Part 1 The Legal Basis of the New Legislation
By Wilhelm Dahm / Equity Partner In 2019, the European Parliament had adopted the Preventive Restructuring Directive and entrusted the Member States with the task of transposing it into national law. In doing so, the Parliament was guided by the idea of creating a legal basis for the early restructuring of companies and giving companies the opportunity to reorganise themselves before they fall under the “sword of Damocles” of insolvency and are thus stigmatised. Because these are precisely the fears that entrepreneurs have. When a company is in trouble, the reality is often ignored and appropriate measures for recovery are not taken. The reasons for this are often an inner refusal to deal with restructuring or a certain operational blindness, because the business has been running well for 50 years. It is often ignored that the markets have also changed or that product innovations make one’s own product uninteresting. The consequence is a further drift of the company towards insolvency. This is exactly what the new directive aims to prevent and therefore offers the company a legal framework that defines the legal possibilities to make use of preventive restructuring. The Länder must now transpose this directive into law by 2021. In addition to the currently active discussions about who has the final decision-making power during preventive rehabilitation (it should primarily be the entrepreneur and an expert appointed by the court), the question of the qualification of this expert also arises. The community of insolvency administrators has already positioned itself. These place the emphasis on the legal process, which is not wrong in principle. However, it must be considered that the insolvency administrators, due to their activity, tend to concentrate on the satisfaction of creditors (because that is what they can do and for which they are trained), rather than focusing on the continued existence and sustainable restructuring of the company, as the interim managers see it as their task. A further indication of possible misguided management during preventive restructuring can also be seen in the insolvency law remuneration regulations(https://www.gesetze-im-internet.de/insvv/BJNR220500998.html), according to which the insolvency administrator is remunerated according to the insolvency estate. In other words, the higher the insolvency estate, the higher the remuneration, and the earlier the insolvency is initiated, the better for the insolvency administrator. It must therefore be permissible to ask whether the incentive of remuneration for preventive restructuring sets the desired direction for this procedure here or needs to be fundamentally revised for this case. In this phase, it is important to ensure the continued existence of the company and not to focus on satisfying creditors. Nevertheless, it cannot be ruled out that even with the adaptation of this regulation, insolvency will be worked towards, as further income potential can be exploited in this way. It must therefore be permissible to ask whether, in preventive restructuring, the process is not supervised by experts whose aim is to restructure the companies so that a sustainable continuation is generated with job security and good returns. In the long run, this is the economically more sensible solution than insolvency. The legislator should and must take this consideration into account when defining the legal regulations so as not to rule out the failure of this admittedly positive measure from the outset.