Five years after its entry into force in March 2012, the practical relevance of the “Act for the Further Facilitation of the Restructuring of Enterprises” (“Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen“, “ESUG“) has recently been evaluated, as required by the prior enactment. The more than 350-page final report of the team of experts consulted by the Federal Government comes to the conclusion that the insolvency practice has largely positively accepted the changes introduced by the ESUG and that a return to the earlier provisions does not seem to be indicated. However, the report proposes changes on individual issues. So far, so good – and not surprising. But what does this mean for the further development of the desired “turnaround culture” in Germany?
In purely numerical terms, the ESUG-specific self-administrative procedures, the so-called “provisional debtor-in-possession” (“vorläufige Eigenverwaltung“) and the so-called “protective shield procedure” (“Schutzschirmverfahren“), no longer represent rounding errors in the statistics, but with 1,609 such procedures out of a total of 46,539 insolvency procedures for partnerships and corporations, the self-administration procedures still represent a share of only 3.46% according to the evaluation. A glance at the annual ESUG study of the Boston Consulting Group, though, which assumes a total of 1,513 procedures in self-administration by 31 January 2018 and thus a rate of only 2.7% for the aforementioned self-administration procedures, clearly points out how difficult it seems to be to collect correct data in insolvency proceedings despite the introduction of the German Insolvency Statistics Act (InsStatG). Both evaluations agree, however, that the ESUG proceedings were disproportionately frequent in so-called “major insolvencies”. The German legal magazine “Juve” even assumes that of the 200 largest corporate insolvencies between 2014 and 2017, half were self-administered and one third even took place under the protective shield (here).
With regard to the objective of insolvency proceedings under § 1 InsO – namely to ensure the greatest possible satisfaction of all creditors – the question arises as to why the evaluation neither evaluates the (development of) the dividend in insolvency proceedings (i.e. the percentage of the original claim paid out to the creditors) nor that of the duration of the proceedings or sets it in relation to the total number of proceedings and/or the time before the introduction of the ESUG.
Not really surprisingly, the evaluation considers the provisional provisional debtor-in-possession according to § 270a InsO to be more advantageous than the protective shield procedure according to § 270b InsO (which has only been received very sceptical in practice and is therefore rarely applied) and suggests a “merger” of the two provisions. The experts highlight as positive developments the expansion of restructurings through insolvency plan procedures made possible by the ESUG as well as the introduction of the – not very frequently used – debt-equity swap in accordance with § 225a InsO. Also not really surprising is that the experts consider the interaction between the judiciary and the judiciary as “proven and tested”. Finally, in view of the legislator’s abrupt switch away from the introduction of a “pre-insolvency restructuring procedure” to the ESUG in 2011/2012, it is not surprising that the report of the Federal Government sees “no compelling need” for the introduction of such a procedure (see p. 5 there). On the one hand, however, this position has already been resolved due to pressure from the EU institutions as part of the project to introduce a “preventive restructuring framework” (see more details here, in German). On the other hand, however, this statement does not do justice to the quite differentiated consideration in the evaluation (cf there p. 134 ss.). In particular, the proposed third option of a “lean” but strictly separate restructuring procedure has the potential to lift some restructuring potential. Against the background of the negative attitude not only of the Federal Government one should not place too much hope in these proposals, though, even if such (indirect) rejection hardly seems to fit with the much invoked “turnaround culture” in Germany.
The Federal Government’s objective in dealing with the results of the evaluation is rather flowery and open: “The Federal Government plans to examine the results of the evaluation report in detail in close exchange with the circles concerned. The results of the evaluation should also be taken into account in the implementation of the Directive on Preventive Restructuring Frameworks, the Second Chance and Measures to Increase the Efficiency of Restructuring, Insolvency and Debt Relief Proceedings, which will be adopted shortly“. Well, it remains to be hoped that, in view of the coming crisis, the legislator will then be able to take more concrete measures. In addition to an improvement in the inadequacies of the data basis, which are indispensable for an objective assessment, and which are only marginally described here, the legislator should not lose sight of the fact that the evaluation period has fallen exactly into the largest “recession” in the insolvency industry since the introduction of the German Insolvency Act, with a correspondingly low number of cases and often atypical individual crisis scenarios. Accordingly, when examining the need for change, the legislator also faces the unenviable task of having to take account of the consequences of an obvious future increase in the number of cases in the future.
Against this background, the legislator should ask itself why the ESUG procedure seems to “work” for large companies, but not for medium-sized companies with sales volumes of less than Euro 50 million, which are the predominant sector in Germany. Already because the project of the European Union for the creation of a “preventive restructuring framework” (see more details here (in Germa)) wants to put the focus of the measures on SMEs, there may be starting points here to facilitate restructuring efforts in medium-sized companies. Whether the further formalisation of the procedure and the introduction of further hurdles, such as the creation of concrete reasons for and against the court order to approve (provisional) self-administration, are the right way to go here, may be doubted with a view to the less formalised English scheme of arrangement (which, admittedly, is successful mainly for large companies). The English case law on this legal institution is characterised by consistent decisions with a high degree of pragmatism and flexibility and not by large legal reforms.