Corporate restructuring

Outside of insolvency proceedings, in addition to implementing operational measures, financial restructuring through the reorganisation of financial arrangements, such as by means of a so-called restructuring financing agreement with the relevant lenders, is often considered.

Since 2021, companies facing imminent illiquidity also have the possibility of implementing a financial restructuring in accordance with the StaRUG by drawing up a so-called restructuring plan.

Once a restructuring plan drawn up by the company itself has been approved by the court, key legal relationships may be restructured, even if only partially by mutual agreement, i.e., even against the will of individual stakeholders, in the interest of the company’s financial recovery, and a financial restructuring may be implemented on this basis.

If restructuring the company is necessary as part of insolvency proceedings or is the most effective restructuring option for the company, special types of proceedings, such as self-administration and protective shield proceedings, are available, in which management retains the authority to act and oversees the restructuring process within the framework of the proceedings.

Such self-administration or protective shield proceedings can generally be divided into two phases:

(i) the preliminary insolvency proceedings, during which it is determined whether a reason for opening insolvency proceedings exists and whether the costs of the proceedings are covered, and during which the proposed restructuring measures are typically finalized and, in any case, prepared, as well as

(ii) the insolvency proceedings that have been opened, during which the relevant restructuring measures are typically implemented.

Depending on the type of proceeding, different parties are involved. While in a so-called standard insolvency proceeding, an insolvency administrator is ultimately appointed by the court, to whom the authority to administer and liquidate assets is transferred no later than the opening of the proceeding, in a so-called self-administration or protective shield proceeding, management retains the authority to act and is supported by an experienced restructuring advisor and supervised by a court-appointed trustee.

Insolvency law as it exists today is no longer focused on the liquidation of a company. Rather, it offers:

(i) with numerous stabilization mechanisms, in particular the so-called security measures, as well as the insolvency payments granted by the Federal Employment Agency, initially providing the basis for maintaining the company’s operations during an economically difficult situation and

(ii) the numerous and extensive insolvency-related restructuring tools provide comprehensive options for actively implementing financial, and in some cases operational, restructuring and reorganization.

In the context of a self-administration or protective shield proceeding, a number of insolvency-specific restructuring tools can be utilized, such as:

• The insolvency payments granted by the Federal Employment Agency significantly reduce the company’s liability for the payment of wages and salaries for the three months prior to the opening of insolvency proceedings, which is a major factor in ensuring the continuity of operations.
• Many potentially onerous contracts can be efficiently terminated based on the so-called “Wahlrecht des Insolvenzverwalters”.
• A special right of termination allows leasing agreements to be terminated with three months’ notice, thereby enabling a chain store operator, for example, to quickly streamline a potentially unprofitable portfolio of locations.
• Similarly, there is a special three-month notice period for employment contracts and a statutory cap on social plan payments, which are further supported by several other provisions designed to facilitate workforce reductions, so that, as a result, workforce reductions can generally be implemented in a more cost-effective, expeditious, and legally compliant manner.

Financial restructuring is carried out either through the implementation of an insolvency plan, which typically allows the legal entity, and thus, for example, the debtor’s contractual relationships, to be preserved, or through a so-called “transfer-based restructuring”, in which the debtor’s key assets are transferred to a new legal entity and the debtor’s business can then continue.

We would be pleased to assist you with the restructuring of your company, for example through an analysis of options (consensual restructuring, investor process, restructuring under the StaRUG, self-administration, or protective shield proceedings), to identify the most suitable restructuring path for your company. We will also work with you to implement the identified measures in a targeted manner.

We take responsibility for the successful implementation of the restructuring process, including in a leadership role, such as restructuring manager or Chief Restructuring Officer (CRO).