The Restructuring Officer and Restructuring Court

The roles of the restructuring officer and the court

The restructuring officer (Restrukturierungsbeauftragter) and the restructuring court (Restrukturierungsgericht) are the two institutions that give a German pre-insolvency restructuring under the Corporate Stabilisation and Restructuring Act (Unternehmensstabilisierungs- und -restrukturierungsgesetz, StaRUG) its procedural backbone. Unlike in insolvency proceedings, the debtor's management stays fully in control. The court only intervenes where the debtor uses one of the instruments of the restructuring framework, and the officer is appointed only where the law requires it or a party applies for one. Understanding when an officer is appointed, what the officer does and what it costs is essential for planning a StaRUG process.

The StaRUG is available to debtors facing imminent illiquidity within the meaning of § 18(2) of the Insolvency Code (Insolvenzordnung, InsO). The instruments are court-supervised voting on a restructuring plan, preliminary examination of questions relevant to confirmation, stabilisation orders restricting enforcement, and court confirmation of the plan (§ 29 StaRUG). The debtor can use these instruments independently of each other, which makes the process modular.

The restructuring court: jurisdiction and powers

Restructuring matters are concentrated at a small number of courts. The local court (Amtsgericht) at the seat of a higher regional court (Oberlandesgericht) has exclusive jurisdiction as restructuring court for the whole district of that higher regional court (§ 34 StaRUG). The federal states may concentrate jurisdiction further. Local jurisdiction lies with the restructuring court in whose district the debtor has its general place of jurisdiction or, if the centre of its economic activity is elsewhere, at that place (§ 35 StaRUG). This concentration was intended to build specialist expertise among judges.

The court becomes involved when the debtor notifies the restructuring project (Anzeige). The notification must include a draft restructuring plan or a restructuring concept describing the nature, extent and causes of the crisis, the restructuring objective and the planned measures, a description of the status of negotiations with creditors and shareholders, and the arrangements the debtor has made to comply with its duties (§ 31(2) StaRUG). With the notification, the restructuring matter becomes pending, and the court then decides on the instruments the debtor applies for.

The court must cancel the restructuring matter if the debtor files for insolvency, if it lacks jurisdiction and no referral is requested, or if the debtor seriously breaches its duties to cooperate and provide information to the court or the officer (§ 33(1) StaRUG). It must also cancel the matter if the debtor becomes illiquid or over-indebted, although it may refrain from doing so where opening insolvency proceedings would obviously not be in the interest of the creditors as a whole given the progress of the restructuring (§ 33(2) StaRUG).

Appeals are limited. Decisions of the restructuring court can only be challenged where the StaRUG expressly provides for an immediate appeal (sofortige Beschwerde), and a decision on the appeal only takes effect when it becomes final, unless the appeal court orders immediate effect (§ 40 StaRUG). The most important appealable decision is the confirmation or refusal of a restructuring plan. Our insight on StaRUG case law discusses how courts have applied these rules.

When a restructuring officer must be appointed

The court must appoint a restructuring officer in three situations (§ 73(1) StaRUG): first, if the rights of consumers or small and medium-sized enterprises are to be affected, because their claims or security rights are to be modified by the plan or enforcement against them is to be stayed; second, if the debtor applies for a stabilisation order directed against all or essentially all creditors, apart from excluded claims; and third, if the plan provides for monitoring of the fulfilment of creditors' claims.

The court may refrain from appointing an officer in an individual case if the appointment is not necessary to protect the rights of the parties or would obviously be disproportionate.

An appointment is also required if it is foreseeable that the restructuring objective can only be achieved against the will of holders of restructuring claims or security rights, so that the plan can only be confirmed through a cross-class cram-down under § 26 StaRUG (§ 73(2) StaRUG). This does not apply if only financial sector undertakings are affected by the plan, including their legal successors and holders of money or capital market instruments.

In practice, a restructuring of bank debt or bonds through a cram-down can therefore proceed without a mandatory officer, while a plan affecting trade creditors or SMEs usually requires one.

Selection, qualification and independence

The restructuring officer must be a tax adviser, auditor or lawyer experienced in restructuring and insolvency matters, or another natural person with comparable qualifications, who is suitable for the individual case and independent of the creditors and the debtor (§ 74(1) StaRUG). The court takes into account proposals by the debtor, creditors and shareholders. If the debtor submits a certificate from an experienced adviser confirming that it meets the requirements for a stabilisation order, the court can only depart from the debtor's proposal if the proposed person is obviously unsuitable.

The same protection applies to a joint proposal by affected parties holding more than 25 per cent of the voting rights in each group, if the court is not already bound by the debtor's proposal (§ 74(2) StaRUG). If the court follows such a proposal, it may appoint an additional officer. The officer is subject to the supervision of the court, can be dismissed for good cause, must perform the tasks with due care and impartially, and is liable for damages to the affected parties for culpable breaches of duty (§ 75 StaRUG).

Tasks and powers of the restructuring officer

Where the appointment is mandatory under § 73(1) no. 1 or 2 or § 73(2) StaRUG, the officer decides how the plan is put to the vote.

If the vote takes place outside court, the officer chairs the meeting of affected parties, documents the vote and examines the claims, security rights and shareholdings of the affected parties, pointing out disputed claims and working towards a preliminary examination of voting rights by the court (§ 76(2) no. 1 StaRUG). The court can also authorise the officer to examine the debtor's economic situation and monitor its management, and to require that incoming funds are received and payments made only by the officer.

The court can further order the debtor to notify the officer of payments and to make payments outside the ordinary course of business only with the officer's consent. If a stabilisation order is issued, the officer continuously checks whether the conditions for the order still exist and whether there are grounds for lifting it, and may apply for the order to be lifted (§ 76(3) StaRUG). When the plan is submitted for confirmation, the officer comments on the debtor's declaration on the plan's chances of success. The officer must inform the court immediately of circumstances that justify cancelling the restructuring matter (§ 76(1) StaRUG).

The optional restructuring officer

On the debtor's application, the court appoints an optional officer to facilitate negotiations between the parties (§ 77 StaRUG). Creditors holding more than 25 per cent of the voting rights in a group may jointly apply if they undertake to bear the costs jointly and severally. The application can also ask the court to assign the officer additional tasks under § 76 StaRUG. The optional officer supports the debtor and the creditors in developing and negotiating the restructuring concept and the plan based on it (§ 79 StaRUG).

Where creditors representing all groups expected to be included in the plan propose a person, the court may only deviate if the person is obviously unsuitable or, for a mere negotiation facilitator, the debtor objects (§ 78(2) StaRUG).

In practice, an optional officer can act as a neutral moderator between a debtor and its financial creditors, build trust in the restructuring concept and speed up negotiations, particularly where shareholders and lenders have lost confidence in each other. The cost of this neutrality must be weighed against the benefits in each case; see our page on StaRUG restructuring.

Costs and remuneration of the restructuring officer

The restructuring officer is paid on the basis of reasonable hourly rates for personal work and for the work of qualified staff (§ 81 StaRUG). In the normal case, the hourly rate is up to EUR 350 for the officer's personal work and up to EUR 200 for qualified staff (§ 81(3) StaRUG). The court sets the rates on appointment and, on the basis of hour budgets, a maximum amount for the fee, after hearing the person to be appointed and those liable for the costs.

Higher rates are possible in special cases, for example if all those expected to bear the costs agree, if no suitable person is otherwise willing to accept the office, or if the officer's tasks come close to those of a custodian in self-administration, in particular because a general stabilisation order is issued or essentially all creditors are included in the plan (§ 83(1) StaRUG). In the latter case, remuneration based on the value of the claims included in the plan or the company's assets may also be possible.

If the officer is appointed on the application and proposal of all those liable for the costs and they present a fee agreement, the court must base the remuneration on that agreement unless it is inappropriate (§ 83(2) StaRUG). Unless creditors applied for an optional officer and undertook to bear the costs, they are generally borne by the debtor.

How TRW & Co helps

We advise debtors, shareholders, lenders and other creditors on StaRUG restructurings and the role of the restructuring officer and the restructuring court. We prepare notifications and applications, assess whether a mandatory officer is required, advise on proposals for the officer and on fee agreements, and represent clients in court-supervised votes, preliminary examinations, stabilisation proceedings, plan confirmation and appeals. Where the plan is opposed, we develop cram-down strategies with our restructuring and insolvency team. This page is general information, not legal advice. To discuss a matter, please contact us.