German Court finds creditor selection inadmissible for StaRUG restructuring plan

Quick read

A restructuring plan under the Company Stabilization and Restructuring Act (StaRUG) does not have to include all creditors and shareholders. The company selects the parties who are to be affected by the plan.

Background

The Regional Court of Düsseldorf was recently asked to confirm a restructuring plan that provided for three creditor groups:

a bank with unsecured claims of EUR600,000
five small creditors with unsecured claims totalling EUR7,000
shareholder loans.

Under the plan, the bank and small creditors would receive 13% of their claims, while the shareholder would receive nothing.

Decision

The court refused to confirm the restructuring plan as the selection of creditors affected by the restructuring plan was inadmissible (section 8 StaRUG). The inclusion of a claim is inadmissible or "arbitrary" if it is not necessary to achieve the restructuring objective – in particular if it is not "relevant" for the liquidity of the company.

The small creditors were included so that, together with the shareholder, they would vote in favour of the plan, enabling the court to cram down the dissenting bank. The court held that this objective was not covered by section 31 StaRUG and rendered the restructuring plan unfit for confirmation. The debtor had around 100 small creditors in total but did not explain why only five of them were included in the plan.

Key takeaways

Claims may only be included in a restructuring plan if they are relevant for liquidity in view of the restructuring objective.
Arbitrary creditor selection to influence voting rights violates section 8 StaRUG and risks plan confirmation.
The selection of creditors in restructuring plans must be well-reasoned.