New rules of the game and opportunities for distressed investors

The changed legal environment in Germany makes corporate restructuring easier for sponsors, creditors of the company as well as distressed investors. On the other hand, the newly introduced flexibility also leads to borderline cases in which insolvency law can be used to enforce corporate restructuring, as the Suhrkamp case shows.

Current market environment

The reform of German insolvency law that came into force with the ESUG as well as the changes in the German financing landscape entail fundamental changes, but at the same time also open up new opportunities for distressed investors.

The changes made by the ESUG are intended to make it easier to restructure companies in insolvency proceedings and to make them more attractive to (foreign) investors in particular. The reform thus contributes to strengthening Germany as a business location. The main focus of the Act is to significantly strengthen the rights of creditors, who can already exercise these rights at the beginning of the insolvency (application) proceedings within the framework of a so-called preliminary creditors' committee. Both the latter and the insolvent company itself can now influence the selection of the insolvency administrator/supervisor and, in particular, the type of proceedings. Furthermore, the self-administration procedure was considerably strengthened and supplemented by a new, less drastic variant, the so-called protective shield procedure. The feasibility of insolvency plan proceedings has also been significantly improved (e.g. by enabling debt-for-equity swaps) and made more transaction-proof. Since the ESUG came into force, a large number of companies have already been restructured in self-administration and by means of insolvency plans. Prominent cases such as IVG, Centrosolar, Peiderer, Centrotherm and Solarwatt are just a few examples.

A decisive innovation is offered by the reformed insolvency plan procedure, according to which the rights of shareholders can be included in the reorganization and creditors can switch from debt capital to the position of owner by means of the debt-for-equity swap regulated therein.