The Act on the Stabilization and Restructuring Framework for Companies (StaRUG), which took effect at the end of 2020, has created a new tool for overcoming crisis situations. The StaRUG enables companies to restructure their financial liabilities outside of insolvency proceedings. A key advantage is that the proceedings are not public, thereby avoiding the stigma of insolvency and reputational damage associated with it. Operational turnaround is not part of the proceedings and must be implemented outside the restructuring plan to be drawn up. The capital required for this can be freed up by restructuring the liabilities side of the balance sheet.
If the restructuring plan provides for a significant encroachment on the rights and contracts of the creditors involved—for example, a complete or partial waiver of loan repayment—then the shareholders must also make a contribution. An exception to this rule may be made only if the interference with creditors’ rights is minor in nature or if the shareholders’ participation is essential for the continuation of the business.
If the financial situation of existing shareholders does not allow for any or only a limited contribution to the restructuring, or if they are unwilling to do so, new equity capital may also come from parties not previously involved in the company, for example through management in partnership with a development bank. To this end, NRW.BANK has established the NRW.BANK.Spezialfonds, which supports entrepreneurs and companies in precisely such situations of upheaval or crisis. In doing so, it acquires a stake in the company together with one or more co-investors.
Companies should approach new equity partners as early as possible in the restructuring process. This allows equity contributions from both existing and new shareholders to be factored into the restructuring plan. This also makes it easier to approach debt creditors and increases their willingness to approve the plan. Experience shows that involving a development bank such as NRW.BANK as a co-shareholder helps build trust. If the financial creditors approve the plan, the benefit for the shareholders is clear: the company is relieved of its debt, the shareholders can retain a portion of their shares, and they can participate in the future business performance of the restructured company.
A succession plan can also be initiated through management participation or by bringing in external managers as investors.
