The StaRUG offers companies in distress a powerful alternative to insolvency. Learn how the restructuring plan works, when a moratorium takes effect, what role the court plays and how the process differs from traditional insolvency proceedings under the InsO.
Out-of-Court Restructuring: The StaRUG Framework in Practice
Corporate crises are part of economic life. Yet a crisis need not inevitably lead to insolvency. Since 1 January 2021, German companies have had access to the Stabilisation and Restructuring Framework Act (StaRUG) -- a powerful instrument that enables restructuring outside formal insolvency proceedings. The Act transposes the EU Restructuring Directive (Directive (EU) 2019/1023) into German law, closing a long-standing gap in the German restructuring landscape. For managing directors, board members and advisors, the StaRUG is a tool of considerable practical significance whose mechanisms and limitations they should understand.
Scope of Application and Access Requirements
Imminent Illiquidity as the Trigger
The StaRUG is aimed at companies that are imminently illiquid within the meaning of section 18 InsO but are not yet actually illiquid or over-indebted. The timing is crucial: the procedure deliberately starts before the insolvency filing obligation arises, thereby opening a window for an orderly restructuring before the statutory duty to file becomes operative.
Imminent illiquidity exists where the company is unlikely to be able to meet its existing payment obligations when they fall due. The forecast period is generally 24 months. This projection must be based on a sound liquidity plan and must be documented in a comprehensible manner.
Early Crisis Detection Under Section 1 StaRUG
In addition to the restructuring framework, section 1 StaRUG requires management to establish an early crisis detection system. This duty applies to all entities with limited liability -- in particular GmbHs and AGs -- regardless of whether a crisis actually exists. Management must:
- Continuously monitor developments that could jeopardise the company's continued existence
- Take appropriate countermeasures when existence-threatening developments are identified
- Report without delay to the supervisory bodies (supervisory board, shareholders' meeting)
This duty of early crisis detection is not merely programmatic; a breach gives rise to the personal liability of the directors.
The Restructuring Plan: Centrepiece of the StaRUG
Structure and Content
The restructuring plan under sections 5 et seq. StaRUG is the central instrument of the framework. It permits the modification of creditor claims against their will -- a so-called cram-down becomes possible. The plan consists of a descriptive section and a structuring section:
Descriptive section (section 6 StaRUG):
- Description of the company's economic situation
- Causes of the crisis
- Explanation of the planned restructuring measures
- Comparative analysis: what would creditors receive in insolvency vs. under the plan?
Structuring section (section 7 StaRUG):
- Specific legal modifications (e.g. deferrals, partial waivers, debt-to-equity conversions)
- Formation of creditor classes based on objective criteria
- Determination of quotas and conditions for each class
Rights That May Be Modified
The StaRUG permits the restructuring of the following legal relationships:
- Claims of all kinds (loans, trade payables, bonds)
- Secured claims (claims secured by rights in rem)
- Rights arising from intra-group third-party securities
- Shareholder rights (under certain conditions, e.g. debt-to-equity swaps)
Not subject to modification are claims of employees arising from employment relationships, claims from intentional torts and certain other privileged claims.
Voting and Majority Requirements
The restructuring plan requires adoption by the creditor classes. In each class, the affected parties must approve with a majority of 75 per cent of the voting rights. Where this majority is not achieved in all classes, the court may, under certain conditions, impose a cross-class cram-down (section 26 StaRUG).
The Stabilisation Order: The Moratorium
Enforcement and Realisation Stays
A significant advantage of the StaRUG is the possibility of applying for a stabilisation order (moratorium) from the restructuring court (sections 49 et seq. StaRUG). This may include:
- Enforcement stay: Creditors may not initiate or continue enforcement measures against the company for the duration of the order
- Realisation stay: Security rights (e.g. security assignments, pledges) may not be enforced
- Termination stay: Under certain conditions, contractual counterparties may be prevented from terminating essential contracts solely on grounds of the restructuring (section 44 StaRUG)
Duration and Requirements
The stabilisation order is initially issued for a maximum of three months and may be extended up to eight months (section 51 StaRUG). It requires that:
- A restructuring project has already been notified
- The order is necessary to preserve the prospects for implementation of the restructuring plan
- No disadvantages arise for the affected creditors beyond what they would face in insolvency
- The company is not yet illiquid or over-indebted
Role of the Court and the Restructuring Officer
The Restructuring Court
Unlike in insolvency proceedings, the court in StaRUG proceedings plays a restrained role. It acts only upon application and does not assume case management in the traditional sense. Key judicial functions include:
- Preliminary review of the restructuring plan (section 46 StaRUG)
- Issuance of stabilisation orders
- Plan confirmation following the vote (section 60 StaRUG)
- Appointment of a restructuring officer where required
The Restructuring Officer
The court may -- and in certain cases must -- appoint a restructuring officer (sections 73 et seq. StaRUG). This is mandatory where:
- A stabilisation order is issued against creditors
- Consumer claims or SME claims are affected
- A cross-class cram-down is sought
The restructuring officer monitors management during the process and protects creditor interests. However, the officer is not an insolvency administrator -- management remains with the debtor (debtor-in-possession).
StaRUG vs. Insolvency Proceedings: Key Differences
Comparison of Procedures
The distinction between StaRUG proceedings and self-administration insolvency with an insolvency plan (sections 270 et seq. InsO) is of central importance in practice:
- Publicity: StaRUG proceedings are not public. No insolvency proceedings are opened and no entry is made in the insolvency register. This is a significant advantage as it avoids the stigma of insolvency.
- Management control: Under the StaRUG, management retains full control (debtor-in-possession). In insolvency, a custodian is appointed to supervise material legal acts.
- Employee rights: The StaRUG cannot modify employee claims. By contrast, insolvency proceedings offer specific employment law instruments such as insolvency pay (Insolvenzgeld) and facilitated termination options.
- Contract termination: The StaRUG does not provide a mechanism comparable to section 103 InsO for exiting burdensome contracts.
- Cost structure: StaRUG proceedings are generally less expensive as no insolvency administrator fees apply and procedural costs are lower.
When Is Each Procedure Appropriate?
The StaRUG is particularly suited to companies with a manageable number of problematic creditor relationships where operating activity is fundamentally viable but the financing structure requires adjustment. Typical use cases include:
- Restructuring of bank liabilities for operationally sound businesses
- Bond restructuring for mid-market bonds
- Lease adjustments for retailers with overcapacity
- Shareholder restructuring (e.g. debt-to-equity swaps against the will of existing shareholders)
Where a comprehensive operational restructuring is required that also affects employment relationships, ongoing contracts and the entire body of creditors, insolvency plan proceedings in self-administration are regularly the more appropriate instrument.
Practical Examples: StaRUG in Action
Case 1: Mid-Size Manufacturing Company
A mid-size manufacturing company with 120 employees fell into a liquidity crisis after losing a major customer and facing rising energy costs. The operating margin was fundamentally intact, but existing bank liabilities could no longer be serviced. In StaRUG proceedings, a restructuring plan was developed providing for an 18-month deferral of bank liabilities, a 30 per cent haircut on unsecured claims and a restructuring of amortisation profiles. The banks approved the plan with the required majority. The company was able to continue operations without interruption.
Case 2: Real Estate Holding with a Bond
A real estate holding had issued a mid-market bond of EUR 50 million whose repayment was at risk due to declining property valuations and tighter refinancing conditions. A plan was submitted under the StaRUG providing for a three-year maturity extension, a partial conversion of the bond into equity and the granting of additional security. Through the cross-class cram-down, dissenting bondholders could also be bound.
Case 3: Retail Chain with Excess Lease Costs
A retail chain with 45 outlets suffered from excessive rental costs at unprofitable locations. Since the StaRUG permits the modification of lease relationships, a restructuring plan established rent reductions and shortened remaining terms for 12 locations. The stabilisation order prevented landlords from pursuing eviction proceedings during plan negotiations.
Common Mistakes and Success Factors
Typical Mistakes in Practice
- Acting too late: Many companies wait too long and are already illiquid when they apply, thereby losing access to the StaRUG
- Inadequate documentation: The comparative analysis and liquidity plan are deficient, leading to refusal of plan confirmation
- Insufficient creditor communication: Creditors are not engaged early enough, jeopardising plan acceptance
- Underestimating the operational dimension: The StaRUG resolves only financial problems -- operational deficits must be addressed in parallel
Success Factors
- Early initiation at the first signs of imminent illiquidity
- Professional advice from lawyers and business advisors experienced in restructuring
- Transparent communication with all stakeholders
- Realistic planning with conservative assumptions and robust scenarios
- Parallel operational measures for sustainable stabilisation of the business model
Conclusion
In its first years of application, the StaRUG has proved a valuable addition to German restructuring law. It offers companies facing imminent illiquidity a discreet, efficient and cost-effective restructuring option that promotes the preservation of jobs and enterprise value. The success of StaRUG proceedings depends critically on early crisis detection, professional planning and competent support from specialist advisors. The compleneo team brings extensive experience in advising on restructurings -- both under the StaRUG and in insolvency proceedings. We support you from early crisis detection through the preparation of the restructuring plan to successful implementation, standing by your side as a reliable partner at every stage of the turnaround.
