Preventive Remediation – The Adjustments in the StaRUG

Expert: Dipl.-Ing. / MBA Wilhelm Dahm

In 2019, the European Parliament had adopted the Preventive Renovation Directive and given the member states the task of transposing it into national law. The directive was implemented in 2020 and has been in force since 01.01.2021. However, the law deviates from the original draft through three significant changes:

§ 2 of the draft (“Possibility of using the preventive restructuring framework in the event of imminent insolvency”) was deleted from the Act.

Apparently, the responsible managing director has been deprived of the possibility to make use of the StaRUG in case of “imminent insolvency” even against the will of the shareholders. The opinion is that §1 of the StaRUG obliges the members of the management to constantly monitor the developments of the company through adequate systems, and that a “business as usual” is therefore ruled out and measures must be taken to exculpate oneself in the case of imminent insolvency. Reference is made here to § 15a of the Insolvency Code. However, this only applies to the case of filing for insolvency. I do not see the case illustrated here where a forward-looking managing director wants to seek the framework because of a possible insolvency in the future, but this is forbidden by the shareholders. The managing director may be liable to prosecution for damaging the business if he violates this instruction without a basis.

§ 3 of the draft StaRUG (Liability“) was not implemented.

With this amendment, the intention was not to further burden the liability-critical situation of the managing director in a company in crisis. It is already described in §1 of the StaRUG what the duties of the managing director and the shareholders are. Furthermore, they are obliged to orient their actions towards the interests of the creditors, which made a further tightening unnecessary.

Section 4 (Termination of contract“) was also not transposed.

The termination of contracts was a means to provide the company with financial liquidity by terminating disadvantageous contracts (e.g. long-term leases) at an early stage. On the other hand, the “contractual security” stands in the way of this. This limits the possibilities of the StaRUG to avoid uncertainties in contracting.

The bottom line

The StaRUG is a law that was pushed through the legislature in a very short time. It is therefore also clear that there will be vagueness that will have to be adjusted over time. Preventive restructuring” is supposed to start well before insolvency occurs, so that there is enough time to reach an agreement with the creditors without the public being informed or the courts being involved. In my opinion, this does not solve the core problem of taking the appropriate measures early. The removal of § 2 has further diluted this.

Dipl.-Ing. / MBA Wilhelm Dahm

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