Business reorganisation with the StaRUG

Reorganising companies early, before insolvency occurs – that is the objective of the Act on the Stabilisation and Restructuring Framework for Businesses (Gesetz über den Stabilisierungs- und Restrukturierungsrahmen für Unternehmen), or StaRUG for short. The StaRUG offers companies more options than out-of-court reorganisation, without any need for insolvency proceedings. The aim is to enable companies to keep trading and preserve jobs.

The StaRUG, also referred to as a preventive restructuring framework, gives debtors an extensive business reorganisation toolbox to facilitate quick and targeted restructuring of their financial liabilities. One important requirement for access to reorganisation under the StaRUG is that illiquidity must not yet have occurred. As with protective shield proceedings, there can be at most imminent illiquidity. So businesses wishing to make use of the options and tools provided by the StaRUG should start to think about preventive reorganisation at an early stage, when the first signs of crisis appear.

Benefits

StaRUG: Restructuring takes place quietly

Restructuring proceedings using the tools provided by the StaRUG have a number of advantages:

Proceedings are not public: Restructuring under the StaRUG takes place quietly because, with a few exceptions, StaRUG proceedings are not public.
Management remains in control: Companies implement the reorganisation themselves and under their own responsibility, an arrangement comparable with self-administration or protective shield proceedings.
Reorganisation can be limited to specific groups of creditors: A company’s management does not need to include all creditors in the reorganisation. Instead, they can target their actions, selecting which creditors they want to involve and which not.
A 75% majority is sufficient: In StaRUG proceedings, the company prepares a restructuring plan setting out the framework of the restructuring and the measures it intends to take. The plan must be approved by a three-quarters majority of the creditors included in it. This is less than required for out-of-court reorganisation, where all creditors must agree. In StaRUG proceedings it is also possible for creditors, or even groups of creditors, who vote against the restructuring plan to be outvoted. This reduces the risk that opportunistic creditors will block the reorganisation.
A high level of legal certainty: In StaRUG proceedings, it is up to the company’s management to decide whether or not they want court involvement in the reorganisation. However, to ensure a high level of legal certainty, and in case not all creditors approve the planned reorganisation measures, it is advisable to have the restructuring plan confirmed by the court.

Reorganisation using the tools provided by the StaRUG is not, however, suitable in all cases. Companies facing mainly operational or strategic challenges are often better off opting for standard insolvency, self-administration or protective shield proceedings. The StaRUG is primarily intended for companies with financial problems to resolve. So when the StaRUG is used – in contrast to reorganisation in the context of standard insolvency proceedings, self-administration or protective shield proceedings – unfavourable contracts cannot be terminated at short notice against the will of the other party, and, notably, companies cannot interfere with the rights of employees.

Restructuring plan

The centrepiece of StaRUG reorganisation: the restructuring plan

To reorganise their business using the tools provided by StaRUG, the company’s management works with its Chief Restructuring Officer (CRO) or insolvency advisors, and, if appointed, the court-appointed rehabilitation moderators or restructuring practitioners, to prepare a detailed restructuring plan. This plan is the centrepiece of any StaRUG restructuring scheme. It specifies the reorganisation measures needed for successful restructuring. The plan is divided into two parts, a declaratory part and a constructive part, and must contain information that includes a description of the challenges the company is facing and which creditors are to be included in the reorganisation. The plan must also contain a comparative analysis to confirm that the reorganisation measures will place the creditors in a better position than a comparable alternative scenario. In doing this, the company creates transparency, gains trust, and is better able to convince the creditors of the benefits of the reorganisation measures. Both the comparable scenario and the restructuring plan as a whole will depend on the individual circumstances of the case at hand. If the creditors approve the restructuring plan, implementation begins straight away. Once the measures have been carried out, the StaRUG proceedings are considered to have been successfully completed.

Support

Comprehensive advice and support during StaRUG reorganisation proceedings

Reorganisation of a company can be complex, particularly when it comes to defining and implementing specific reorganisation measures. Support from Schultze & Braun’s experienced restructuring experts is a real advantage here. Our specialists help companies prepare and agree a restructuring plan and provide support during implementation of the various measures. Our experts take whatever role you and your company need them to: We are your advisors, act in the responsible role of CRO, and also assume the duties of rehabilitation mediator or restructuring practitioner, which are usually appointed by the court.

We steer your reorganisation project carefully and precisely through to a successful conclusion. In addition to experience gathered from numerous insolvency, self-administration and protective shield proceedings, we at Schultze & Braun have also acted in various StaRUG restructuring proceedings. We worked in positions of responsibility together with the debtor’s management team to support and drive reorganisation of the companies and ensure that the rights of creditors were protected.

The best crisis is the crisis that never happens. So recognising signs of crisis via an early warning system is enormously important. The need for an early warning system – also in terms of the potential liability of directors and officers – is laid down in section 1 of the StaRUG. Schultze & Braun can help you put such an early warning system in place, ensuring that your company’s management team is protected against liability risks. It is important to note that the duties to warn of possible grounds for insolvency provided for in the StaRUG, and therefore also potential liability, extend to tax advisors, tax accountants, certified public accountants, sworn auditors and lawyers who work for the company. Schultze & Braun can develop measures so that they too can protect themselves against potential risks and avoid liability.

What can we do for you?

Contact

Dr. Dietmar Haffa
Rechtsanwalt (Attorney at Law), Dipl.-Betriebswirt (BA) (certified business accountant), Fachanwalt für Insolvenz- und Sanierungsrecht (Certified Specialist in Insolvency and Reorganisation Law)

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