The introduction of a preventive restructuring framework for companies in financial difficulties has been under discussion in the EU for quite some time (EU Commission draft directive COM/2016/0723 final - 2016/0359 COD).
This is intended to create a non-insolvency or pre-insolvency reorganisation procedure that is to be available before the company concerned fulfils the requirements for opening insolvency proceedings under national insolvency law (the so-called distance rule). In principle, the company concerned should retain control over its assets and daily operations. The appointment of a restructuring administrator should not be obligatory in every case, but should only be made if the particular circumstances of the individual case so require.
The draft directive also does not provide for mandatory judicial involvement in every case, but a certain degree of supervision should be guaranteed if this appears necessary, e.g. in particular if the competent judicial or administrative authority suspends enforcement measures by individual creditors at the debtor’s request (a so-called moratorium) or confirms a restructuring plan although it has been rejected by one or more affected creditor classes (a so-called cram-down or cross-class cram-down).
In addition to the possible moratorium for a period of up to twelve months, the central instrument of the preventive restructuring framework is the so-called restructuring plan. On the basis of such a plan, the company concerned should be able to change the composition, conditions or structure of its assets and liabilities or any other part of its capital structure (e.g. through a debt-to-equity swap, through the transformation of debts into other forms of liabilities, through debt relief, or even through new financing), restore its profitability and avoid insolvency.
Among other things, the crisis stage at which access to a preventive restructuring framework is to be opened up is discussed critically (problem of the distinction between “financial difficulties” and the obligatory reason for making an insolvency application under section 17 of the Insolvency Statute (InsO) and the voluntary reason for making an insolvency application for impending inability to meet mature obligations under section 18 of the Insolvency Statute (InsO)). In this respect, it is proposed, for example, that the company must demonstrate sufficient operational liquidity for the next 6 months when applying for a measure, in which case a positive continuation forecast should also be assumed.
It is also being discussed whether there should be a restriction of the preventive restructuring framework to financial creditors. The draft directive currently under discussion provides for a financial restructuring of the liabilities side of the balance sheet, including the capital structure of equity. The restructuring measures that are regularly and reasonably to be implemented as part of restructuring are not an element of the planned procedure, but could of course be implemented outside it.
According to the draft directive, approval of the restructuring plan requires the consent of the parties concerned, who can be classified in the restructuring plan according to their different rights (not according to economic interests). According to the draft directive, the restructuring plan is deemed to have been adopted if a sum total majority in each class agree, leaving it to the Member States to set higher approval rates of between 50.1 % and 75 % for the adoption of the plan. The draft directive does not provide for an additional head majority. The restructuring plan can also be confirmed if the required majorities in one or more negative voting classes are not achieved, if the conditions for a cross-class cram-down according to article 11 of the draft directive are fulfilled.
It should be possible for creditors to take action against the plan if it violates the unfairness prohibition. In this case, a judicial or administrative authority shall determine the liquidation value as the comparative value.
LEONHARDT RATTUNDE’s extensive knowledge and experience in drawing up insolvency plans enables us to provide our clients with comprehensive support in restructuring plans. Thanks to our team of employees brimming with legal and economic expertise, we stand by our clients and jointly develop solutions to restructure the company outside of court proceedings and restore it to competitiveness.