Restructuring experts advocate a German scheme of arrangement

A year before the evaluation of the reformed German insolvency legislation planned by the legislator, restructuring experts will be discussing its international competitiveness once again at Noerr’s “European Restructuring Day” today, especially in relation to the restructuring of company loans. “We need a restructuring instrument outside insolvency proceedings, like the English scheme of arrangement, in Germany as well to be able to achieve this,” says Conference chair and partner at Noerr Dr Thomas Hoffmann.

The scheme of arrangement will be the main focus of the presentations and discussion rounds at the international practitioners’ conference. Over the last few years it has been used by many companies outside England to restructure their financial liabilities. The advantage is that under the scheme of arrangement individual groups of creditors can be called on in isolation to restructure the company. This means that the company will not be forced to go into fully fledged insolvency proceedings covering all the debtors’ business relationships. Under German law this is currently only possible when structuring bonds. Even when in 2012 insolvency law was modernised by the Act for the Facilitation of Restructuring of Companies (the “Act”) no additional options for restructuring were created.

“During the evaluation of the Act planned for 2017, the legislator should take this opportunity to anchor an internationally competitive alternative to the scheme of arrangement for financial restructuring in German law as well,” says insolvency administrator Arndt Geiwitz (Schneider, Geiwitz & Partner), who will be taking part in the Restructuring Day in a panel on the subject of “pre-insolvency restructuring processes”. The latest insolvency study (2015) by Noerr and management consultancy McKinsey found that the majority of restructuring experts questioned regard the lack of limitation to certain groups of creditors as disadvantageous compared to other jurisdictions.

“In the light of the legal uncertainty existing in connection with recognition of the scheme by the courts, the need for a German solution is becoming increasingly urgent,” stresses Hoffmann. The co-head of Noerr’s Restructuring & Insolvency practice group believes that in future English judges could examine foreign schemes more intensively than is currently the case whenever creditors put up resistance. He says that this is also indicated by an interim judgment by an English court in the case of Dutch company Indah Kiat, which had set up a branch in England in order to carry out a scheme.

Former US ambassador in Germany, John Kornblum, opened the Restructuring Day yesterday evening with a talk on the upcoming US elections.