The StaRUG provides for a so-called stabilisation order to make it easier for companies to restructure. This is also referred to as a moratorium. We explain the requirements and consequences.
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1. What is a stabilisation order?
The Act on the Stabilisation and Restructuring Framework for Companies (abbreviated to "StaRUG"), which came into force on 1 January 2021, has implemented numerous new restructuring instruments. After notification of the restructuring project, the company can, for example, access the so-called stabilisation order regulated in §§ 49 et seq. which results in particular in a special form of moratorium.
This is a very important element of the legal innovations, which gives the company time and space to design an orderly restructuring solution.
At the request of the company, the restructuring court may issue such a stabilisation order to achieve the desired restructuring. Pursuant to section 49 (1), this leads to both an enforcement ban and a realisation ban for the debtor's assets for a certain group of addressees. The order may be directed against individual, several or all creditors.
These creditors are thus prohibited from enforcing against the company or realising assets for the duration of the order.
However, claims arising from employment relationships or from wilfully committed tortious acts cannot be covered by the order and the resulting freezes.
Furthermore, on the basis of the stabilisation order, the assets subject to rights of segregation or separation must be left to the company for the continuation of the business.
Practice Note by Dr. Timm Gessner:
In this way, the respective creditor is prevented, for example, from realising an object assigned by way of security or from deducting leasing equipment, and it is ensured that the reorganisation is not undermined by creditors unilaterally asserting their interests.
2. What does the application for a stabilisation order contain?
The company's application to the restructuring court for the issuance of such a stabilisation order must in particular contain the following:
- the addressees
- the requested duration of the moratorium
- a financial plan showing secured financing of the going concern for at least the next six months
- a restructuring plan
The latter means a comprehensive presentation of the planned restructuring project. Either a draft restructuring plan pursuant to sections 5 et seq. or, alternatively, at least a current restructuring concept within the meaning of section 31 must be submitted to the court.
Practice Note by Dr. Timm Gessner:
It is still unclear how up-to-date such a concept must be in an ongoing business operation with parameters that change daily. In terms of content, however, such a concept must in particular specify the causes of the crisis as well as the restructuring objective and the measures required to achieve it.
Furthermore, special rules apply if there are already considerable payment arrears to employees, from pension commitments or from tax liabilities. Although the issuance of a stabilisation order is not excluded in this case, particularly strict conditions are attached to it. In particular, the court must be convinced that the company is prepared to protect the interests of all creditors despite this "history".
The court then essentially examines the restructuring plan for completeness and conclusiveness, whereby it is also questioned whether a moratorium is necessary at all to achieve the restructuring objective.
Practice Note by Dr. Timm Gessner:
It must be taken into account here that restructuring usually involves considerable time pressure. It remains to be seen how thoroughly the restructuring court can examine the conclusiveness of the planning. It can be assumed that initially only a plausibility check will be carried out. If the result is positive, the stabilisation order will be issued and served on all affected creditors.
3. How long is the moratorium imposed?
Then, depending on the decision of the restructuring court, the order takes effect for a maximum of three months. In exceptional cases, the moratorium can be extended by one month to four months by means of a follow-up or new order - only vis-à-vis the parties affected by the plan. The prerequisite for this, however, is that
- the company has already made a plan offer to the affected creditors at that time and
- it can be expected to accept it within one month.
A further extension of the stabilisation order to a maximum of eight months is then only permissible if the creditors have already accepted the restructuring plan and it has been submitted to the court for confirmation. However, this does not apply in an understandable manner if the accepted restructuring plan is obviously not confirmable. In this way, it can be avoided that longer processing times at court lead to disadvantages for the restructuring process.
4. What are the other consequences of the stabilisation order?
However, during the period of the stabilisation order, not only is there a ban on realisation and enforcement. Rather, the creditors' right to apply for the opening of regular insolvency proceedings against the company's assets is also suspended during this period. This is to prevent the ongoing restructuring project from being torpedoed.
Moreover, the stabilisation order significantly restricts the scope of action of the company's creditors. For example, during the stabilisation order they cannot, as a matter of principle, withdraw
- not be able to easily withdraw from contracts with the company during the stabilisation order,
- exercise rights to refuse performance, e.g. due to the company's arrears, or to call in claims early.
- make claims due prematurely.
Practice Note by Dr. Timm Gessner:
However, these restrictions only apply insofar as the creditor's performance is relevant for the going concern. The examination of this condition is likely to cause considerable problems in practice and is actually only possible for the court on the basis of the submitted draft plan or restructuring concept.
It should also be taken into account that these restrictions under the law of obligations are apparently intended to apply to all creditors according to the wording of the law. Accordingly, not only the creditors whom the company has designated as addressees in its application for a stabilisation order are covered.
5. When will the moratorium be lifted?
The stabilisation order can also be revoked before the expiry of the time limit set in the order for a variety of reasons.
In practice, it is often a matter of dispute whether the order should be revoked because the company does not conduct its business in the interests of the creditors as a whole during the term of the stabilisation order. As a standard example, the law provides for cases in which the restructuring plan is based in material respects on inaccurate facts or the company's accounting or bookkeeping is incomplete and/or deficient.
However, other cases are also conceivable and will emerge in practice. In the review, it is also currently still unclear what degree of conviction the restructuring court must have of these circumstances.
6. Conclusion
The stabilisation order is an essential component of the restructuring under the StaRUG and interferes extensively with the rights of creditors. However, these restrictions make sense in order not to torpedo the ongoing restructuring with the enforcement of individual interests. However, numerous practical questions are still open in detail and it is to be expected that there will still be considerable uncertainties on all sides, especially in the initial months.
Dr. Timm Gessner
Author of this article
Dr. Timm Gessner is an associate partner in our Hamburg office and is himself appointed as an insolvency administrator. However, the focus of his work is on representing other insolvency administrators. There he deals with the procedural enforcement of typical claims in insolvency proceedings.
