Stabilisation Orders Under the StaRUG

What stabilisation orders do

Stabilisation orders (Stabilisierungsanordnungen) are the moratorium tool of the German restructuring framework under the Corporate Stabilisation and Restructuring Act (Unternehmensstabilisierungs- und -restrukturierungsgesetz, StaRUG). They give a debtor that is negotiating a restructuring plan protection from individual creditors who try to enforce their claims or realise their collateral, and so might destroy the going concern before the plan can be adopted.

The court can prohibit or suspend enforcement measures against the debtor (enforcement stay, Vollstreckungssperre) and order that creditors may not enforce rights over movable assets that would give rise to segregation or separate satisfaction in insolvency, while allowing the debtor to keep using assets that are of considerable importance for continuing the business (realisation stay, Verwertungssperre) (§ 49(1) StaRUG).

Stabilisation orders are one of the four instruments of the restructuring framework, alongside court-supervised voting, preliminary examination and plan confirmation (§ 29 StaRUG). They are only available once the debtor has notified the restructuring project to the restructuring court and only to debtors facing imminent, but not actual, illiquidity.

Scope and addressees

Stabilisation orders can be directed against individual creditors, several creditors or all creditors (§ 49(2) StaRUG). This flexibility is one of the main differences from the protective measures in insolvency proceedings: a debtor restructuring its financial debt can target only the lenders or bondholders whose enforcement would threaten the process, while trade creditors continue to be paid in the ordinary course. Claims excluded from restructuring plans, in particular employee claims including occupational pension rights, claims from intentional torts and fines (§ 4 StaRUG), are not affected by the order or its contractual effects.

A stabilisation order can also block creditors from enforcing intra-group third-party security (§ 49(3) StaRUG), such as guarantees and security granted by subsidiaries for the parent's financing. This matters in group financing structures, where lenders would otherwise bypass the restructuring by enforcing against subsidiaries or share pledges. Because a general order affecting all or essentially all creditors requires the appointment of a restructuring officer (§ 73(1) no. 2 StaRUG), debtors often prefer targeted orders.

Application and restructuring planning

The debtor must specify the content, addressees and duration of the order applied for (§ 50(1) StaRUG). The application must be accompanied by restructuring planning comprising a draft restructuring plan or concept updated to the date of the application and a financial plan covering six months, with a well-founded description of the financing sources that will ensure the continuation of the business in that period (§ 50(2) StaRUG). Financing sources that are incompatible with the restructuring objective must be disregarded.

The debtor must also declare whether, to what extent and towards which creditors it is in arrears with liabilities from employment relationships, pension commitments, taxes, social security or suppliers, whether enforcement or realisation stays under the StaRUG or comparable protective measures under § 21 InsO were ordered in its favour in the last three years, and whether it has complied with its disclosure obligations under §§ 325 to 328 or § 339 of the Commercial Code for the last three completed financial years (§ 50(3) StaRUG). These declarations allow the court to identify debtors who have repeatedly used moratoria or neglected basic obligations.

Conditions for granting stabilisation orders

The court issues the order if the restructuring planning is complete and coherent and no circumstances are known indicating that the planning or the declarations are based on incorrect facts in material respects, that the restructuring has no prospect of success because a plan would not be adopted or confirmed, that the debtor is not yet facing imminent illiquidity, or that the order is not necessary to achieve the restructuring objective (§ 51(1) StaRUG).

The planning is coherent unless it is obvious that the restructuring objective cannot be achieved with the planned measures. If the planning has remediable defects, the court may grant an order for a maximum of 20 days and require the debtor to correct the defects.

If there are significant payment arrears towards employees, pension beneficiaries, tax authorities, social security institutions or suppliers, or if the debtor breached its disclosure obligations for at least one of the last three financial years, the court will only issue stabilisation orders if it can nevertheless be expected that the debtor is willing and able to manage its business in the interests of the creditors as a whole (§ 51(2) StaRUG). Because an enforcement threat is usually imminent, debtors typically need a decision within a very short time, so the application should be complete when filed.

Duration, extensions and renewals

A stabilisation order can be issued for up to three months (§ 53(1) StaRUG). Subject to the same conditions as the initial order, it can be extended to further creditors, expanded in content or prolonged, or renewed if the period has expired (§ 52 StaRUG). Follow-up orders are generally only possible within the maximum period of three months. If the debtor has submitted a plan offer to the creditors and there is no indication that the plan will not be accepted within a month, the maximum period is extended by one month, but the order may then only be directed against affected parties (§ 53(2) StaRUG).

If the debtor has applied for confirmation of a plan accepted by the affected parties, follow-up or new orders can be issued until the confirmation becomes final, but no longer than eight months after the first order, unless the plan is obviously incapable of confirmation (§ 53(3) StaRUG). This extended period does not apply if the debtor's centre of main interests was moved to Germany from another EU member state within three months before the first use of the framework and no public announcements are made (§ 53(4) StaRUG).

Effects on contracts and creditor protection

During the order, a creditor to whom the debtor owes money from a contract cannot refuse its own performance or terminate or amend the contract solely because of that outstanding performance (§ 55(1) StaRUG). The creditor may still withhold the part of its counter-performance attributable to the debtor's arrears.

This protection does not apply if the debtor does not depend on the creditor's performance to continue the business, and creditors who must perform in advance may insist on security or concurrent performance. Lenders keep their right to terminate a loan before disbursement under § 490(1) of the Civil Code where the debtor's financial situation or the value of the security deteriorates, and this applies to other credit commitments too.

Secured creditors are protected financially. If a realisation stay is ordered, the creditor must be paid the interest owed, and the loss in value caused by the use of the collateral must be compensated by ongoing payments, unless the creditor could not expect to be paid from the realisation proceeds (§ 54(1) StaRUG).

Proceeds from collecting assigned receivables or selling or processing assets subject to security must be paid to the secured creditor or held separately, unless otherwise agreed (§ 54(2) StaRUG). Financial collateral and settlement in payment and securities settlement systems are not affected, and close-out netting agreements remain effective, although the resulting net claim can be subject to an enforcement stay (§ 56 StaRUG).

Applications by creditors for the opening of insolvency proceedings against the debtor are suspended for the duration of the order (§ 58 StaRUG). Directors are liable to affected creditors if the debtor obtained stabilisation orders on the basis of intentionally or negligently incorrect information (§ 57 StaRUG). Separately, the pending restructuring matter and the use of the instruments are not, in themselves, grounds for terminating contracts or accelerating claims, and contrary agreements are void, with exceptions for financial transactions (§ 44 StaRUG).

Lifting stabilisation orders

The court must lift the order if the debtor applies, if the restructuring notification has lost its effect or the matter must be cancelled, if the debtor fails to submit a draft plan within a reasonable deadline, or if circumstances show that the debtor is not willing or able to manage its business in the interests of the creditors as a whole, in particular because the planning is based on materially incorrect facts or the accounts are so deficient that the financial plan cannot be assessed (§ 59(1) StaRUG).

Affected creditors can apply for the order to be lifted on some of these grounds if they establish them credibly (§ 59(2) StaRUG).

The court may maintain the order for an orderly transition into insolvency proceedings in the interest of all creditors, setting the debtor a deadline of no more than three weeks to prove an insolvency filing (§ 59(3) StaRUG). A restructuring officer, if appointed, continuously checks whether the conditions for the order continue to be met; see our insight on the restructuring officer and the restructuring court. For the comparable protection in insolvency, see our insight on protective shield proceedings.

Strategic use and comparison with insolvency

Compared with the protective measures available after an insolvency filing, stabilisation orders are more targeted and less public, and management keeps full control of the business. They do not, however, protect against actual illiquidity or over-indebtedness: if the debtor becomes insolvent, the restructuring matter is generally cancelled and the directors must file.

In practice, stabilisation orders are most useful where a small number of financial creditors threaten enforcement, for example a lender that has accelerated its loan or a bondholder group seeking to enforce share pledges, while operational creditors are being paid in full. Where the whole creditor body needs to be bound or the business needs fresh liquidity from insolvency money, self-administration may be the better route.

How TRW & Co helps

We advise debtors on preparing and obtaining stabilisation orders under the StaRUG, including the restructuring planning, the six-month financial plan and the required declarations, and on targeting orders at the right creditors. We also represent lenders, lessors, suppliers and other secured creditors in protecting their position, applying for orders to be lifted and claiming compensation payments. Our StaRUG restructuring team coordinates these steps with the plan process. This page is general information, not legal advice. To discuss a matter, please contact us.