Reorganization options and preventive restructuring framework (StaRUG)

Since the preventive restructuring framework came into force with the Corporate Stabilization and Restructuring Act (StaRUG) in January 2021, the German legislature has been offering crisis-stricken companies a new option for averting impending insolvency. The StaRUG implemented the EU-Directive 2019/1023 on preventive restructuring frameworks into German law. The StaRUG procedure is distinguished from out-of-court restructuring and insolvency proceedings by its legally defined options. As experienced restructuring experts with business and legal expertise, Anchor’s specialists are the right people to contact for timely and targeted StaRUG advice.

StaRUG offers struggling companies the chance to restructure without insolvency proceedings.

By now, the StaRUG procedure is a well established tool in the restructuring tool-box. It is generally regarded as a flexible, legally secure, and versatile restructuring tool. The core idea behind StaRUG is the independent, early restructuring of companies threatened with insolvency. In contrast to other procedures, some of the restructuring measures can be implemented without the consent of all creditors, because restructuring can proceed as planned if a majority of 75% of the creditors included in the restructuring plan agree. StaRUG thus closes a gap in German restructuring law that existed until 2021 between out-of-court restructuring and restructuring in insolvency proceedings.

Who is the target group of the StaRUG?

The central guiding principle of the StaRUG is preventive restructuring. This determines the target group: companies that show clear signs of crisis but are still solvent. Insolvent companies are therefore not included in the StaRUG target group.

In principle, the StaRUG applies to companies from all sectors. The size and legal form of the company are also of secondary importance. The affected company must simply be capable of restructuring and its viability must be restored through the restructuring plan.

When and for whom is the StaRUG procedure available?

The StaRUG is primarily intended for companies in economic crisis. Ideally, this crisis should not consist of strategic or operational challenges, but should be primarily financial in nature. However, the company must not yet be insolvent.

StaRUG advice is only possible if it is foreseeable that insolvency will occur within the specified forecast period of 24 months. A prerequisite for successful restructuring under the StaRUG is a sustainable business model, competitive services or products, qualified personnel, and a fundamentally positive network of customers, investors, suppliers, and business partners.

Thanks to the preventive approach—a key difference from insolvency proceedings—the company can ideally be stabilized without much publicity at an early stage, averting insolvency and some of its negative side effects.

What are the advantages and limitations of the StaRUG procedure?

Benefits

The StaRUG procedure enables companies to restructure financially outside of insolvency proceedings.
It is usually a non-public procedure, ensuring confidentiality throughout the entire process.
Debtors have the option of applying for enforcement and liquidation stays.
In the restructuring plan, majority decisions can be made with 75% of the claims included within a group.
The restructuring court can replace the consent of a dissenting group under certain conditions if the majority of the groups agree to the plan (cross-class cram down).
The company and its managers retain administrative authority during the proceedings and can decide for themselves which parties are involved in the restructuring.

Boundaries

The StaRUG procedure is not always the best solution, especially when operational or strategic crises are the main issue.
The restructuring plan cannot terminate long term contracts such as rental or leasing agreements.
Claims arising from employment relationships and company pension schemes cannot be included in the restructuring plan.

What is the StaRUG mostly suited for?

In principle, the restructuring measures in the StaRUG can be designed quite flexibly. The restructuring plan can include both financial measures (debt forgiveness, debt restructuring) and changes under company law (such as the issuance of shares and the acquisition of participations). The StaRUG cover the company’s liabilities, previously provided collateral, loan agreements with multiple lenders, and previously concluded agreements between creditors, as well as shares in the company.

Is my company StaRUG-compliant?

There is a risk of insolvency in the next 24 months.
To date, neither insolvency nor over-indebtedness has occurred.
The company has sufficient assets for a successful restart.
The existing problems are predominantly financial in nature, with only some being strategic or operational.
At least 75% of the creditors to be included are willing to cooperate.

These restructuring options are available to companies

In addition to StaRUG consulting and restructuring under StaRUG, Anchor offers companies in crisis a range of other options, such as legal restructuring advice or restructuring under protective shield proceedings. If, after a thorough analysis, the StaRUG procedure proves to be the ideal solution in a given case, we provide the affected company with advice and operational support throughout the entire process.
We define the stabilization measures in the restructuring plan, coordinate the measures to be implemented, moderate the restructuring process between the company and its creditors, strengthen the company’s future on a stand-alone basis, and assist in the implementation of early warning systems.

How does StaRUG consulting work at Anchor?

Restructuring under the StaRUG procedure (and thus also StaRUG consulting) involves several steps. The first step is always early crisis detection. This is followed by the development of a restructuring plan based on the identified deficits. This plan can be agreed with the parties can involve both, in- and out-of-court-restructurin.

Thanks to our hybrid structure as a restructuring consultant and insolvency administration firm, we always have all restructuring options in view. This, combined with our expertise and experience in traditional insolvency and management consulting, enables us to provide companies with comprehensive advice and guide them out of crisis.

What is the contents of the restructuring plan?

Divided into a descriptive and an implementing section, the restructuring plan describes and regulates the detailed restructuring measures to avert insolvency proceedings and reduce the debt burden. In order to convince creditors of its effectiveness, it always includes a comparative calculation demonstrating that the StaRUG procedure is more suitable for achieving the objectives in the respective case than the next best alternative scenario.

Frequently asked questions

How does the protective shield procedure differ from standard insolvency proceedings and self-administration?
A protective shield is a special self-administration procedure under the rules of the insolvency code. In contrast to the standard procedure, no insolvency administrator is appointed to seize the assets for the creditors and ultimately take over management authority. The management remains in control. In contrast to provisional self-administration, when the protective shield is approved, it is a prerequisiter that the applicant was not yet insolvent at the time of application and is capable of restructuring. The applicant also intends to submit an insolvency plan in the protective shield procedure.
What advantages does a protective shield procedure offer a company?
The management remains authorized to act, and the aim of the proceedings is clearly visible to all: the survival of the company. Furthermore, the acceptance of the protective shield shows that the insolvency was prepared and that restructuring is considered promising.
How long will the restructuring of a company take using the protective shield procedure?
If the process is well prepared, the restructuring can be completed in three to six months. However, this requires some lead time before the application is submitted, i.e., timely consideration of the possibility of restructuring under the protective shield procedure.
Is the protective shield procedure an insolvency procedure?
Yes, the protective shield procedure is a preliminary insolvency procedure with the aim to open insolvency proceedings. This is because an insolvency plan of reorganization to overcome the crisis can only be put to a vote in an opened insolvency procedure.
What requirements must a company meet?
The company must not be insolvent. It must have properly established business operations and be able to present an expert opinion stating that there are good prospects for restructuring in the insolvency proceedings. Furthermore, at least the basic outline of the insolvency plan should already be in place. Any plan submitted must demonstrate that the company has sufficient financing to cover six months under insolvency conditions.