StaRUG: What entrepreneurs should know now

This is good news at a time when entire industries are struggling to survive due to the pandemic. A few issues need to be taken into consideration, however, and the process is not suitable for every company. Here is a summary of the most important points:

• First and foremost, the new law offers advantages for companies with functioning       business models that have run into economic trouble through no fault of their own. 
  They are given the opportunity to agree on regulations for the sustainable stabilization of the company with selected creditors by submitting a restructuring plan. The plan can be used to structure claims, separate entitlements, share or membership rights and to adapt contracts. However, premature termination of e.g. rental or leasing contracts is not possible. Interventions in the wage and salary claims of employees also remain off-limits. The process thus hardly provides performance-oriented restructuring instruments and is primarily aimed at companies that are well positioned but heavily indebted.
• The publicity of the restructuring process remains limited to those affected by the plan. In this way, the StaRUG avoids the damage to a company’s reputation associated with filing for bankruptcy.
  
  
• In proceedings under the StaRUG, it is sufficient if a majority of 75% of the creditors accepts the restructuring plan. Restructuring is therefore also possible if faced with the resistance of a minority of creditors. However, a comparative calculation must be used to prove that the minorities who reject the plan are not left in a worse position.
  
  Another crucial point: The management or the owner remains in control throughout the entire process. Only they are authorized to submit a restructuring plan and they remain the central control body during the course of restructuring. In certain cases, the law provides for the involvement of a restructuring officer as an independent control and mediation authority. This officer is appointed by a specialized restructuring court, primarily in cases when the court orders enforcement protection in favor of the company, in order to secure this protection for the time necessary to develop and submit the plan as well as the discussions with the creditors.
  
  
• The possibilities of the StaRUG, however, also come with new demands on entrepreneurs and management. For example, they are obliged to establish an early warning system and corresponding plans for identifiable economic threats such as impending insolvency. If such systems do not exist or if countermeasures are not taken early in the event of a crisis, there is a risk of damage claims.
  
  
• Within the scope of freedom of contract, the law basically gives companies free rein in designing the restructuring plan. However, information on the reasons for the crisis must always be provided. Special requirements are placed on the budget calculations in the plan as well as the necessary comparative calculation. Only a convincing, reliable set of figures and calculations will be able to move creditors to agree to the plan – and thus to give up some of their rights. Here, the company should consider very carefully whether it is capable of doing this on its own or needs support from restructuring experts