Covid-19 and insolvency law from an entrepreneur’s perspective – everything new from January 2021?

The StaRUG, which comes into force in January 2021, offers solvent companies a preventive restructuring framework for restructuring without insolvency proceedings. It supports companies through flexible creditor participation and optional non-publicity, but cannot prevent a wave of insolvencies as it is not applicable in the event of insolvency.

The preventive restructuring framework (StaRUG)

As previously described in my article “Covid-19 and the wave of insolvencies – new rules apply from October”, entrepreneurs must always be aware of the current framework conditions of insolvency law. As is well known, since October 1, companies that are insolvent are once again required to file for insolvency. This had previously been suspended by the German government in view of the economic impact of the coronavirus crisis in order to avoid a wave of insolvencies. However, the second insolvency criterion, over-indebtedness, remains suspended – as things stand at present – until the end of the year.

In mid-September, the Federal Ministry of Justice and Consumer Protection (BMJV) presented a draft bill on the further development of restructuring and insolvency law. In addition to amendments to the existing Insolvency Code, it contains a proposal for the preventive restructuring of companies as a financial restructuring instrument. The law is called “StaRUG” (Law on the Stabilization and Restructuring Framework for Companies).

What is behind the planned StaRUG and who does it help?

In my view, this is an innovative and in any case novel procedure with the aim of giving companies that are still solvent (!) a legal framework for restructuring. Unfortunately, it is often the case at this stage of the crisis that companies are wound up and sold off rather than restructured and rescued. The central instrument is a restructuring plan, similar to the insolvency plan already used today (pursuant to sections 270 et seq. InsO), which describes the company’s situation, presents the measures required for restructuring and makes statements on the prospects of success and underpins them with an integrated financial plan.

A special feature is that individual creditors can be excluded from the plan, i.e. they can continue to be served as normal in terms of payment behavior (e.g. the bakery around the corner). Another special feature is that the proceedings can also be “non-public” under certain circumstances, i.e. without publication by the court, as is unavoidable in conventional proceedings. In this case, however, the legal instruments (stabilization measures) are limited, e.g. with regard to the suspension of enforcement measures and the implementation of bans on segregation and separation.

However, a not insignificant boundary condition in contrast to other proceedings (the InsO) is that certain measures under employment law cannot be implemented. This should please the employee representatives.

In certain cases, a so-called restructuring advisor should be appointed (by the court), e.g. if the above-mentioned stabilization measures are used or small companies are to be involved in the proceedings. The role of the restructuring advisor is similar, but not the same, as that of a trustee in the context of self-administration under insolvency law.

The optional appointment of a court-appointed restructuring moderator is also possible and planned, who is to help negotiate an amicable solution in the early phase of restructuring.

When will the law come into force and can it prevent a wave of insolvencies?

The draft bill indicates that it is to come into force on January 1, 2021, i.e. just in time for the end of the current moratorium period with regard to the suspension of the obligation to file for insolvency with the criterion of “over-indebtedness” for companies that have got into economic difficulties as a result of the coronavirus crisis.

In my opinion, the instrument of preventive restructuring is an interesting tool and should be used in appropriate cases to avoid conventional insolvency proceedings with a negative image. This will enable numerous companies to be saved and it is worth considering this option for each individual case. However, this will not prevent a wave of insolvencies. In addition to limiting the range of instruments with regard to labor law measures, the main reason for this is the fact that the provisions of the StaRUG cannot be applied to insolvent companies. However, insolvency is still by far the most common reason for insolvency.

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