Restructuring a company with the StaRUG - Tips for GmbHs & Companies

• Innovations through the StaRUG
• Conditions for restructuring the company without insolvency
• Objectives and Benefits of the StaRUG
• Central elements of the StaRUG
• These are the instruments of the stabilisation and restructuring framework
• Procedure of the restructuring procedure according to StaRUG

The StaRUG has been in force since January 1, 2021.

The StaRUG procedure (according to Sections 2 ff. StaRUG) represents the possibility of restructuring without insolvency and can be described as a legal framework for restructuring that avoids insolvency. The restructuring is carried out on the basis of a restructuring plan accepted by a majority of creditors.

Restructuring a company is a complex matter and requires early planning. A restructuring plan can help stabilize the company financially without going through insolvency proceedings - long before the threat of insolvency occurs.

In the following article you will learn the most important framework conditions and the ideal procedure if you want to restructure on the basis of the StaRUG.

Innovations through the StaRUG

The StaRUG gives the company the choice of which creditors are included in the restructuring plan. At the same time, it offers tools that facilitate planning and implementation.

The StaRUG is particularly suitable for financial restructuring, e.g. through a debt restructuring.

It also obliges the management of all legal forms to identify crises at an early stage and to initiate countermeasures in a timely manner.

Conditions for restructuring the company without insolvency

The StaRUG procedure is aimed at companies that are at risk of insolvency and thus bankruptcy. This means that the company is still solvent. It must neither be insolvent nor over-indebted within the meaning of the Insolvency Code (InsO).

If the company is already insolvent or over-indebted, the only option is insolvency proceedings. It is therefore important to act early in order to make use of all restructuring options.

The forecast period for impending insolvency is two years. This means that a company is considered impending insolvency if it is expected to no longer be able to pay its debts in the next two years.

Objectives and Benefits of the StaRUG

The aim of the StaRUG is to permanently eliminate impending insolvency (Section 29 StaRUG). In contrast, insolvency aims to satisfy creditors as best as possible (Section 1 InsO).

The StaRUG provides tools that enable companies to restructure outside of insolvency proceedings. It closes the gap between free restructuring before insolvency and restructuring within the framework of judicial insolvency proceedings.

Central elements of the StaRUG

• Preventive restructuring framework:
  The StaRUG offers companies in crisis a preventive restructuring framework. Previously, there was only out-of-court restructuring or restructuring in insolvency proceedings. The preventive restructuring framework is used before insolvency occurs.
• Restructuring plan:
  The restructuring plan is similar in structure to the insolvency plan. It consists of a descriptive part and a design part.
• Legal support:
  If the plan is to be confirmed by the court, the court will examine the impending insolvency. The court can also enforce the plan against the will of a minority opposing it. Without impending insolvency, the only option is an out-of-court settlement without being bound to the plan.
• Restructuring moderator and restructuring officer:
  The restructuring moderator mediates between the company and the creditors in order to reach a restructuring agreement. The restructuring officer monitors the process, looks after the interests of all parties involved and oversees the preparation of the plan. He also acts as a contact person for the court.

These are the instruments of the stabilisation and restructuring framework:

Companies can use various procedural aids, the so-called instruments of the stabilization and restructuring framework (Section 29 StaRUG). These offer the debtor a great deal of freedom of decision, which reflects the basic idea of ​​the StaRUG: unlike in insolvency proceedings, control remains largely with the debtor.

Before the creditors vote on the restructuring plan, the company tries to convince them of its restructuring concept and makes adjustments if necessary.

During this negotiation phase, the debtor can access the instruments of the StaRUG to secure his chances of restructuring.
In particular, he can:

• obtain a court stabilisation order to halt enforcement and realisation for certain or all creditors if this is necessary for the success of the restructuring,
• by judicial confirmation, make the restructuring plan binding even for creditors who have not consented.
• These instruments can be requested when the project is notified or during the preparation of the plan.

The StaRUG offers the following restructuring instruments, which can be applied for individually and independently of one another:

• Judicial plan approval (§§ 45 ff.),
• Preliminary examination of relevant questions regarding the confirmability of the plan (§§ 47 ff.),
• Stabilization order (enforcement and disposal bans, §§ 49 ff.) for a maximum of three to four months,
• Confirmation of the restructuring plan (§§ 60 ff.), especially in the case of out-of-court plan approval.

Procedure of the restructuring procedure according to StaRUG

The restructuring process under the StaRUG includes several steps, ranging from early crisis detection to judicial confirmation of the restructuring plan. By taking early and well-planned measures, a company can increase the chance of a successful restructuring and avoid insolvency or excessive indebtedness.

remediation review

First, it is checked whether the restructuring can be successful. The sooner a company acts, the greater the chances of a successful restructuring. If a crisis is foreseeable, the management must take measures and inform the advisory board or supervisory board. The StaRUG applies if the company is at risk of insolvency, i.e. if insolvency is likely in the next 24 months. However, if the company is already insolvent or over-indebted, the only option is insolvency proceedings.

selection of creditors to be included

Unlike insolvency, the restructuring plan only affects certain groups of creditors. The company can decide for itself which creditors and, if applicable, shareholders are included. For example, financial creditors can be included, but suppliers can be left out.

notification to the restructuring court

If the company has opted for the StaRUG procedure, it must notify the restructuring court of the project. From this point on, the obligation to file for insolvency is suspended. Documents such as a draft of the restructuring plan or a concept and information on the planned procedure must be submitted with the notification.

preparation of the restructuring plan

The restructuring plan is similar to the insolvency plan, but can be limited to certain groups of creditors. It is not a collective procedure, but focuses on groups that are selected according to appropriate criteria. The plan can also change the rights of shareholders, for example by reducing capital or excluding existing shareholders.

plan offer

Before the plan is voted on, a plan offer must be sent to those affected, regardless of whether the vote takes place out of court or in court. The plan offer contains the complete plan, information on the legal implications and an overview of the costs to date and expected.

plan approval

The plan can be agreed out of court or in court. A judicial plan agreement offers the advantage of avoiding disputes about the proper procedure. With an out-of-court agreement there is a risk that the court will refuse to confirm the plan.

majorities for the plan acceptance

A majority of 75% of the voting rights in each creditor group is required for the plan to be approved. Secured creditors vote according to the value of their collateral, unsecured creditors according to the amount of their claims. Shareholders vote according to their share of the subscribed capital.

confirmation or rejection of the restructuring plan

The court can reject the plan if the company is not at risk of insolvency, if there are procedural errors or if the creditors' claims cannot be met. In the case of out-of-court voting, those affected by the plan must be heard before the court makes a decision. The plan is usually confirmed within six months of notification of the restructuring plan.

You can view the latest legal changes to the StaRUG here:
https://www.buzer.de/gesetz/14367/l.htm