How do restructuring proceedings differ from insolvency proceedings?
Restructuring proceedings under the StaRUG (the German Act on the Stabilisation and Restructuring Framework for Businesses) are intended to enable a restructuring without mandatory court involvement or publication, before insolvency proceedings become necessary. They require that illiquidity is only imminent and has not yet occurred, and that the company is capable of being restructured. The company must present its creditors with an appropriate restructuring plan, which must be accepted by a qualified majority of creditors. At the company’s request, supporting court measures may be taken (stay of enforcement, court-supervised voting procedure). The company retains control of its management during the restructuring.
Insolvency proceedings, which apply not only in the case of imminent illiquidity but above all where illiquidity or over-indebtedness has already occurred, and which can also be initiated at a creditor’s request, are by contrast always court proceedings, in which the management of the company is either supervised by an insolvency monitor (Sachwalter) in Eigenverwaltung (debtor-in-possession management under Sections 270 et seq. of the German Insolvency Code) or placed entirely in the hands of a court-appointed insolvency administrator. Ideally, insolvency proceedings also lead to a restructuring of the company (for example by means of an Insolvenzplan, the plan creditors vote on, or a sale to a new legal entity by way of an asset deal). However, the business may also be closed down and liquidated. If the company files its own application early, the proceedings can be conducted in Eigenverwaltung with the support of an insolvency monitor, otherwise the court appoints an insolvency administrator, who then acts for the company. Unlike in restructuring proceedings, in insolvency proceedings contracts can be continued under Sections 103 et seq. InsO without burdening the insolvency estate.
If the restructuring proceedings fail (for example because the required majority of creditors does not agree), they will usually be followed by insolvency proceedings.
