Lending focus – March 2021 – 2 / 7 观点
On 1 January 2021, the German Law for the Further Development of the Restructuring and Insolvency Laws (SanInsFoG) came into force.
Crucially, this contains a stabilisation and restructuring framework for businesses (StaRUG). Set out within this are new procedures for out-of-court pre-insolvency restructurings in Germany (the German Scheme), introduced in connection with the Directive on restructuring and insolvency of 20 June 2019 ((EU) 2019/1023) (Restructuring Directive). Also worthy of mention is the fact that the German Insolvency Code has undergone significant changes.
The German Scheme resembles the UK and Dutch schemes. It fills the gap in German restructuring law between consensual pre-insolvency restructuring and restructuring in the context of formal and comprehensive insolvency proceedings. It is available to companies after the occurrence of imminent illiquidity (drohende Zahlungsunfähigkeit) on the basis of a 24-month prognosis.
The German Scheme provides for a debtor-in-possession process, in which a restructuring plan is voted on by separate classes of creditors. Only the debtor is entitled to initiate the restructuring process and to propose the restructuring plan. Where a minority of dissenting creditors opposes the restructuring plan, the German Scheme provides for the involvement of a restructuring court, which needs to confirm the restructuring plan and implement certain stabilisation measures.
Many processes which are a part and parcel of the German Scheme are similar to those that are already available under in-court insolvency proceedings. Under StaRUG, however, these measures can be enforced without the formality and stigma of in-court proceedings.
The managing directors of companies are obliged to recognise corporate crises at an early stage and to manage such crises. They have to continuously monitor developments that could jeopardise the continued existence of their company. Where they identify such developments, they must take appropriate countermeasures and report to the supervising bodies immediately.
Managing directors and supervisory bodies should therefore review their existing corporate organisation for suitable early crisis detection and management systems. They should carefully document the fulfilment of their early crisis detection obligations.
As soon as the restructuring project has been notified to the restructuring court, however, there is a shift in duties. The managing director of the company now has to protect the interests of creditors, pursuing the restructuring matter with the due care of a prudent and conscientious manager. If these duties are breached, the managing director is liable to the company for the damage incurred. Such claims for damages can only be asserted by the company itself and not by the company's creditors.
The debtor may submit a restructuring plan to its creditors, who are divided into certain classes (eg secured creditors, unsecured creditors) and members. A majority of 75% of the voting rights in each class is required and sufficient for the adoption of the restructuring plan. Voting rights are determined by the amount of the claim, the value of the security and, in the case of share or membership rights, the share of the subscribed capital of the debtor. If the required majority in one class is not achieved, its approval may be replaced by way of a cross-class cram-down.
The confirmation of the restructuring plan by the restructuring court is required, unless all creditors affected by the restructuring plan agree to it.
Under the restructuring plan, liabilities and security rights granted by the debtor as well as the underlying contractual relationships can be modified. Third-party security granted by affiliates of the debtor can also be impaired. Capital reduction/increase and debt-equity-swaps may also feature.
New financings, whether secured or unsecured, may also form part of the restructuring plan. Such new financings are generally excluded from claw-back in a subsequent insolvency. This privilege does not apply to shareholder loans and economically comparable transactions, which, by operation of German insolvency law, are subordinated in any German insolvency proceedings.
Pursuant to StaRUG, lender liability cannot arise from knowledge that a restructuring matter is pending with the restructuring court, or that the debtor has applied for certain stabilisation measures.
The lender liability regime imposed by German case law on restructuring loans has not been suspended in its entirety by StaRUG. Nevertheless, no liability will occur if the lender has advanced new monies in order to facilitate a restructuring.
Pursuant to the requirements of the German Federal Supreme Court (Bundesgerichtshof) and the German Institute of Auditors' IDW S6-standard, the debtor usually provides a restructuring opinion in order to evidence that the proposed restructuring is likely to be predominantly successful.
The German Scheme provides for certain stabilisation measures.
To achieve a successful restructuring, the debtor may apply to the court for stabilisation orders against all, single or multiple creditors, such as a stay of execution or a stay of realisation. Stays may be issued for a duration of up to three months with the option of an extension of up to eight months under certain circumstances.
At the request of the debtor or of creditors holding 25% of the voting rights or in certain mandatory cases, the restructuring court will appoint a restructuring officer. This is often the case when the rights of consumers or SMEs are to be varied under the restructuring plan, the debtor applies for stabilisation orders, or the court confirms the restructuring plan through a cross-class cram-down.
The restructuring officer must be a tax advisor, auditor or lawyer experienced in restructuring and insolvency matters or another natural person with comparable qualifications. The restructuring officer monitors the restructuring process, determines factual issues and examines individual procedural steps.
If, during the restructuring process, the debtor becomes illiquid or over-indebted, the restructuring court is authorised to continue the restructuring proceedings in certain circumstances. These include if the success of the restructuring plan is likely and:
For companies affected by COVID-19 – ie businesses that were successful in 2019 but with a turnover shortfall of more than 30% in 2020 – the usual 12-month forecast period to resolve over-indebtedness has been reduced to four months until 31 December 2021.
Moreover, due to the delayed disbursement of financial aid under German state aid programmes, insolvency filing obligations have been suspended until the end of April 2021 in relation to companies which filed an application for the granting of financial aid under state aid programmes.
The Restructuring Directive needed to be implemented by Member States by 17 July 2021. SanInsFoG became law much earlier, because the government wanted to have the German Scheme available by 1 January 2021.
It remains to be seen whether the German Scheme will provide for a practical, efficient and internationally competitive new restructuring regime.
To discuss the issues raised in this article in more detail, please reach out to a member of our Banking & Finance team.
作者 Cheng Bray