Reorganize companies before insolvency threatens

The COVID 19 pandemic has resulted in an economic crisis for many companies. In addition to new regulations in insolvency law (including the current suspension of the obligation to file for insolvency), there have also been changes in reorganization law,

On January 1, 2021, the Act on the Further Development of Restructuring and Insolvency Law and the Stabilization and Restructuring Framework Act contained therein came into force. Now, restructuring measures outside of insolvency can also be implemented against the will of individual creditors. However, this is also accompanied in part by stronger obligations for the managing directors.

What are the basic duties of a managing director in a crisis?

In principle, the managing director, such as the managing director of a GmbH or the management board of an AG, must exercise the care of a prudent businessman in the affairs of the company.

The general duty of care also results in obligations for the managing director to recognize crises at an early stage and to manage them. He must continuously monitor the economic situation of the company and, if there are signs of a crisis, must obtain an overview of the asset situation by drawing up a statement of assets and liabilities.

In addition, the manager also has a duty to monitor risks, which is why an appropriate early risk detection system must be set up.

What new obligations have arisen?

To ensure that business managers take advantage of restructuring opportunities in good time, the introduction of the StaRUG obliges them to carry out early crisis detection and crisis management.

They must continuously monitor developments that could jeopardize the continued existence of the legal entity. If they identify such developments, they must implement the necessary remedial measures. They must then report immediately to the supervisory bodies, such as the supervisory board and the shareholders’ meeting, on the developments and measures taken.

Previously, the measures were decided by the shareholders. The managing director himself was therefore not in breach of duty if no measures were taken. However, the duties of the managing director have now become more stringent in that he is now himself responsible for carrying out implementation measures. This means that if the managing director fails to fulfill his duty to identify crises at an early stage and to manage them, and if damage results from this breach of duty, the managing director himself is responsible for the breach of duty and must expect claims for damages.

What is the so-called stabilization and restructuring framework?

The StaRUG is intended to summarize the obligations for early crisis detection and crisis management for business managers of a legal entity (for example, the GmbH or the AG).

An essential component of the StaRUG is the restructuring plan. The debtor company may, but is not obliged to, choose this plan. The restructuring plan contains the restructuring concept drawn up by the debtor, from which, among other things, the causes of the crisis and the restructuring measures are derived.

The affected creditors are divided into groups and vote on the plan. Unlike the insolvency plan, however, a majority of 75% in each creditor group is sufficient here. The restructuring framework can therefore also be implemented against the will of individual creditors. This represents the major advantage over insolvency law.

If such a restructuring project is initiated, the manager must safeguard the interests of the creditors as a whole. From the time of initiation, all measures must be refrained from which are incompatible with the objective of the restructuring concept or which jeopardize the prospects of success of the restructuring.

This restructuring framework closes the gap between out-of-court restructuring and insolvency proceedings. Companies in crisis are encouraged to take appropriate measures at an early stage to overcome their economic difficulties

Who may make use of this stabilization and restructuring framework?

Access to such a restructuring framework is only available to legal entities subject to filing under insolvency law that are merely threatened with insolvency.

  • Imminent insolvency exists if the company is expected to become insolvent within the next 24 months.
  • If, on the other hand, insolvency has already occurred, restructuring proceedings under the StaRUG are not possible.
  • If the company is likely to become insolvent within the next 12 months, it is generally overindebted. In this case, too, a reorganization procedure is ruled out and an insolvency application would have to be filed, unless there is a positive prognosis for the continuation of the business.

Your ACCONSIS contact person:

Neele Schröder

Neele Schröder
Focus commercial and company law

Service phone
+49 89 547143
or by E-mail

My recommendation

Business managers must always monitor the company’s financial situation. As soon as the first signs of a crisis become apparent, these duties become more stringent.

It is therefore in the interest of the managing director to recognize signs of crisis at an early stage and to initiate appropriate measures.

For this reason, the managing director should, on the one hand, carefully document whether the company is threatened with insolvency. On the other hand, it should also be recorded which decisions are taken in a crisis, i.e. when imminent insolvency has occurred, taking into account the interests of creditors.

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