In an interview, Prof. Dr. Henning Werner answers the most topical questions that entrepreneurs and managing directors of crisis-ridden companies ask themselves.
The expert in the field of restructuring, Prof. Dr. Henning Werner, head of the IfUS Institute, answers numerous questions on the topic of corporate restructuring in a detailed interview with the IfUS certified restructuring expert and partner of F&P AG, Wilhelm Dahm.
The aim of the StaRUG is to provide the entrepreneur with a tool to reorganise himself with court support well before the occurrence of the insolvency facts and outside the insolvency regulations. For this purpose, he must prepare a liquidity calculation over 24 months in order to recognise the threat of insolvency at an early stage. In practice, 24-month liquidity planning is hardly possible in a reliable manner.
Prof. Dr Werner, in your view, what measures would the managing director have to take to prevent possible liability?
Prof. Dr. H. Werner
The Act on the Stabilisation and Restructuring Framework for Companies (StaRUG), which came into force on 01 January 2021, created an entirely new restructuring instrument. In short, the StaRUG can be used whenever 75% of an affected creditor group agrees to a composition, but individual minority creditors block this composition. In such cases, minority creditors can be included in the settlement even against their will. In this way, the StaRUG can enable a restructuring that was not possible by consensus out of court.
Further advantages of the procedure are that the decision-making powers remain with the management and the procedure can be carried out quietly, i.e. there is no publicity obligation.
The stabilisation and restructuring framework can only be used in the phase in which there is an imminent insolvency (section 18 InsO), but not yet an actual insolvency (section 17 InsO) or over-indebtedness (section 19 InsO).
In order to check whether there is an imminent insolvency, a liquidity plan for the next 24 months must be drawn up. This is provided for by law. In this respect, there is no alternative to implementing a plan for 24 months, especially if the economic situation is tense. Moreover, managing directors and executive boards are legally obliged to implement suitable systems for early crisis detection and crisis prevention (§ 1 StaRUG).
In addition to the question of the reliability of such planning, the question also arises here as to how the managing director can justify the initiation of a restructuring measure via the StaRUG to the shareholders in the case of such a long planning period, so as not to be branded as a “doomsayer” or even be accused of business-damaging behaviour?
If a managing director can explain to his shareholder on the basis of a comprehensible plan that the introduction of restructuring measures is necessary, the shareholder should be grateful rather than dismissing his managing director as a “doomsayer”. I think in such a situation the level of trust and communication is not right. This is, by the way, a typical characteristic of a stakeholder crisis. From my point of view, it is important to communicate clearly on the basis of valid planning, to point out the problems as well as the corresponding proposals for solutions and to document this. There are no alternatives to this.
What is your impression of the volume of “silent insolvencies”, i.e. the part apart from the corporations?
If by the term “silent insolvencies” you mean private or consumer insolvency proceedings, then the development in this area has been continuously declining since 2010 with over 100,000 private insolvencies until 2020 with approx. 45,000 private insolvencies. In the first half of 2021, however, the number of private insolvencies increased significantly compared to the same period of the previous year. This is certainly partly due to the Corona crisis, as many employees on short-time work received less money and were thus no longer able to meet their credit obligations.
The courts have now also appointed the insolvency administrators as restructuring agents. This was to be expected. However, there are voices, including those of established insolvency administrators, who view this critically, if not counterproductively. Unlike insolvency administrators, restructuring managers have to qualify in order to be accepted by the courts as restructuring representatives.
What are your recommendations regarding the background experience and qualification a manager should have in order to be accepted into this circle?
The restructuring officer must gain the trust of the creditors as well as the debtor. To do so, he must have a high level of professional competence and excellent communication skills and, of course, be independent. These skills are more person-specific than profession-specific. I am convinced that there are restructuring advisors and also insolvency administrators who fulfil the criteria in an outstanding manner. Experienced restructuring advisors and crisis-experienced interim managers who have the relevant expertise should therefore also be appointed as restructuring officers. In any case, a restructuring officer must have knowledge and experience in the following areas: Legal framework (StaRUG, insolvency law), stakeholder management / negotiations with creditors, restructuring concepts, financial restructuring, integrated planning, criminal and liability aspects in a crisis, etc. We teach this content as part of our training courses at the IfUS Institute at the SRH University of Applied Sciences Heidelberg.
Insolvency proceedings are associated with high costs that have to be paid from the insolvency estate. Often it fails because of the remaining mass, so that especially smaller companies fail at this hurdle
Do you see other possibilities to help such companies outside the legal procedures and what would be the requirements here?
Restructuring is a complex task that can usually only be successfully managed if external specialists are involved, regardless of whether we are talking about out-of-court restructuring, restructuring under the StaRUG or restructuring through insolvency proceedings. All these reorganisation options require specialised knowledge, which is usually not available at the management level, and these specialists naturally cost money. It should not be forgotten that a not inconsiderable amount of time and effort is required to first create transparency about the figures in the company, which is actually an original task of the management.
If the restructuring succeeds, this usually leads to the shareholders’ shares increasing in value again after the crisis-related reduction in value (restructuring added value). If the added value of the restructuring exceeds the costs of the restructuring, the effort is worthwhile.
We have now discussed the technical details of the restructuring laws. Thank you very much for your explanations. They are informative and certainly interesting for the readers of this interview. Now we are interested in looking into the future.
How do you see the market developing in the restructuring environment in 2021/22 and what are the consequences of this development for restructuring advice?
The expected increase in restructuring cases due to the Corona crisis has not materialised so far. This is due to the extensive government support measures (liquidity assistance, KfW loans, short-time work, etc.) as well as the temporary suspension of the insolvency filing obligations.
Now the federal election is around the corner and afterwards the new government will have to sort itself out first. I expect that we will see an increase in restructuring cases in 2022. Many companies will get into difficulties due to the expiry of the repayment holidays and may no longer be able to meet their payment obligations. Therefore, I expect an increase in restructuring cases in the next few years.
F&P Executive Solutions AG has already concluded a cooperation agreement with the IFUS Institute in April 2020, as both sides expect added value from this.
Please briefly explain what prompted you to enter into this cooperation with one of the best-known interim management firms in Germany?
F&P has a network of experienced interim managers who support companies in restructuring and reorganisation situations, among other things. At the IfUS Institute for Corporate Restructuring at the SRH University of Applied Sciences in Heidelberg, we offer training courses in the field of restructuring and reorganisation for interim managers, restructuring consultants and financiers. These offers are used by F&P to always be up to date. In addition, we at the IfUS Institute value the regular professional exchange with our cooperation partners on current issues from practice.
The upcoming 11th Redevelopment Congress is the absolute highlight, not only because 250 market players can finally meet again live on site in beautiful Heidelberg at the SRH, but the event is also virtual and thus hybrid. The community on LinkedIn has paid a lot of attention to the F&P AG technical paper you announced on LinkedIn, “The role of the interim CRO in the restructuring process”.
What do you see as the specific advantage of using neutral and specialised interim managers to avoid insolvencies and, in a worst-case scenario, as an important player in the field of tension between numerous stakeholders in the restructuring process when insolvencies are imminent or have already occurred?
In the course of the crisis, trust between stakeholders and management has often suffered. In such situations, the use of an interim manager with crisis experience can be an important confidence-building measure. Furthermore, the management usually does not have the specific expertise needed to deal with a crisis situation. And finally, the use of an interim manager with crisis experience can prevent the management from becoming personally liable by pointing out corresponding dangers at an early stage.
Prof. Dr. Werner, thank you very much for the interview and we look forward to the upcoming annual event.