Options for Corporate Restructuring
The number of corporate insolvencies in Germany rose sharply in 2024. Experts predict that the situation will not ease in 2025, with insolvency filings remaining at high levels.
According to media reports, the credit rating agency Creditreform anticipates that around 22,400 companies in Germany will have filed for insolvency by the end of 2024. This would represent the highest figure since 2015. The causes of these economic difficulties are diverse. As a business law firm, MTR Legal Rechtsanwälte advises in corporate and insolvency law and highlights ways to restructure a struggling company. The primary objective is to avoid insolvency.
Diverse Reasons for the Rise in Insolvencies
The sharp rise in corporate insolvencies in 2024, a trend likely to continue into 2025, is due to several factors. On the one hand, the lingering effects of the COVID-19 pandemic are still evident. Some companies that were already economically strained during the pandemic managed to survive only through state aid. Moreover, the obligation to file for insolvency had been temporarily relaxed. Now that these measures have ended, many companies have failed to achieve financial stability and had to file for insolvency.
Additionally, challenging conditions such as high energy prices, rising interest rates, and a weakening economy exacerbated the crises faced by many businesses. As a result, there were significantly more corporate insolvencies in 2024 than in the previous year. In 2023, approximately 17,800 companies filed for insolvency, according to the Federal Statistical Office.
Options for Restructuring
There is little hope for a swift improvement in external conditions. Persistent crises and potential trade conflicts weigh heavily on sentiment.
Economically struggling companies must now take the right steps to achieve restructuring. The legislature has provided several options for corporate restructuring.
StaRUG – Corporate Stabilization and Restructuring Act
The StaRUG provides a mechanism for restructuring a company without formal insolvency proceedings. However, this option is available only if insolvency is imminent but has not yet occurred. Under StaRUG, the company must submit a restructuring plan. The unique feature is that not all creditors must agree to the plan—only those affected by the proposed measures need to consent.
Protective Shield Proceedings
If the company is severely economically distressed but not yet required to file for insolvency, restructuring can be attempted under protective shield proceedings. This approach is possible only in cases where restructuring still seems viable. The company must provide appropriate certification to pursue this option. If approved, the company, along with a trustee, must submit a viable insolvency plan within three months. During this period, the company is protected from creditors’ claims.
Insolvency in Self-Administration
In self-administered insolvency proceedings, the company’s management is supported by a trustee. Together, they aim to stabilize the company financially. This requires drafting an insolvency plan approved by all creditors. A key advantage of self-administered insolvency is that the management continues to represent the company externally. This helps maintain established business relationships and client trust.
Corporate Insolvency
If insolvency is unavoidable, the competent insolvency court initiates proceedings, and an insolvency administrator takes over the company’s operations. Creditors can register their claims with the administrator.
Filing for Insolvency
If insolvency is inevitable, and an insolvency trigger exists, the company’s management must file for insolvency without delay. Insolvency triggers include insolvency (inability to pay debts) or over-indebtedness. “Without delay” means the application must be filed no later than three weeks after the onset of insolvency or six weeks after over-indebtedness is identified. Although imminent insolvency is also considered a trigger, it does not yet mandate filing for insolvency.
Failure to file for insolvency promptly constitutes a criminal offense of delaying insolvency. Consequences include substantial fines or even imprisonment of up to three years.
MTR Legal Rechtsanwälte has extensive experience in insolvency law and advises companies on restructuring and insolvency proceedings.
Feel free to contact us!
