Concept and fundamentals of restructuring
The concept Restructuring (German: “Restrukturierung”) refers in legal science to all measures for the fundamental reorganization of the legal, economic, and organizational structures of a company, corporate group, or conglomerate. The primary objective of restructuring is the sustainable improvement of the economic situation and ensuring the company’s ability to continue operations—particularly in times of crisis. The key areas of restructuring include financial, operational, and corporate law measures, which are often interconnected and subject to complex legal frameworks.
Legal framework for restructuring
Corporate law aspects
At the center of many restructuring processes are corporate law measures. These include in particular:
Transformation and merger
A restructuring may be implemented through corporate restructuring measures such as mergers, demergers, change of legal form, or transfer of assets. In this context, in particular the Transformation Act (UmwG) as well as relevant provisions of the German Commercial Code (HGB) and the German Civil Code (BGB) apply. Such measures serve to adapt company structures, for example to consolidate subsidiaries or to separate loss-making business units.
Capital measures
Capital reductions or capital increases, including the injection of new funds by shareholders or external investors, are typical instruments within the framework of restructuring. In terms of company law, the formal requirements for resolutions, capital measures, and entries in the commercial register must be observed.
Amendment of the company’s articles of association
Amendments to the articles of association, especially with regard to management structures, rules of representation, or the distribution of voting rights among shareholders, may become necessary. This applies to limited liability companies (GmbH), stock corporations (AG), as well as partnerships, and—depending on the measure—requires qualified majorities and notarial certification.
Insolvency law issues
Restructuring comes into sharp focus when a financial crisis is imminent or has already occurred. The relevant provisions are found in particular in the Insolvency Code (InsO).
Pre-insolvency restructuring
The Act on the Framework for the Stabilization and Restructuring of Companies (StaRUG) , in force since early 2021, enables companies to undertake preventive—i.e., pre-insolvency—restructuring. The StaRUG opens up the possibility of regulating liabilities, taking creditor interests into account, and averting insolvency through restructuring plans outside formal insolvency proceedings. Measures may include debt haircuts, deferments, or subordination of claims.
Restructuring close to insolvency and under insolvency law
Within insolvency proceedings themselves, the insolvency plan (Sections 217 ff. InsO) and debtor-in-possession management (Sections 270 ff. InsO) form the central legal instruments for restructuring. The objective of these proceedings is to enable comprehensive reorganization, contingent upon creditor approval and court confirmation, under judicial supervision. Under debtor-in-possession management, the management remains authorized to act, which can facilitate both the continuation and restructuring of the business.
Employment law implications
Restructuring measures often have a significant impact on existing employment relationships and collective labor rights.
Operational changes and social compensation plan
A key legal requirement is the Works Constitution Act (BetrVG). Restructuring that constitutes operational changes within the meaning of section 111 BetrVG—such as plant closures, relocations, or major changes to company organization—triggers extensive co-determination and participation rights for the works council. As a rule, negotiations for a reconciliation of interests and social compensation plan must be conducted to mitigate the economic disadvantages suffered by the affected employees.
Protection against dismissal and mass layoffs
If restructuring results in dismissals for operational reasons, the requirements of the Protection Against Unfair Dismissal Act (KSchG) and the EU Directive on collective redundancies must be observed. Corresponding notification obligations to the Federal Employment Agency and strict adherence to minimum notice periods are mandatory.
Tax implications
Every restructuring must be carefully examined for its tax implications. Relevant issues include, among others:
- The tax treatment of restructuring measures under the Restructuring Tax Act (UmwStG)
- The reporting of restructuring gains pursuant to section 3a EStG
- Potential VAT consequences regarding transfers of assets
- Impact on loss carryforwards as set out in section 8c KStG and section 10a GewStG
A tax-neutral restructuring requires careful consideration of complex regulations and, if necessary, applications for binding rulings from the fiscal authorities.
Additional legal framework conditions
Loan agreements and financing documentation
Restructurings often lead to changes in existing financing agreements. Clauses on so-called “covenants,” change-of-control provisions, or early termination rights may require relevant adjustments. Amendments or renegotiations with creditors must be legally secured.
Antitrust and competition law
Especially in group restructurings or due to mergers and concentrations, competition law must be observed. Filing requirements with the German Federal Cartel Office or European competition authorities (Sections 35 ff. GWB, Art. 4 ff. ECMR) may delay restructuring measures or prevent their implementation.
Public law permits
It must also be examined whether public law permits, licenses, or concessions need to be reapplied for by restructured entities, for example in regulated industries such as the financial or energy sector.
Course of a legally secure restructuring process
Analysis and planning
The process regularly begins with an analysis of the economic, tax, and legal initial situation. Building upon this, a comprehensive restructuring strategy is developed, which takes into account both the goals of the company owners and the interests of affected stakeholders.
Implementation of measures
The operational implementation of the restructuring requires compliance with all formal and material legal requirements. Depending on the chosen strategy, the focus may be on implementing corporate changes, negotiating with creditors, concluding restructuring agreements, and, if necessary, court supervision within the framework of StaRUG or insolvency proceedings.
Documentation and control processes
Comprehensive documentation of all steps, resolutions, and contracts is essential. Furthermore, ongoing monitoring of measures, including compliance with deadlines, notification, and reporting obligations, must be ensured.
Risks and legal protection
Restructuring measures involve numerous legal risks. Challenges by creditors or shareholders, liability risks for management bodies (in particular for late filing of insolvency applications, section 15a InsO), as well as tax risks must be considered. In addition, works councils and employees may seek legal protection through labor court proceedings.
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Summary
The concept Restructuring encompasses a multifaceted range of legal, economic, and organizational measures for the reorganization and realignment of companies. The legal requirements arise from various laws, such as corporate law, insolvency law, labor law, tax law, and other specific legal fields. Successful and legally secure restructuring requires careful planning, interdisciplinary coordination, and observance of all legal framework conditions so that the reorganization is sustainably carried out in alignment with the interests of all parties involved.
Frequently asked questions
What legal requirements must be met to initiate a restructuring process?
To initiate a restructuring procedure under German law—whether under the preventive restructuring framework pursuant to StaRUG (Act on the Stabilization and Restructuring of Companies) or within the context of the Insolvency Code (InsO)—specific legal requirements must be met. First, the company must be facing imminent insolvency (section 18 InsO); actual insolvency or over-indebtedness excludes the possibility of a StaRUG procedure and typically triggers the obligation to file for insolvency (section 15a InsO). Furthermore, the debtor must act on their own initiative and actively: a restructuring application may only be filed by the debtor. Commencement of the procedure also requires a coherent restructuring plan, timely and comprehensive information to all affected creditor groups, and the absence of obvious abuse of the law. Approval by a qualified majority of creditor groups (at least 75%) is generally required. Moreover, all publication, notification, and reporting obligations to the restructuring court and, where applicable, the public must be fulfilled.
To what extent are employment relationships protected or affected by a restructuring procedure?
Employment relationships generally remain valid during a restructuring procedure and are subject to the general protection against dismissal under the Protection Against Unfair Dismissal Act (KSchG). However, the restructuring process allows for labor law adjustments in the event of business restructuring, such as transfers of business under section 613a BGB or social compensation negotiations with the works council. Under the StaRUG procedure, unilateral amendments or terminations of employment contracts via the restructuring plan are not possible—labor law instruments such as amendment dismissals must still be used. In insolvency proceedings, on the other hand, shorter notice periods apply (section 113 InsO), and liabilities arising from ongoing employment relationships must be fulfilled. Salary arrears accrued before the proceedings only grant insolvency quota status, while claims for insolvency benefit are covered by the Federal Employment Agency.
What is the legal position of creditors in restructuring proceedings?
Creditors play a central role in restructuring proceedings. Each group of claims must be classified according to legal criteria; different creditor groups receive different participation rights (section 9 StaRUG). Creditors are informed of proposed measures, may submit their own proposals or objections, and are involved in the voting process for the restructuring plan. Approval of the plan requires a qualified majority within each group, with minority protection mechanisms in place if individual groups oppose the plan. Creditors also have judicial remedies, for example, to review equal treatment or contest plan confirmation if formal or substantive errors exist. Under the StaRUG, individual enforcement of claims is restricted during the course of the proceedings in order to promote a collectively organized solution.
What happens to existing contracts and continuing obligations during a restructuring procedure?
Existing contracts and continuing obligations constitute a central area in the restructuring process. Under StaRUG, the debtor may—under certain conditions—demand that essential contracts be amended or—subject to the consent of the respective parties or by court order—terminated. In StaRUG proceedings, however, there is no right to unilateral termination except where contractually agreed. In insolvency proceedings, section 103 InsO provides for the so-called ‘right to choose fulfillment’: the insolvency administrator may decide whether a contract is to be fulfilled or discontinued. For continuing obligations, special, often shortened notice periods apply (section 109 InsO). Agreements granting special termination rights in the event of restructuring or insolvency are often invalid (‘ipso facto clauses,’ section 119 InsO).
What is the role of the restructuring court and how is its supervision of the proceedings carried out?
The restructuring court is a commercial law-specialized chamber of the local court and assumes a central supervisory and controlling role in the restructuring process. It reviews the admissibility and formal regularity of restructuring applications, appoints restructuring officers if necessary (section 73 StaRUG), and monitors compliance with the legal requirements for the plan procedure, including creditor information, documentation, and voting. If necessary, the court decides on protective measures such as a stay of enforcement (section 49 StaRUG) or confirmation of the restructuring plan. It also handles complaints and appeals and makes binding decisions regarding legal disputes in the context of the proceedings. Through these supervisory and decision-making powers, the process is ensured to be legally correct, orderly, and transparent for all parties involved.
What liability risks do managers face during and after restructuring?
Managers face substantial liability risks during and after restructuring. There is a particular obligation to report the onset of insolvency grounds immediately—usually within three weeks (section 15a InsO). Breaching these notification duties can lead to both civil and criminal consequences, including personal liability for damages and criminal sanctions (default, delaying insolvency filing). Managers are also liable for breaches of the duty of care under section 43 GmbHG or section 93 AktG; this is particularly relevant for payments made after the company has become insolvent (section 64 GmbHG old version, now section 15b InsO). Even under restructuring procedures pursuant to StaRUG, managers have extensive duties of information, cooperation, and documentation, and violations can lead to liability claims if creditors incur losses due to culpable conduct or if shareholder interests are unduly favored.
What special legal considerations apply to intra-group restructurings?
Special legal requirements apply to the restructuring of corporate groups with regard to group law and insolvency law treatment. First, it must be determined whether the affected companies are legally independent or merely economically linked. Legally independent group companies generally remain subject to separate restructuring or insolvency proceedings, with interactions via intra-group contracts, loans, and guarantees requiring special regulation. Restructuring plans must be coordinated across the group, which is ensured by involving creditor groups associated with the group and disclosing internal dependencies (§ 30 StaRUG). There is also a prohibition against transaction-based disadvantages (“detrimental group financing”) for individual companies to the detriment of creditors’ interests (activation of liabilities, compensation of disadvantages through restructuring contributions). Under insolvency law, a separate proceeding is required for each legal entity; a so-called collective insolvency is not provided for under German law. Cross-border restructurings are also subject to the provisions of the European Insolvency Regulation (EuInsVO).
