Cross-Class Cram-Down Under the StaRUG

What a cross class cram down is

A cross class cram down allows a restructuring plan to bind a group of affected parties that voted against it. Under the Corporate Stabilisation and Restructuring Act (Unternehmensstabilisierungs- und -restrukturierungsgesetz, StaRUG), in force since 1 January 2021, a restructuring plan is accepted if in each group at least three quarters of the voting rights vote in favour (§ 25(1) StaRUG).

Where a group misses that majority, its consent is deemed given if the statutory conditions of § 26 StaRUG are met. The cross class cram down is therefore the mechanism that turns a plan supported by most creditors into a plan binding on all, including dissenting lenders, bondholders and shareholders.

The StaRUG procedure is available to debtors facing imminent illiquidity within the meaning of § 18 InsO, before insolvency proceedings become unavoidable. It is a preventive tool: management keeps control of the business, there is no insolvency administrator, and the plan can restructure financial liabilities, security rights and shareholdings while leaving trade creditors and employees untouched.

Groups, majorities and the starting point

Every plan must divide affected parties into groups according to their legal position. The statute distinguishes holders of security rights that would entitle them to separate satisfaction in insolvency, unsecured creditors with non-subordinated claims, subordinated creditors (one group per rank) and holders of shares or membership rights (§ 9(1) StaRUG). Within these categories, further groups can be formed according to appropriate economic interests, provided the criteria are set out in the plan. Group formation is strategic, because a cram-down depends on the votes of the other groups.

Not every claim can be included. Employee claims, including occupational pension rights, claims from intentional torts and fines are excluded from restructuring by plan (§ 4 StaRUG). Within the groups, a 75 per cent majority of the voting rights in each group is required, calculated by claim amount for creditors and by share in capital for shareholders. Unlike insolvency plans, there is no additional headcount majority.

The no-worse-off test

The first condition is that the members of the dissenting group are likely not to be worse off under the plan than they would be without it (§ 26(1) no. 1 StaRUG). The benchmark is the most likely alternative scenario.

The explanatory part of the plan must contain a comparative calculation showing the effect of the plan on the recovery prospects of the affected parties; where the plan provides for continuation of the business, the comparison is generally made against continuation, unless a sale or other continuation solution is unrealistic (§ 6(2) StaRUG). In practice, the alternative is often an insolvency with a sale of the business as a going concern, valued by an independent expert.

The same test also protects individual dissenters: an affected party who voted against the plan and objected in the voting procedure can ask the court to refuse confirmation if it is likely to be worse off than without the plan (§ 64(1), (2) StaRUG). The valuation therefore matters twice, for the group cram down and for individual minority protection. Plans can provide funds to compensate a creditor who proves worse treatment, which reduces the risk that a single objection blocks confirmation.

Absolute priority and its exceptions

The second condition is fair participation in the plan value. A group of creditors participates appropriately if no other creditor receives economic value exceeding the full amount of its claim, no junior creditor and neither the debtor nor its shareholders receive value not fully compensated by a contribution to the debtor's assets, and no creditor ranking equally is better off than the group (§ 27(1) StaRUG). This is the absolute priority rule: shareholders cannot keep value while dissenting creditors are cut, unless they contribute new money or other value.

The StaRUG relaxes the rule in two ways. Different treatment of creditors of equal rank is permissible if it is appropriate given the nature of the economic difficulties and the circumstances, but not where the outvoted group holds more than half of the voting rights of creditors of that rank (§ 28(1) StaRUG).

And shareholders may retain their stake in breach of absolute priority if their participation is indispensable for the continuation of the business because of special circumstances relating to their person, and they commit to cooperate and to transfer value if their cooperation ends for reasons attributable to them within five years, or if the interference with creditors' rights is minor, in particular where claims are not reduced and maturities are extended by no more than 18 months (§ 28(2) StaRUG). The first exception is designed for owner-managed Mittelstand companies.

Shareholders and the cross class cram down

A StaRUG plan can intervene in shareholders' rights, for example through a capital reduction to zero, a capital increase excluding existing shareholders' subscription rights and a debt-to-equity swap. A dissenting shareholder group can be crammed down if the statutory conditions are met. For a group of shareholders, appropriate participation requires, among other things, that no creditor receives more than its full claim and that no equally ranking shareholder is better off (§ 27(2) StaRUG).

The practical significance became clear in a case involving a listed stock corporation, in which the plan provided for a capital reduction to zero and a capital increase in which only the majority shareholder and a strategic investor participated, so that the free-float shareholders left without compensation.

The restructuring court confirmed the plan despite the rejection by the free-float shareholder group, the regional court rejected the shareholders' appeals as inadmissible because they had not substantiated that they would be materially worse off, and the Federal Constitutional Court did not accept their constitutional complaint for decision (BVerfG, order of 28 February 2025 – 1 BvR 418/25). The decision confirms that appeals are only admissible under the strict conditions of § 66(2) StaRUG and that dissenting parties must engage concretely with the plan's comparative calculation.

Court confirmation and appeals

A plan adopted with a cross class cram down needs confirmation by the restructuring court by order (§ 60 StaRUG). The court refuses confirmation of its own motion if the debtor is not imminently illiquid, if provisions on content, procedure or acceptance were materially breached and cannot be remedied, or if the claims allocated under the plan obviously cannot be fulfilled (§ 63(1) StaRUG). Where it is foreseeable that the restructuring can only be achieved against the will of creditors through a cram-down, the court appoints a restructuring officer, unless only financial sector creditors are affected (§ 73(2) StaRUG).

Each affected party may file an immediate appeal against confirmation, but only if it objected in the voting procedure, voted against the plan and credibly shows that it will be materially worse off than without the plan and that the disadvantage cannot be compensated from the funds provided for in the plan (§ 66(2) StaRUG). These hurdles make confirmation decisions comparatively robust. Our insight on StaRUG case law summarises the published decisions, and our page on the StaRUG restructuring framework explains the full toolkit.

Financial creditors, intra-group security and timing

Most StaRUG cases concern financial liabilities: syndicated loans, Schuldschein loans, bonds and shareholder loans. Operational creditors such as suppliers and employees are usually left out of the plan, which preserves the business and keeps the number of affected parties manageable. The debtor may select which creditors to include, but the selection must follow appropriate criteria set out in the plan, and leaving out certain creditors can itself become an argument in the no-worse-off and fair participation analysis.

Group financings raise a particular question. Lenders often hold guarantees and security from subsidiaries of the borrower. A StaRUG plan can also restructure such intra-group third-party security provided by affiliates of the debtor, but only against appropriate compensation for the affected creditors, and the court can appoint a restructuring officer to examine whether the compensation is adequate. Without this power, creditors could circumvent the plan by enforcing guarantees against subsidiaries.

Timing matters as well. The StaRUG procedure is available only while the debtor is imminently, but not yet actually, illiquid or over-indebted; once insolvency occurs, the debtor must notify the court and the restructuring matter may be terminated. Stabilisation orders can protect the process for a limited period, as explained in our insight on stabilisation orders under the StaRUG. A realistic timetable from preparation of the plan through voting and confirmation is therefore part of every cram-down strategy.

Cross class cram down strategy for debtors and creditors

For debtors and sponsors, a credible cross class cram down threat is often enough to reach a consensual deal. Key elements are a robust restructuring opinion, an independent valuation, careful group formation that does not look engineered, and an equity contribution or new money from shareholders where they want to keep a stake. For creditors, the main defences are challenging the valuation and comparative calculation, arguing that groups were formed arbitrarily, insisting on equal treatment within a rank and raising objections in time so that appeal rights are preserved.

Bondholders under German-law bonds are included through their joint representative, and the Bond Act's rules apply accordingly to StaRUG plans; see our insight on bondholder votes under the SchVG. Where the plan converts debt into equity, the corporate and tax consequences are discussed in our insight on debt-to-equity swaps.

How TRW & Co helps

We advise debtors, sponsors, lenders, bondholders and investors on StaRUG restructurings and cross class cram down situations. We design group structures and plan mechanics, review comparative calculations and valuation evidence with financial advisers, prepare and conduct court-supervised voting procedures, and act for creditors and shareholders who want to challenge or influence a plan. We work closely with our directors' duties and distressed M&A colleagues. This page is general information, not legal advice. To discuss a restructuring, please contact us.