The Act on the Stabilization and Restructuring Framework for Companies, StaRUG for short, is part of the Restructuring and Insolvency Law Reform Act (SanInsFoG) and came into force on 1 January 2021.
It creates a legal framework for the pre-insolvency restructuring of companies and thus transposes an EU directive into German law.
The StaRUG enables companies to restructure themselves outside of insolvency proceedings and thus avert imminent insolvency.
The StaRUG opens a new chapter in German corporate law, which aims in particular to provide companies with early and effective support in overcoming financial crises.
The legislator is thus responding to the need to better protect companies in difficult economic times and to give them more room for maneuver.
This is particularly relevant in times of economic uncertainty and global challenges, such as those exacerbated by the COVID-19 pandemic.
The introduction of the StaRUG represents a paradigm shift in that it shifts the focus from pure insolvency administration to preventative measures.
Companies should not only act when insolvency is inevitable, but at the first signs of impending insolvency.
This gives the companies concerned the opportunity to take countermeasures in good time and thus ensure the continuation of business operations.
The StaRUG offers a variety of instruments that are specifically designed to strengthen the financial stability of companies.
These include the possibility of drawing up and implementing restructuring plans without having to initiate formal insolvency proceedings.
This makes it easier for companies to make necessary adjustments while maintaining the trust of creditors and business partners.
Overall, the StaRUG aims to increase the resilience of companies and provide them with the tools they need to successfully overcome financial crises.
It is an important step towards a more modern and flexible insolvency law that meets the requirements of today’s business world.
What is the purpose of the StaRUG?
The purpose of the StaRUG is to provide companies with crisis management tools at an early stage.
The core element of this is the restructuring plan, in which the key restructuring measures are defined.
This plan can largely be drawn up and implemented without court involvement.
This is flanked by other instruments such as enforcement and realization freezes to facilitate the implementation of the plan.
The ultimate aim is to avoid insolvency proceedings.
Another important aspect of the StaRUG is the possibility of involving creditors in the restructuring process and obtaining their consent to the planned measures.
This can be done by a vote of the affected creditor groups, whereby a qualified majority is sufficient to approve the restructuring plan.
This ensures that the interests of the creditors are safeguarded and at the same time enables the restructuring measures to be implemented efficiently and swiftly.StaRUG also offers the option of appointing a restructuring officer to monitor the process and ensure that all legal requirements are met.
This officer can also act as a mediator between the company and the creditors, helping to resolve conflicts and speed up the restructuring process.
Another instrument of the StaRUG is the so-called stabilization order, which enables the company to obtain protection from enforcement measures and liquidation actions for a certain period of time.
This gives the company the necessary peace of mind and time to implement the planned restructuring measures without being hindered by immediate enforcement measures by creditors.
In summary, the StaRUG offers a comprehensive range of tools and procedures that enable companies to react early and effectively to financial crises.
By combining preventive measures, creditor participation and judicial protection, the StaRUG creates a flexible and practical framework that meets the specific needs of companies in crisis situations.
Does the StaRUG also apply to start-ups and small businesses?
The StaRUG applies to all companies, regardless of their legal form and size. This means that start-ups and small businesses are also affected. The only exceptions are banks and insurance companies. The decisive factor for applicability is that insolvency is imminent but has not yet occurred. The forecast period is 24 months. It is particularly important for start-ups and small companies to familiarize themselves with the provisions of the StaRUG. These companies are often particularly susceptible to financial crises, be it due to unforeseen market developments, a lack of financing options or operational challenges. As an advisor to rather smaller start-ups, I would like to emphasize once again in this blog post that the StaRUG should not be lost sight of. It offers valuable tools that can be a lifesaver, especially for young and dynamic companies. Start-ups and small companies often do not have the same resources and financial buffers as larger, established companies. It is therefore all the more important to react early to signs of impending insolvency and to take the measures provided for in the StaRUG. A well-thought-out restructuring plan can make the difference between a successful restructuring and insolvency. It should be particularly emphasized that the StaRUG allows companies to act without the direct involvement of a court. This can be a great advantage for start-ups and small businesses, which often rely on quick and flexible solutions. The possibility of involving creditors in the restructuring process and obtaining their consent to the restructuring measures also creates trust and can facilitate negotiations. In addition, the StaRUG offers protection against enforcement measures and realization actions, which gives the affected companies the necessary time and peace of mind to implement the planned measures. This is particularly important for smaller companies, which are often under high operational pressure and do not have the same scope for negotiation as larger companies. Overall, it is clear that the StaRUG can be an indispensable tool for start-ups and small companies in particular to overcome financial crises and ensure the continuation of business operations. As a consultant in this area, it is my concern to draw attention to these important regulations and to help young companies make the most of the opportunities and possibilities offered by the StaRUG.
What does the StaRUG mean for managing directors?
For managing directors, the StaRUG brings with it new, often still unknown obligations.
For example, they must set up a system for early crisis detection and crisis management.
If they recognize signs of a crisis, they are obliged to take countermeasures.
They must report on the measures taken to the supervisory bodies such as the supervisory board.
Violations may result in liability risks.
To avoid this, managing directors should obtain a shareholder resolution before initiating StaRUG proceedings.
In addition, Section 1 para.
1 StaRUG prescribes continuous monitoring of the relevant developments in the company.
This monitoring obligation is not merely a formal requirement, but requires the establishment of an effective organizational system that is tailored to the specific needs and risks of the company.
The size, sector and structure of the company play a decisive role here, as smaller companies often require less complex systems than large corporations.
Another important aspect is the documentation requirement.
Managing directors must not only document the risks identified and the countermeasures taken, but also ensure that this information is passed on to the supervisory bodies promptly and comprehensively.
This not only ensures transparency, but also the traceability of decisions made in the event of a crisis.
Incomplete documentation can lead to considerable liability risks in an emergency, as the management must prove that it has properly fulfilled its monitoring obligations.
In addition to early crisis detection and crisis management, managing directors must also protect the interests of creditors.
This means that in the event of imminent insolvency, the interests of the creditors take precedence over those of the shareholders.
This so-called “shift of fiduciary duties” can lead to an area of tension in which managing directors must carefully weigh up which measures are in the best interests of the company and its creditors.
A breach of this duty can lead to substantial claims for damages.
In conclusion, it should be emphasized that the requirements of the StaRUG are not merely theoretical in nature, but have a significant impact on management in practice.
Managing directors should therefore inform themselves comprehensively about the new obligations at an early stage and, if necessary, seek external advice in order to comply with the legal requirements and minimize liability risks.
A proactive approach to crisis management can not only ensure the survival of the company, but also strengthen the trust of creditors and business partners.
Conclusion
Even if the StaRUG offers opportunities for start-ups and small companies in particular to avoid insolvency, it does entail considerable new obligations for those responsible.
Managing directors should familiarize themselves with the requirements at an early stage and act quickly in the event of a crisis.
This is the only way to make optimum use of the opportunities offered by the StaRUG and avoid liability risks.
Early advice from experienced experts can be very helpful in finding the right way through the crisis.
In many cases, the involvement of an insolvency lawyer or tax advisor can be decisive for the success of a restructuring.
These specialists have the necessary expertise to correctly interpret and apply the complex legal and tax aspects of the StaRUG.
For example, an insolvency lawyer can assist in drawing up a viable restructuring plan and ensure that all legal requirements are met.
A tax advisor, on the other hand, can provide valuable insights into the tax consequences of various restructuring measures and thus help to optimize the financial impact of crisis management.
It should also be noted that the StaRUG should not be viewed in isolation, but in the context of the entire corporate law and the economic situation of the company.
A holistic approach that takes into account both legal and business aspects is crucial for the success of a restructuring.
This is where the collaboration of various experts, including lawyers, tax advisors and business consultants, can offer significant added value.
It is also important to emphasize that the use of the StaRUG should not be seen as a sign of weakness, but as a proactive step towards securing the company.
Companies that use the instruments of the StaRUG at an early stage demonstrate a sense of responsibility towards their stakeholders and future-oriented corporate management.
This can strengthen the trust of business partners, investors and employees in the long term.
In conclusion, it can be said that although the StaRUG presents new challenges, it also offers a valuable opportunity for corporate restructuring.
The key to success lies in the early recognition of crisis situations, the proactive use of available instruments and the involvement of experts.
For start-ups and small companies in particular, which often work with limited resources, the StaRUG can be a crucial tool for overcoming crises and emerging from them stronger.
It is now up to company managers to recognize these opportunities and make bold use of them when necessary.
