On 1 January 2021, the German Act on Stabilization and Restructuring Framework for Business (StaRUG) came in to force as part of the German Act on Further Development of Restructuring and Insolvency Law (SanInsFoG). It contains several new pre-insolvency restructuring procedures, including a new preventive restructuring plan and corresponding protection of minority creditors.
What is the aim of the new preventive restructuring plan?
The Further Development Act on Restructuring and Insolvency Law (Sanierungsrechtsfortentwicklungsgesetz, or SanInsFoG2) came into force at the beginning of 2021, marking the final implementation of Germany's latest insolvency law innovations.
Here, we outline how the original, more extensive plans and draft laws from autumn 2020 compare with what was ultimately implemented.
Which provisions weren't implemented?
The SanInsFoG introduces the possibility of early risk identification and preventive restructuring before the stage of insolvency maturity.
In Germany, the duty to file for insolvency if there is illiquidity (Zahlungsunfähigkeit) and/or over-indebtedness (Überschuldung) was suspended under certain circumstances due to the COVID-19 pandemic until the end of September 2020.
The German Federal Government has passed a limited extension of the suspension period regarding over-indebtedness. We summarise the new legislation and outline the key takeaway for your business below.
What does the new legislation say?
The economic fallout from the COVID-19 pandemic will leave in its wake a significant increase in commercial chapter 11 filings. Many of these cases will feature extensive litigation involving breach of contract claims, business interruption insurance disputes, and common law causes of action based on novel interpretations of long-standing legal doctrines such as force majeure.
U.S. Bankruptcy Judge Dennis Montali recently ruled in the Chapter 11 case of Pacific Gas & Electric (“PG&E”) that the Federal Energy Regulatory Commission (“FERC”) has no jurisdiction to interfere with the ability of a bankrupt power utility company to reject power purchase agreements (“PPAs”).
The Supreme Court this week resolved a long-standing open issue regarding the treatment of trademark license rights in bankruptcy proceedings. The Court ruled in favor of Mission Products, a licensee under a trademark license agreement that had been rejected in the chapter 11 case of Tempnology, the debtor-licensor, determining that the rejection constituted a breach of the agreement but did not rescind it.
Regulations
On 21 April 2018, new rules regarding the handling of "group" insolvency proceedings of companies in Germany became effective.
The regulations aimed at better coordination between separate insolvency proceedings, which must be implemented for every company within a group under German insolvency rulings. Prior to the regulations becoming effective, coordination was quite difficult, due to the separate responsibilities of different courts and insolvency administrators.
Amendments to the German Insolvency Act
Few issues in bankruptcy create as much contention as disputes regarding the right of setoff. This was recently highlighted by a decision in the chapter 11 case of Orexigen Therapeutics in the District of Delaware.
The judicial power of the United States is vested in courts created under Article III of the Constitution. However, Congress created the current bankruptcy court system over 40 years ago pursuant to Article I of the Constitution rather than under Article III.
Southeastern Grocers (operator of the Winn-Dixie, Bi Lo and Harvey’s supermarket chains) recently completed a successful restructuring of its balance sheet through a “prepackaged” chapter 11 case in the District of Delaware. As part of the deal with the holders of its unsecured bonds, the company agreed that under the plan of reorganization it would pay in cash the fees and expenses of the trustee for the indenture under which the unsecured bonds were issued.