Rechtsanwalt Dr Theodor Lammich, LLM (Edinburgh)
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Dr Theodor Lammich is an attorney-at-law at Osborne Clarke in Munich, where he focuses on insolvency law and restructuring. He is also a lecturer at the Baden-Württemberg Cooperative State University. In his article, he analyses the similarities and differences between pre-insolvency restructuring in Germany and Ireland. When he wrote the article, he was completing a Master of Laws at the University of Edinburgh.
The Corporate Stabilisation and Restructuring Act (StaRUG) came into force in Germany in 2021, implementing the European Directive on Preventative Restructuring (“European Directive”).[1] While there were previously no special regulations on pre-insolvency restructuring in Germany, Ireland could already look back on three decades of experience with such proceedings. With regard to the European Directive, the Irish Department of Enterprise, Trade and Employment has stated: ‘Ireland’s examinership framework is generally viewed internationally as an example of best practice on preventive restructuring and it already complies in numerous respects with the requirements of the Directive.’[2] But is the Irish procedure really a best practice model for the German one? What features has the German legislator “adopted” and has it gone in its own, new way? And is this path the better one? The study illustrates the increased influence of European law, the rapid reaction of the legislator to economic crises and the different levels of state and private influence in restructuring proceedings. This level of state influence affects the flexibility at different levels of the restructuring process and characterises the overall nature of the German and Irish restructuring proceedings.
The main similarities and differences between the Irish examinership and the German StaRUG reorganisation procedure (“restructuring procedure”) are outlined below. The explanations of the restructuring procedure are already included in a comparative analysis of theexaminership. According to this scheme, the article deals with the history (I.), the basic ideas (II.), the application (III.), the moratorium (IV.), the remediation officer (V.), the reorganisation plan (VI.), the vote (VII.), and the practical relevance (VIII.), of the respective procedures. On this basis, various advantages and disadvantages will be discussed (IX.).
I. HISTORY
a. Examinership
Examinership as a legal option for the reorganisation of financially endangered companies was introduced in Ireland by the Companies (Amendment) Act 1990. This was prompted by a specific group of jeopardised companies in the meat industry.[3] The Companies Act 2014 (No. 38 of 2014) (“Companies Act”) amended sections 508 et seq. to simplify and modernise examinership. A final reform took place in 2022, which was triggered by the European Directive. Ireland thus decided against creating an entirely new regime, as was the case in Germany or Austria.[4] Individual regulations were added through amendments to the European Union (Preventive Restructuring) Regulations 2022 (S.I. No. 380 of 2022).
b. Comparison of Restructuring Procedures
An evaluation[5] of Germany’s Act to Further Facilitate the Restructuring of Companies of 7 December 2011 (ESUG) already gave the legislator reason to further develop and supplement restructuring and insolvency law. This was followed by the aforementioned European Directive and, finally, the economic consequences of the COVID-19 pandemic prompted the last urgent call for German legislators to create a new set of instruments below the threshold of insolvency proceedings.[6] The Act on the Stabilisation and Restructuring Framework for Companies (Unternehmensstabilisierungs- und -restrukturierungsgesetz – StaRUG) was implemented with the Act on the Further Development of Restructuring and Insolvency Law (Sanierungs- und Insolvenzrechtsfortentwicklungsgesetz – SanInsFoG). The StaRUG came into force on 1 January 2021 and was subject to the following intentions of the legislator: “A legal framework is being created to enable corporate rescue to avert insolvency, which allows companies to restructure themselves on the basis of a restructuring plan accepted by a majority of the creditors. This legal framework closes the gap that has been left by the applicable reorganisation law between the area of free restructuring, which is dependent on the consensus of all parties involved, on the one hand, and the area of restructuring in the form of insolvency proceedings, with its costs and disadvantages compared to free restructuring. This restructuring framework should, in principle, enable the company to conduct the negotiations on the plan and to put the plan itself to the vote.”[7]
II. BASIC IDEAS
a. Examinership
The purpose of examinership is to protect distressed companies with sufficient chances of survival from creditors for a limited period of time, by means of a moratorium, in order to devise a scheme of arrangement under court supervision.[8] If the scheme of arrangement is accepted by the prescribed majority of creditors and is subsequently confirmed by the Court, the restructuring can be implemented against the will of the remaining creditors.[9] There are similarities with the US procedure under Chapter 11 of the United States Bankruptcy Code, in which a plan of reorganisation is also proposed and then confirmed by the creditors and the relevant Court.[10]
b. Comparison of Restructuring Procedures
The centrepiece of the restructuring procedure under the StaRUG is the restructuring plan pursuant to sections 2 et seq. This determines which creditors’ rights are to be affected for the purpose of the reorganisation. The plan is submitted to the affected creditors and voted on. Like the scheme of arrangement, this is accepted by the prescribed majority of creditors. In contrast to the examinership pursuant to section 23 StaRUG, the company has a choice as to whether the vote is carried out with or without the involvement of the Court.
III. APPLICATION
a. Examinership
Within the Irish context, examinership begins with an application for the appointment of an examiner. Pursuant to section 509(7)(a) of the Companies Act, the High Court of Ireland isgenerally responsible for their appointment; in the case of smaller companies, the Circuit Court isresponsible.[11]
The company, the creditors, the management, and the shareholders holding not less than one tenth of the shares entitled to vote at a general meeting, are entitled to submit a motion for examinership.[12] A report by an independent expert must be attached to the motion.[13] This expert opinion then essentially provides the basis for the Court’s decision (see below) as well as the measures required for the reorganisation, the minimum amount of financial resources required during the reorganisation and the recommendations as to which liabilities should be satisfied under the scheme of arrangement.
The Court will grant the application if there is a reasonable prospect of survival of the company and the whole or any part of its undertaking as a going concern.[14] The High Courtapplies generous standards for this prognosis.[15]
b. Comparison of restructuring procedures
Restructuring proceedings are also initiated with an action in Court in the German jurisdiction. However, this is not an application as in the case of examinership, but a mere notification in accordance with section 31 II StaRUG. This is qualified in that it contains, in particular, a draft restructuring plan, a description of the status of negotiations with creditors and a description of precautions to ensure the ability to fulfil the obligations imposed by the StaRUG, which are primarily listed in section 32.
Only the company is authorised to file a complaint. The competent court is the Restructuring Court, a local court within the meaning of sections 34 et seq. StaRUG.
IV. MORATORIUM
a. Examinership
Upon filing an application for examinership within the Irish jurisdiction, the company enjoys special protection under section 520 of the Companies Act for 70 days or, if extended by the Court, for up to 100 days.[16] In particular, no liquidation can be initiated, no receiver can be appointed, realisation measures can only be carried out in agreement with the examiner, no court proceedings can be brought against the company without court approval, and no action can be taken against the company on the basis of security claims. Article 6 V of the European Directive and the amended section 520 Va of the Companies Act 2014 excludes employee claims from the previously comprehensive protection of claims. In favour of the company, however, contracts with creditors now cannot be terminated or amended in any other disadvantageous way – a significant encroachment on the contractual freedom of creditors in favour of planning security within the moratorium.
b. Comparison of Restructuring Procedures
The restructuring procedure within the German legal landscape includes a moratorium in the form of a stabilisation order within the meaning of section 49 et seq. StaRUG. This requires a separate application. The moratorium therefore does not run automatically, as in the case of examinership, when the proceedings are opened. The stabilisation order formally requires a qualified restructuring plan and information on its liabilities. The application is granted if there are no grounds for rejection under section 51 StaRUG. These are, for example, lack of prospects for the restructuring, lack of imminent insolvency or lack of necessity of the stabilisation order. The stabilisation order has the consequence that compulsory enforcement measures against the debtor are prohibited or temporarily suspended (stay of enforcement) and rights to movable assets that could be asserted as a right of segregation or separation, in the event of the opening of insolvency proceedings, may not be enforced by the creditor. Such assets may be used to continue the debtor’s business if they are of considerable importance for this (stay of realisation). Both legal consequences, i.e. the prohibition of enforcement and the prohibition of realisation, are also known to the moratorium on examinership.
The duration of a moratorium under the StaRUG is generally up to three months[17] and in exceptional cases up to eight months. In contrast to the Irish moratorium, the German moratorium can be much shorter at the discretion of the Court.
V. REMEDIATION OFFER
a. Examinership
The examiner has an important function as the authorised representative of the reorganisation. In the case of Ireland, once an examiner has been appointed by the Court, their appointment must be published within 21 days in the official gazette of the Companies Registration Office responsible for the company and within three days in at least two daily newspapers distributed in the region in which the company has its registered office or principal place of business.[18]
The examiner’s powers are governed by section 524 of Ireland’s Companies Act. They have the same powers as an auditor and, accordingly, powers to obtain information. This includes the right to attend shareholder meetings. The day-to-day business remains in the hands of the directors, but can be transferred to the examiner by Court order if the Court considers the application to be just and equitable.[19] The examiner may appoint a committee of creditors under section 538 of the Companies Act, consisting of a maximum of five creditors, to assist the examiner in his function and to advise on the proposal for the scheme of arrangement.
b. Comparison of Restructuring Procedures
In principle, the German restructuring procedure is a debtor-autonomous procedure. The debtor retains control of the company and also manages the restructuring proceedings itself. It can dispose of and manage the debt autonomously. A restructuring officer can only be appointed in special statutory cases and upon application. According to section 73 StaRUG, these special cases exist, for example, if the genuine interests of consumers or of medium-sized, small and micro-enterprises are affected; if a stabilisation order is applied for, in connection with the agreement of plan monitoring; or if it is foreseeable that a submitted plan can only be achieved against the resistance of holders of restructuring claims or rights to separate satisfaction. Section 77 regulates the appointment of an optional authorised restructuring officer. The company itself or a quarter of the creditors are authorised to apply. The tasks of the restructuring officer consist in particular of monitoring the proceedings. For example, they are obliged to notify the Court if the restructuring becomes inadmissible and must therefore be cancelled. This is the case, for example, if the debtor is solvent. However, the Court can assign other tasks to the officer, such as examining the economic situation or the management. The Court can also authorise the restructuring officer to demand that the debtor only accepts incoming funds and only makes payments.[20] In addition, the authorised officer is the chairperson of the meeting of the parties affected by the plan and is responsible for documenting the vote. Furthermore, the restructuring procedure recognises an association of creditor representatives in section 93 StaRUG, the Creditors’ Advisory Council. It supports the company in its management and monitors it.
The parallels between the examiner, in the Irish context, and the restructuring officer, in the German context, can be recognised in the fundamental task of monitoring the restructuring process. Both have extensive information rights for this purpose. The extent to which the respective restructuring officers may also intervene in the administration of the company depends on the discretion of the Court. A significant difference between the two legal systems is that the Irish reorganisation procedure is linked to the mandatory appointment of an examiner, whereas under German law this is generally left to the company or a sufficiently large proportion of the creditors. However, the latter is rather unlikely, as “[w]hy should the parties involved voluntarily utilise such a mandate holder, especially as the costs of the latter are to be borne by the creditors themselves in the event of a creditor application (section 77 sentence 2 StaRUG)?”.[21] While in Irish law the committee of creditors supports the restructuring officer, the creditors’ advisory board is rather a substitute for the restructuring officer himself and can also be appointed entirely without him.
VI. REORANISATION PLAN
a. Examinership
The scheme of arrangement that the Irish examinership process works towards usually contains three components: newfunding, a debt cut (“haircut”), and a transfer of the company’s shares to a new owner, whereby the funding is typically acquired through new borrowing or a debt for equity swap, and the new owner can also be a new company held by the existing shareholders.[22] In addition, a change in management personnel may be proposed. The examiner must present creditors into classes for the proposed repayment of creditor claims.
b. Comparison of Restructuring Procedures
The German restructuring procedure also has some room to manoeuvre for the purpose of sustainably eliminating the impending insolvency. This includes, for example, the structuring of rights to separate satisfaction, i.e. rights to items of the debtor’s assets that would entitle the debtor to separate satisfaction in the event of insolvency. In the case of multilateral relationships, such as bonds, individual contractual provisions can be adjusted. In return for compensation of the secured creditors, intra-group collateral from affiliated companies can also be organised. Finally, a debt for equity swap or the raising of new financing is conceivable here.[23] There are no significant differences to the scope for structuring permitted by the Irish examinership system. In both cases, it is ultimately a matter of a settlement with the creditors affected by the restructuring, according to which their further liabilities are cancelled with the fulfilment of certain claims by the company. In restructuring proceedings, the creditors are also divided into certain classes in the so-called representative part, whereupon the specific consequences are presented in the so-called formative part.
VII. VOTE
a. Examinership
The scheme of arrangement in the Irish examinership process is approved by a simple majority of the creditors represented at the respective creditors’ meetings for the classes of creditors concerned.[24] The European Directive has added in Article 11 that the approval of only one group of creditors is no longer required for the Court to confirm the arrangement. In future, only those creditors who are affected by the arrangement will have the opportunity to vote. Creditors who are not affected by the scheme of arrangement (i.e. those who would not receive a dividend in the event of the company’s liquidation) will not have the right to vote on the approval of the plan.[25]
If the settlement proposal is accepted with the aforementioned majorities, the Court examines the proposal to determine whether it treats opposing creditors fairly and equitably and not unfairly and prejudicially and also takes into account the interests of third parties.[26] The basic standard is that a creditor must not receive less as a result of the examination than it would have received in the liquidation.[27]
If the scheme of agreement does not receive sufficient approval, the examiner must request instructions from the Court, which regularly consists of the initiation of compulsory liquidation by the Court.[28]
b. Comparison of Restructuring Procedures
German law first provides for the submission of the planned offer, followed by a planned vote in creditor groups. The latter corresponds to the structure of the creditor classes in the examinership. The plan is deemed to have been accepted if at least 75% of the voting rights in each group are held by the group members in favour of the plan – a majority of votes cast is not required.[29] With regard to the majority in a group, German law therefore has higher hurdles. However, there is also a relaxation of the majority requirements, the so-called prohibition of obstruction (cross class cram down). According to this, the approval of a group is deemed to have been granted if a) the members of this group are not likely to be worse off as a result of the plan than without the plan, b) the members of this group receive an appropriate share of the economic value that is to accrue to those affected by the plan and c) the majority of the voting groups have approved the plan with the required majority. The vote can take place out of court or in court.[30]
To ensure that creditors affected by the plan who have voted against the restructuring plan are protected, a court confirmation of the plan is required.[31] Pursuant to section 63 I StaRUG, the application must be refused if the debtor is not facing imminent insolvency. Additionally, the application must be refused if the provisions regarding the content and procedural treatment of the restructuring plan, as well as the acceptance of the plan by the affected parties, have not been materially observed. If the debtor is unable to remedy these defects or fails to remedy them within a reasonable period set by the Restructuring Court, the application must also be refused. Finally, the application must be refused if the claims assigned to the affected parties by the constructive part of the plan, and the claims of other creditors not affected by the plan, clearly cannot be satisfied. It is clear to see that the Court essentially limits itself to formal aspects, whereas in Ireland there is a substantive focus of examination. Even the refusal on the grounds of unfairness within the meaning of section 63 V StaRUG is limited to the procedural aspects of bringing about the plan, not its content. Only at the request of a party affected by the plan, but not ex officio, does the Restructuring Court examine in accordance with section 64 StaRUG whether the applicant would be in a better position without the plan than with it. Only this examination then corresponds to that of the Irish Court.
VIII. PRACTICAL RELEVANCE
a. Examinership
The examinership process is very prevalent in Ireland, although the number of procedures depends on the overall economic situation. Up until 2006, an average of 10 companies per year applied for an audit; from 2008, in light of the Irish financial crisis, the number rose to over 60.[32]
b. Comparison of Restructuring Procedures
In comparison, the restructuring proceedings in Germany have been very poorly received. In response to the fact that there were only 22 proceedings initiated in the first year of its existence, only four of which resulted in a court-confirmed restructuring plan, Schluck-Amend notes that it is “statistically verified [that there are] more specialist publications than proceedings on the StaRUG.”[33] Even in its second year of existence, the procedure does not appear to be any more popular, although the figures should be treated with a certain degree of caution due to the lack of mandatory publication.[34] Nevertheless, it can be assumed that pre-insolvency reorganisation proceedings enjoy completely different levels of popularity in Germany and Ireland.
IX. CONCLUSION
Both the history of Ireland’s examinership process and that of the restructuring procedure in Germany are characterised by two features: the rapid reaction of the legislator to economic crises and the increased influence of European Union law. Similar structures can be recognised at first glance. In both cases, the company is encouraged under facilitated conditions to draw up a plan to compensate for the financial imbalance. The possible moratoria provide for similar security mechanisms for improved planning and block both realisations and enforcements at the expense of the creditors. The reorganisation plan itself functions with similar instruments and works towards a settlement with a similar voting mechanism based on creditor classes.
However, the degree of flexibility is noticeably different. A number of measures in the restructuring procedure, such as the appointment of a restructuring officer, the material scope of the Court’s review with regard to creditor detriment due to the restructuring plan and the involvement of a creditor representative, depend on applications by the company or the creditors – whereas the examinership in many cases is carried out by the examiner or the court of its own motion. And even if the Court decides, the German Court appears to be less bound than the Irish Court. This can be recognised in particular by the fixed number of days of the Irish moratorium. This represents an enormous loss of organisation for the Court, as the restrictions for creditors during this period are considerable.
The fundamental voluntary nature of the appointment of a restructuring officer with roughly the same powers in both countries emphasises the focus of the German procedure as one that is – if desired – conducted very independently. The Irish reorganisation procedure, which – not only in name – places a strong focus on an examiner and the Court, appears comparatively rigid and very dependent on these two external players. As external parties are always associated with the investment of time and money, it makes sense to soften this constraint in the Irish reorganisation procedure and thus further expand the successes of examinership to date.
Overall, the Irish model appears to be far more self-sufficient than the German model. While this can be criticised as “inflexible”, it can also be a great advantage in practice. The need to take initiative can be a deterrent and it can be assumed that the unpopularity of the German restructuring procedure – in addition to the costs – is due to this. Companies in distress long for firm, externally managed structures in the narrower sense. This is what examinership offers. In Germany, on the other hand, as Eberhard Braun has aptly described it, an old legal adage has much more effect: “Ius ante scriptum est vigilantibus – the law is written for the vigilant. Restructuring is not given to the debtor as a gift, it has to be earned.”[35]
[1] Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency).
[2] The Irish Department of Enterprise, Trade and Employment, Information Note – European Union (Preventive Restructuring) Regulations 2022 (2022) 3.
[3] Bill Murdoch, ‘Bill to protect companies from creditors’ The Irish Times (Dublin, 25 August 1990) 6; Irene Lynch Fannon, ‘Examinership: The Irish Rescue Process 30 years later’ [Spring 2020] eurofenix, 22.
[4] The Restructuring Ordinance (ReO) was created here.
[5] Bt-Drs. 19/4880.
[6] BT-Drs. 19/24181.
[7] ibid.
[8] Companies Act 2014, s 509(2).
[9] Jonas Hermann/Ursula Schlegel, Münchener Kommentar InsO Vol 4 (4th edn, C.H. Beck 2009) Länderberichte Irland Rn. 14.
[10] N.N., ‘Chapter 11 – Bankruptcy Basics’ <https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics> accessed 26 April 2024.
[11] Companies Act 2014, s 509(7)(b).
[12] ibid, s 510(1).
[13] ibid, s 511.
[14] ibid, s 509(2).
[15] Jonas Hermann/Ursula Schlegel, Münchener Kommentar InsO Vol 4 (4th edn, C.H. Beck 2009) Länderberichte Irland Rn. 42.
[16] Companies Act 2014, s 534(3).
[17] StaRUG, § 53 I.
[18] Companies Act 2014, s 531(2)-(3).
[19] Companies Act 2014, s 528.
[20] StaRUG, § 76 II No. 2 lit. b).
[21] Jakob Bünemann, ‘Der Restrukturierungsbeauftragte des StaRUG’ (StaRUG Blog, 27 January 2021) <https://starug-blog.de/artikel/restrukturierungsbeauftragter-starug/> accessed 26 April 2024.
[22] Jonas Hermann/Ursula Schlegel, Münchener Kommentar InsO Vol 4 (4th edn, C.H. Beck 2009) Länderberichte Irland Rn. 14.
[23] Alexander Fridgen, BeckOK StaRUG (4th edn, C.H. Beck 2025) § 16 StaRUG Rn 6 ff.
[24] Companies Act 2014, s 540(4).
[25] Companies Act 2014, amended s 540.
[26] Companies Act 2014, s 541.
[27] Jonas Hermann/Ursula Schlegel, Münchener Kommentar InsO Vol 4 (4th edn, C.H. Beck 2009) Länderberichte Irland Rn. 57.
[28] ibid, Rn. 58.
[29] StaRUG, § 25.
[30] StaRUG, §§ 20, 23.
[31] StaRUG, §§ 60 ff.
[32] Dearbhail McDonald, Bust: How the Courts Have Exposed the Rotten Heart of the Irish Economy (1st edn, Penguin Island), 142.
[33] Alexandra Schluck-Amend, ‘Die fehlende praktische Relevanz des StaRUG: Empfehlungen an den Gesetzgeber’ [2023] NZI Supplement 7.
[34] ibid.
[35] Eberhard Braun, ‘Die Chancen und Risiken des StaRUG‘ (Insolvenzrecht aktuell) <https://www.beck-shop.de/content/kampagnen/insolvenzrecht-aktuell/chancen-und-risiken-des-starug/16116/> accessed 26 April 2024.
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