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SanInsFoG and StaRUG

The ­Covid 19 pandemic continues to ­occupy ­our ­daily lives and is leading to the worst ­economic crisis in ­years. In order to ­counteract­ this, ­various forms of ­support ­and ­emergency aid have ­been ­initiated ­by ­politicians. ­Nevertheless, ­according to ­current surveys, ­many ­experts ­expect ­an ­increasing ­number of ­company restructurings ­and ­insolvencies in the ­near future­.

In order to ­further support ­companies in the ­current ­phase and ­avert a ­possible ­future ­insolvency, ­the “­Act on the Further Development of ­Restructuring and ­Insolvency Law­” (SanInsFoG) ­is ­currently­ being ­introduced. The ­draft law ­had its ­first ­reading in the ­Bundestag ­on 18 ­November 2020 ­and will be discussed in ­the Legal Affairs Committee on ­25 ­November 2020. It is ­planned to ­introduce the law on 1 ­January 2021, even though ­politicians ­now ­consider ­1 April 2021 to be a ­more realistic ­target for parts of the very ­comprehensive ­law.

What is the core of the SanInsFoG?

A ­key ­focus is to look at the sustainability of ­liabilities. ­Many ­companies that ­have­ received ­special loans ­from the ­development banks, for example, ­may have ­to ­deal with ­restructuring the ­liabilities side in the ­next few ­years ­because, ­contrary to ­expectations­, the ­business model ­after the ­Covid 19 pandemic ­cannot enable ­full ­debt service capability.

­There are two core elements to this­:

  • The obligation to file for insolvency due to over-indebtedness is suspended until the end of December 2020 if this results from the Covid 19 pandemic. With the reinstatement of the obligation to file for insolvency on 1 January 2021 – the obligation to file for insolvency has already been in force again since 1 October 2020 – there will be an easing of the requirement for the going concern forecast: The liquidity forecast period is to be only twelve months or four months in the case of a decline in sales of > 40% in 2020 due to the Covid 19 pandemic.
     
  • On the other hand, the personal liability of managing directors and board members before the onset of insolvency will be significantly tightened. In future, companies must be fully financed for the next 24 months in order to safeguard the interests of the creditors as a whole. If a financing gap is not identified in good time or if restructuring measures subsequently do not take effect as hoped, the managing director will be personally liable. Managing directors must therefore deal with their options for action at an early stage in the event of impending insolvency.

How ­must ­management / the ­board of­ directors ­react in the ­future­?

­On the ­one hand, the ­company­’s executive bodies­ must ­ensure ­through-financing as soon as the law becomes ­effective. ­Therefore, the ­establishment of ­a ­meaningful ­liquidity planning for ­the ­current and the ­two ­following ­financial years ­is ­already ­necessary at the ­latest at this point in time, ­as the ­next 24 ­months ­must be ­monitored on an ­ongoing basis. ­If this results ­in ­liquidity gaps ­due to ­increasing demand or expiring ­financing­, there ­is an obligation to find a ­solution in the ­interest of the ­creditors ­ ­thus ­at most equally in ­the ­interest of the ­shareholders. ­Transparency in the form of ­a three-year plan­, the development of ­financing solutions ­and ­communication with the ­financiers ­and, if necessary, the ­other ­creditors ­become ­essential ­and relevant to liability­.

On the ­other hand,­ the SanInsFoG also ­brings with it the new ­Corporate Stabilisation and Restructuring Act (StaRUG), which ­transposes the ­preventive ­restructuring framework ­required by the EU ­into ­national law. ­This ­gives ­companies that ­basically ­have ­a ­functioning ­business model ­a ­new ­instrument for ­restructuring. Without the stigma of ­insolvency, ­a (­balance sheet­) ­restructuring ­can ­take place ­within the ­framework of the formation of a majority. In ­addition to the ­termination of ­contractual relationships ­and the overruling of ­individual ­creditors ­who are unwilling to restructure, ­other ­measures will ­also be ­possible in ­future that ­can ­currently only ­be ­used ­within the ­framework of ­insolvency proceedings.

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