Restructuring, going it alone remains an illusion

Specialist articles by Alexander Eichner, MittelstandsWiki, 02.05.2014

Since the law came into force on 1 March 2012, further facilitating business restructuring (ESUG), companies have the possibility to restructure their failing businesses under self-administration. The legislature established this initiative in the insolvency regulation to give the debtor the chance to implement the necessary recovery measures himself, without having to surrender any of his operational tasks and powers.

These so-called insolvency protection proceedings have several advantages:

  • The owner of the company keeps control of business operations. 
  • The insolvency administrator retains the role of trustee without the right to intervene.
  • The company owner can propose the trustee himself.
  • Insolvency proceedings receive less publicity.
  • Creditors, who refuse to approve restructuring measures, can be outvoted on the basis of a majority decision.
  • Contracts can be terminated at short notice.
  • The company is released from almost all its unsecured debts.
  • The costs of the restructuring proceedings are covered by the creditors in the form of a smaller distribution quota.


Self-administration requires support

The term self-administration suggests, however, that the company owner can in fact handle the whole procedure. But that is far from the truth. If the company owner and/or the senior management do not have specialist experience in the area of restructuring/turnaround the complex proceedings can very rapidly get out of hand.

Too many things must be taken into account, too many important decisions must be taken within a short time. To mention but a few: a debt restructuring concept must be developed and an insolvency plan established; the insolvency pay pre-financing must be secured, the invoicing in accordance with insolvency law, on-going liquidity must be secured for the entire duration of the insolvency process and existing supply co-operations but be maintained under the insolvency conditions. And all that in addition to the continuation of business operations.

In brief: security with a restructuring expert

The existing staff can barely manage a restructuring process of this kind. Hence to strengthen the experienced insolvency and restructuring management by an expert chief restructuring manager (CRO) is therefore almost indispensable.

After all, the insolvency protection procedure is not a free ride. Prior to it, the courts, of course, examine the prospects of such restructuring, assessing the experience or achievements of those actively involved. It is also evaluated whether the parties involved can be trusted to deal proactively with the change in procedure on the discontinuation, sooner or later, of the positive restructuring measures. Ultimately the ESUG does not affect the principle that the procedure serves primarily to compensate the creditors’ interests.

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This article was published on 01.07.2014 in entitled: Herkules edition Restructuring/ Company restructuring on your own remains an illusion.

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