As a consequence of the 2019 EU restructuring directive, new
preventive restructuring frameworks have been created in almost all
European Union member states. Among these, the German
pre-insolvency corporate rescue toolkit – the StaRUG –
has been the subject of particular debate. Recent evaluations have
shown that in 2022 German courts received only 24 notifications to
utilize StaRUG proceedings. A hackneyed quip, sure to be reiterated
at every restructuring conference, claims that Germany has produced
more literature on StaRUG than actual cases.
While that might not be far from the truth, the lack of cases may
be the strongest argument in favour of the StaRUG's efficacy.
The idea that the mere existence of a legal framework allowing for
debt write-downs or temporary stays outside the purview of formal
insolvency proceedings would help to facilitate consensual
restructurings is neither daring nor innovative. Many have long
pointed out that if the proceeding can be used as a threat should
stakeholders fail to reach an agreement, the StaRUG would surely
have value, even that threat does not result in actual cases.
Nonetheless, it is useful to consider a comparison of the StaRUG
with the restructuring frameworks of Germany's European
neighbours when looking to restructure German companies in
particular.
The StaRUG, the Dutch WHOA framework, and the UK restructuring plan
all have similarities. They also diverge in significant ways. The
UK restructuring plan, for example, boasts an advantage in its
reliance on established case law and precedents, inherited from its
cousin, the scheme of arrangement. Additionally, it can be carried
out in a shorter timeframe, typically between eight to ten weeks
from the decision to file. In contrast, both the StaRUG and WHOA
frameworks are nascent, and generally operate on a timeframe of
three to twelve months. As for the requisite majorities, both
StaRUG and the UK restructuring plan require a 75% threshold in the
affected creditor classes (subject to cross class cram down, where
applicable), whereas the Dutch WHOA framework only mandates
66.7%.
In spite of these technicalities, all three frameworks demonstrate
that flexibility comes at the price of complexity. This in itself
may be one notable factor why Germany has not seen the rise in
StaRUG cases some had expected. Examining Germany's
restructuring landscape, it is arguable that the widespread
hesitancy of banks to engage in StaRUG proceedings has been another
decisive constituent in its limited use. It goes without saying
that the more cases that can successfully be resolved without
StaRUG, the more dispensable it may appear to be – a
self-fulfilling prophecy. However, this alone is not compelling
evidence for the failure of StaRUG when compared to its
international equivalents. It is equally valid to note that only a
handful of foreign preventive restructuring proceedings have been
employed at the expense of StaRUG. If StaRUG were truly an inferior
construction, then we would expect to see a far greater number of
cross-border cases originating in Germany that utilize the WHOA or
UK restructuring plans, which so far has not been borne out.
It remains to be seen if the question of mutual
recognition of restructuring proceedings between the UK and the
EU will bring about any significant changes in the 'battle
of forums'. Recent market movements indicate that we will see
the first judgements in this regard very soon. In the light of the
automatic recognition of insolvency proceedings between EU-member
states, there are already plenty of viable alternative proceedings
which may highlight disadvantages of StaRUG, for example the option
to terminate contracts within the WHOA. This option was scratched
from the StaRUG at the eleventh hour of the legislative process.
While many feared that this would encourage forum shopping in
favour of neighbouring jurisdictions that do allow the termination
of contracts, the number of WHOA proceedings originating from
Germany is still near zero.
Arguably, one advantage of the UK restructuring plan and its cousin
- the scheme of arrangement – is the significant body of case
law and vast experience among specialized restructuring advisors
and English courts in handling reorganizations. This makes the UK
attractive in cross-border cases involving highly professionalized
creditor structures that have long utilized the scheme of
arrangement. Most recently, a Luxembourg based real estate
developer with a strong focus on assets in Germany opted to
restructure its debts by way of a UK restructuring plan instead of
utilizing StaRUG. While the case has again sparked discussions
about the potency of StaRUG, there are other examples one could
point to, for example a German cable manufacturer from the
automotive sector has recently announced its preparation of a
StaRUG restructuring. These examples show that the market finds
suitable constellations for both frameworks. Each restructuring is
fact specific and the best jurisdiction and restructuring tool must
be considered on a case-by-case basis. Therefore, the question
remains whether the new European preventive restructuring regimes
actually need to 'catch up' with their more established UK
counterparts. It is certainly arguable that the actual utilization
of the three frameworks is mostly driven by the dynamics of the
restructuring market and case specific factors. It may be too early
to talk of amendments to the underlying law. We must not merely
evaluate the success of StaRUG (or any other framework) based on
their short track record in resolving high-profile lighthouse
cases. The true impact lies in whether it can help to transform the
restructuring culture as a whole. Arguably the StaRUG is succeeding
at this.
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