StaRUG – the first decisions are in

The StaRUG (the Geman implementation of the EU-Regulation on the “preventive restructuring framework”) has now been in force for three quarters of a year (see here) and the famous German shirtmaker Eterna is the first large and prominent company to undergo restructuring under the new law (see here, in German). Reason enough to take a look at the first decisions under the StaRUG:

1. The AG Cologne, with its decision of 3 March 2021 (Ref: 83 RES 1/21, here, all cited decisions herein are in German), can probably adorn itself with the title of “first decision” (at least the first published one), the operative part of which reads as follows:

(1) The determination of imminent insolvency pursuant to § 63 (1) no. 1 StaRUG requires the full judicial conviction to be formed within the framework of the official determination pursuant to § 39 (1) sentence 1 StaRUG. The prognosis period of 24 months relevant under § 18 (2) InsO is calculated from the day of the last oral hearing, i.e. the date of the discussion and voting (if applicable).

(2) A syndicated loan agreement and a restructuring agreement may be comprehensively amended by a restructuring plan. Neither the law nor the explanatory memorandum contain any restriction to the amendments that are absolutely necessary to achieve the restructuring objective.

2. The AG Düsseldorf was second by a small margin; in a reference order dated 5 March 2021 (Ref.: 601 SAN 1/21, here), it ruled on the remuneration of the restructuring facilitator under § 94 StaRUG that “the hourly rates of the restructuring facilitator [are] fixed at € 200.00 per hour for the latter. The maximum amount of the fee shall not exceed € 4500.00.

3. The AG Hamburg did not take much time either and confirmed the first restructuring plan with its decision of 12 April 2021 (Ref: 61a RES 1/21, here).

4. The AG Dresden needed until 7 June 2021 for its first decision on the StaRUG (Ref: 574 RES 2/21, here), the operative part of which reads as follows:

(1) For the assessment of the worse position of a party affected by the plan, the next best alternative scenario is decisive, i.e. the situation in which the creditor would find himself in the event of the plan’s failure. Liquidation may only be assumed to be the best alternative scenario if a sale of the business or other continuation is futile.

(2) The continuation of the business does not necessarily mean that the debtor will receive economic value. This is only the case if a third party would have been willing to continue the business in the place of the debtor. If no third party is willing to continue the business in place of the debtor under the conditions provided for in the plan, it cannot be assumed in case of doubt that the debtor “receives an economic value” through the plan.

5. The LG Dresden then only needed until 1 July 2021 to decide on the appeal against the above-quoted decision of the AG Dresden (ref.: 5 T 363/21, unfortunately only published at Beck-online); the rejection of the appeal can be summarised as follows:

(1) According to the unambiguous wording of § 66 (2) (3) StaRUG, the complainant must show credibly that he or she would be significantly worse off without the plan than he or she would be with the plan.

(2) This disadvantage cannot be compensated by a payment from the funds made available under the formative part of the restructuring plan in the event that a party affected by the plan proves that it is in a worse position.

Even if the small number of five court decisions that have become public so far may suggest that the StaRUG is off to a slow start, it should not be overlooked that in the course of the general decline in corporate insolvencies (see only here, in German), the number of corporate crises triggering restructurings under StaRUG has also declined. Furthermore, the procedure is generally designed as a “secret” procedure (arg. e contrario § 84 StaRUG) – public decisions should therefore be the exception. Moreover, the provisions on public announcement pursuant to § 84 et seq. StaRUG will not enter into force until 17 July 2020 (cf. Art. 25 (2) no. 1 SanInsFoG). However, public notice can become important especially in larger proceedings, e.g. when it comes to the effectiveness of so-called stabilisation orders under § 49 StaRUG, cf. § 51 (4) StaRUG. Against this background alone, the relatively low number of decisions so far should be explained. And one should not forget that the insolvency plan was not used very often in 1999 either, the rest is history.

The few (published) decisions to date do not yet indicate a trend in which direction the courts will tend in their interpretation of StaRUG. However, two confirmed restructuring plans indicate that the insolvency courts (acting in their capacity also as restructuring courts) will not completely ignore the StaRUG. And even if the aforementioned fee limit for a restructuring facilitator by the Düsseldorf court initially appears to be a deterrent (see my comments on the restructuring facilitator here), one probably has to put this in relation to the size of the proceedings. The debtor in the proceedings was a self-employed real estate appraiser with real estate assets.

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