation process
– Examination of central questions
– Confirmation of the restructuring plan
– Termination of mutual contracts (not yet fully performed by both parties)
The involvement of a court enables the debtor to deal fully with the restructuring plan – without any interference from creditors.
The court may in principle appoint a restructuring commissioner at its own discretion if, for example, a comprehensive stay of execution and realisation is to be obtained.
The appointment of a restructuring officer is not mandatory. Only if it is to be expected that several groups will not agree with the required majority, so that it will depend on the existence of the prerequisite of an inter-group majority decision, the appointment becomes mandatory. Only companies from the financial sector are exempt from this requirement.

Instruments of the restructuring framework

So-called instruments of the stabilisation and restructuring framework can be used as a procedural aid for the sustainable management of an impending insolvency. These instruments are specified in § 29 para.1 and para.2 StaRUG.
Instruments in the meaning of Section 29 (1) StaRUG are:

1. the judicial plan ballot: conducting a judicial plan ballot procedure
2. preliminary examination: judicial preliminary examination of issues relevant to the confirmation of the restructuring plan
3. stabilisation: court order of regulations restricting measures of individual legal enforcement
4. plan confirmation: judicial confirmation of a restructuring plan

In order to be able to make use of one of the instruments, the restructuring project including the draft restructuring plan or restructuring concept must be notified to the competent restructuring court (by the debtor company).
Upon notification to the competent restructuring court, the restructuring case becomes pending. This gives the company access to the instruments. Access shall be granted until the pendency of the restructuring case. This concerns a period of maximum 6 – in case of a renewed advertisement maximum 12 – months.

You are welcome to contact us if such a reorganisation and restructuring procedure is considered as a solution for your company during the crisis. Together with you, we will create an individual plan that is best suited to your needs.