Turnaround – but with a plan, please!

„Plans are nothing
planning is everything“
Dwight D. Eisenhower

The current economic situation (here), as well as the sharp rise in the number of corporate insolvencies in recent months (here, in German) prove that the German economy is in crisis mode. Of course, this crisis is not without consequences for individual companies. The following article explains what to do if the managing director recognises crisis signals in “his” company or receives a specific “crisis warning” from one of his advisors (see here for background information).

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When the advisor “suddenly” warns…

“Just in time” for the upcoming economic crisis (see only here), the German higher courts are expanding the duties of advisors in general and lawyers in particular. After the BGH’ IXth Civil Senate had already tightened the liability of tax advisors with regard to omitted warnings of reasons for insolvency in a judgement from January 2017 (see in-depth here), the court now turns to lawyers and the duties of care to be observed by them. Shortly thereafter, the Higher Regional Court of Bamberg ruled in a similar manner on the duties of care of a restructuring advisor. The mostly stringent rulings complement each other and are groundbreaking for advisory practice in the event of corporate crises.

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The German economy in August 2023 – still in Lala Land or is cognitive dissonance easing?

After being too optimistic in March (here), realising that we have seen the best (for 2023) already (here) in April, then seeing the German economy going south with astonishing speeed in May (here), larger parts of the public finally realised in June that the economy is indeed stalling (here), but in July still seeing a “b(e)acon of hope” (here). So, let’s take a closer look at the German economy whether this hope is still warranted in August:

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Current legal developments in distressed M&A

Although the M&A-market in Germany is generally weakening (see here, in German), the background noise in the so-called “distressed M&A” market is increasing. Depending on the stage, the purchase of a company in crisis can offer a number of advantages in addition to the generally lower purchase price. However, these advantages also carry their price tag – which the potential acquirer should definitely include in his considerations. For this reason, the following section will take a practical look at some of the key legal aspects of such acquisitions.

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The “dual-purpose trust” – underestimated instrument in turnaround situations?

When the company is in crisis, the confidence of the financing banks in the management and shareholders is frequently shaken. Still, insolvency is seen as a potential value destroyer and is not necessarily the first choice in restructuring (if a compulsory filing can be avoided). In addition, sustainable restructuring often requires “fresh money”, which cannot be obtained through restructuring per se. Moreover, the financing banks are often not willing to re-finance if previous shareholders (without giving new money on their part) would participate in a cash injection. A potential investor sees things similarly and usually does not want to deal with the existing shareholders either. In such situations of conflicting interests, the so-called “dual-purpose trust ” can provide a solution. However, some special features have to be taken into account when using such a trust, which are discussed in the following article, as well as the latest BGH case law in this area.

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