Germany Introduces Restructuring Procedure Outside Insolvency

February 03, 2021

The German Act on the Further Development of the Restructuring and Insolvency Law (Sanierungs- und Insolvenzrechtsfortentwicklungsgesetz – SanInsFoG) took effect on January 1, 2021, transforming the European Restructuring Directive of June 20, 2019 ((EU) 2019/1023) and introducing a self-administrated restructuring option outside the standard insolvency proceeding.

The Pre-Insolvency Restructuring Plan

The core element of the SanInsFoG is the option of a self-administrated pre-insolvency restructuring by way of a restructuring plan with the support of its creditors. In principle, the restructuring procedure allows the restructuring of a person’s (in most cases a company’s) debt. It includes not only financial debt but all kinds of debt except liabilities towards employees, claims based on deliberately committed unlawful acts as well as administrative fines or monetary penalties. Through the restructuring procedure it is also possible to amend or refine contracts to which the debtor is a party to create more favorable conditions for the debtor after the restructuring. However, the new restructuring procedure does not enable the early termination of contracts by court order as it was originally provided for in drafts of the SanInsFoG.

This pre-insolvency restructuring procedure is only available for debtors in an early stage of economic crisis. The procedure is available for debtors in a situation of impending insolvency. For the determination of this status the law defines a forecast period of 24 months.

The procedure is similar to a restructuring procedure under the Insolvency Code. The debtor may submit a restructuring plan to its creditors, which provides the proposed restructuring measures as well as restructuring contributions of the affected creditors. Similar to an insolvency proceeding, creditors will be allocated to certain creditor groups, each of which will vote separately on the plan. A majority of the creditor groups defined in the restructuring plan with 75% of the claims in each creditor group is sufficient for the adoption of the plan. If the required majority is not achieved in one creditor group, its approval may be replaced if (i) creditors in this group will not suffer any losses under the plan that would not occur without the plan; (ii) the members of this group are participating appropriately in the value of the plan; and (iii) the majority of the creditor groups has approved the plan (if only two creditor groups were formed, the consent of the other group is sufficient); provided, however, that not only subordinated creditors and shareholders have approved the plan.

Except for shareholder financings, new financings, secured and unsecured, which are granted after the opening of the restructuring proceedings will be exempted from voidability. However, such financings will generally not have priority over other claims if the restructuring fails and normal insolvency proceedings are opened at a later stage unless such priority is provided for in the restructuring plan.

In order for a debtor to be able to prepare and negotiate the restructuring plan, the SanInsFoG offers the possibility of imposing a so-called “stabilization order” which is a moratorium by which rights of segregation and separation as well as enforcement measures of individual creditors are suspended. The stabilizing order shall be initially limited to a maximum period of up to three months, which can be extended under certain circumstances to a maximum of eight months.

In certain cases (e.g., if a stabilization order is applied for), a restructuring officer shall be appointed who will generally be responsible for monitoring the proceedings and coordinating between the parties. The debtor and creditors have certain rights of influence regarding the person and the appointment of the restructuring officer. The court shall accept the proposal of the debtor if there are no substantive reasons because of which the restructuring will fail.

Further Reforms by the SanInsFoG

The SanInsFoG further amended the Law to Mitigate the Consequences of the COVID-19 Pandemic in Civil, Insolvency and Criminal Procedure Law. In particular, the obligation to file for insolvency is further suspended until 31 January 2021 for debtors that applied for state aid to mitigate the consequences of the COVID-19 pandemic between 1 November 2020 and 31 December 2020 (or were prevented from applying for legal or technical reasons), provided that such application is not obviously lacking the prospect of success, or is not sufficient to overcome insolvency. In addition, companies affected by the COVID-19 pandemic will have easier access to protective shield proceedings.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Torsten Schwarze
Karsten Emmermann