StaRUG – Restructuring for the future?

The StaRUG – a young law takes root 

Since the German Corporate Stabilisation and Restructuring Act (StaRUG) came into force in 2021, Germany now has a legal framework for restructuring companies outside of insolvency proceedings for the first time. After initial reservations in the first few years, it is now clear that restructuring in accordance with the StaRUG has established itself in practice as a viable restructuring option – at least in certain cases. 

Successful application in prominent cases 

Prominent examples such as Leoni, Varta and BayWa demonstrate that the restructuring proceedings can play to their strengths in line with the legislature's intention, particularly in cases involving complex financing structures. 

The proceedings were each characterised by a structured process, close coordination with stakeholders and a high degree of transparency – factors that made a decisive contribution to their success, making it clear that restructuring proceedings cannot be prepared and carried out against the major creditors, but only with them. Nevertheless, the StaRUG is too new to allow a reliable assessment of the medium and long-term effectiveness of the measures implemented. Only the coming years will show whether the companies restructured on the basis of and by means of the StaRUG will be able to achieve sustainable restructuring success. 

Recurring case groups in practice 

In addition to prominent cases, which primarily involved financial restructuring, other typical areas of application have emerged, including the following case groups in particular: 

• Settlement of shareholder disputes and facilitation of the admission of a new investor, where the restructuring plan contributes to the resolution of shareholder deadlocks; 
• Deferral of real estate financing in so-called Sleeping Beauty cases, in which medium-term deferrals give real estate developers room to complete projects; 
• Restructuring of tax claims or public sector claims, in some cases also in cross-border contexts involving foreign tax authorities. 

Unresolved issues and polarising intervention options – need for legal clarification? 

Despite the positive developments, there is a desire for clarification by the legislature on key points. For example, despite existing case law, it would be desirable to have a provision on whether and to what extent shareholders and stockholders are to be involved in the initiation of restructuring proceedings, and likewise for the corresponding question regarding the point in time from which the management's obligations must be aligned with the creditors' interests. A corresponding assessment by the legislature could make the proceedings more legitimate and more widely accepted, both in terms of their application and in terms of public perception. 

Issues of structure in the formation of creditor groups are also worth discussing. In practice, "creative" structures can sometimes be observed in order to achieve the necessary majorities of both the creditor groups as a whole and the voting rights within the respective groups. Although a statutory guideline could contribute to greater acceptance and planning stability, it is questionable whether such a provision would even be possible without unduly restricting the necessary freedom of structuring in individual cases. It may therefore be more appropriate to leave the further clarification of these matters to case law and allow the courts to develop the law. 

Another point of criticism concerns the legal protection options available to outvoted creditors. The StaRUG does provide the option of legal protection for minority creditors and immediate appeal against the court's confirmation of the plan. However, in practice, it is difficult to effectively challenge the confirmation of a plan. Short deadlines, strict justification requirements and an almost insurmountable information asymmetry between the management and the creditors, who often lack in-depth insight into the restructuring concept and the underlying figures, make it considerably more difficult for creditors to exercise their rights. 

Challenges with international structures 

Particular complexity arises when the restructuring of international group structures is involved. Issues of jurisdiction, recognition and cross-border effect of the restructuring plan have not yet been adequately clarified due to the lack of uniform international restructuring law. 

 Recognition issues in particular give rise to considerable uncertainties in practice. For example, in a recent decision, Frankfurt am Main Regional Court refused to recognise proceedings conducted in the UK under section 26 Companies Act (UK Restructuring Plan) in Germany because there was no basis in EU law and no mutual recognition obligation. The decision makes it clear that the cross-border effectiveness of restructuring proceedings currently depends on national recognition rules and the respective court's assessment of each individual case – and thus remains a considerable legal and planning security risk for cross-border restructuring. 

Conclusion: Proven instrument with need for development 

The StaRUG has proven itself to be a practical and flexible restructuring instrument, although the sustainability of the respective restructuring successes remains to be seen. In order to further strengthen its acceptance and legal certainty, further legal guidelines are needed in some areas – for example, on the shift of duties, the legal protection options available to creditors and international restructuring law.