Restructuring against the will of individual creditors, without insolvency proceedings.

Until 2021, there was only one route outside insolvency: everyone had to agree. A single creditor who held out could prevent a restructuring that all the others had approved. The German Act on the Stabilisation and Restructuring Framework for Businesses (StaRUG) put an end to this. Since 1 January 2021, a restructuring plan can be implemented even against the opposition of individual creditors, by majority rather than unanimity.

We assess whether the StaRUG is the right framework for your situation, draw up the restructuring plan and support you through the proceedings.

What you gain

  • 1
    No insolvency proceedings. No insolvency administrator, no insolvency estate, no filing with the court with everything that entails.
  • 2
    Holdouts come to nothing. The plan also binds creditors who have not agreed, provided the majorities are in place.
  • 3
    Discretion. The proceedings are not publicly announced. Customers, suppliers and competitors learn nothing unless you want them to.
  • 4
    You continue to run your company. Management remains in office, without an insolvency monitor (Sachwalter) alongside.
  • 5
    You intervene only where necessary. The plan can be limited to individual groups of creditors, while suppliers and employees remain unaffected.

A narrow window of time

Access depends on a single criterion: imminent illiquidity. Under Section 18 of the German Insolvency Code, this is the state in which the company will foreseeably no longer be able to make its payments when due. The forecast period is generally 24 months.

This results in a window that is closed on both sides:

  • Too early does not work: as long as there is no imminent illiquidity, the procedure is not available.
  • Too late does not work either: if illiquidity (Sec. 17 InsO) has already occurred or the company is over-indebted (Sec. 19 InsO), the route is closed, and only insolvency law remains.

Identifying this window requires reliable planning. Without integrated financial planning and a liquidity forecast, it is impossible to demonstrate either that illiquidity is imminent or that it has not yet occurred. Both must be evidenced.

The toolbox

The StaRUG is not a single uniform procedure, but a modular system. Whatever is needed is used:

Restructuring plan. The centrepiece. It divides the affected creditors into groups and sets out the contribution each group makes: waiver, deferral, conversion into equity, changes to collateral. Approval requires 75% of the voting rights in each group. Anyone who votes against is bound, provided they are not worse off than without the plan.

Stabilisation order. On application, the court prohibits enforcement measures and the realisation of collateral for up to three months. This creates the time in which negotiations can take place.

Court-supervised plan vote. The vote can take place in-house or before the court. Before the court, it involves more effort, but disputes over whether the vote was properly conducted are avoided.

Restructuring officer. In certain constellations, the court appoints a restructuring officer, in particular if the rights of consumers or smaller businesses are to be affected or if a stabilisation order is to have broad effect.

Early crisis detection is not optional

The same act introduced a duty that many management teams are still not aware of: Section 1 StaRUG obliges the managers of companies with limited liability to monitor continuously any developments that could jeopardise the continued existence of the company, to take countermeasures when they identify them and to inform the supervisory bodies.

In practice, this means a system is needed that makes such developments visible. Rolling liquidity planning and integrated planning with scenarios are the usual way of fulfilling this duty. Anyone who cannot show anything of the kind will find it difficult to justify themselves if liability claims arise.

This is why, in many mandates, we start with the planning and not with the proceedings.

What the StaRUG cannot do

Honesty belongs here, because the act is often overestimated:

  • Employment relationships remain unaffected. Workforce measures cannot be achieved through the StaRUG, unlike in insolvency proceedings.
  • No insolvency benefit (Insolvenzgeld). The wage financing that relieves a company in Eigenverwaltung (debtor-in-possession management under Sections 270 et seq. of the German Insolvency Code) is not available here.
  • Ongoing contracts cannot be terminated unilaterally. Anyone who needs to get out of expensive lease or supply contracts will find no tool for this in the StaRUG.
  • A majority is needed. Where the creditor structure is fragmented or the main creditors reject the plan as a block, this route does not lead to the goal.

If these points apply, Eigenverwaltung is usually the more effective route. Which framework fits is precisely the question to be answered before the decision, and it can only be answered on the basis of the figures.

The window closes over time.

The StaRUG is only available while illiquidity is imminent and has not yet occurred. An early conversation keeps this route open.