Restructuring – the protective shield procedure as the ideal route out of the corona crisis

The European and German economy are facing unprecedented challenges. In addition to the technological change, such as the trend towards electric cars, geopolitical changes and the economic slowdown in China, the consequences of the corona virus are now also being added.

This is an exceptional situation and will inevitably lead to a massive increase in the need for restructuring among companies that will not survive by only introducing short-time work.

Due to the strongly linked global economy, there are currently significant consequences across almost all industries. In industries that are already struggling, such as the automotive industry, these external shocks will lead to considerable restructuring pressure.

In response to these developments, the federal government has already taken a number of measures with a multi-billion euro aid package, government guarantees and loans to counter the economic consequences of the corona crisis for the troubled companies. This gives the companies at least a little bit of time to adapt to the new circumstances.

Nevertheless, these measures will not be enough for all companies to find their way out of the financial crisis alone. In order to avoid a breakdown or even the loss of the company in the context of an insolvency procedure by way of a sale or liquidation by an insolvency administrator, companies in crisis should already now consider the possibilities of a fundamental restructuring.

A key route for financially troubled companies in Germany is the reorganization as part of a so-called insolvency plan procedure under self-administration, here in combination with a protective shield procedure. This procedure is based on Chapter 11, a section of US bankruptcy law that regulates the reorganization process for US companies and has been used there for many years as a successful reorganization tool.

The advantages for a protective shield procedure are obvious:

  • During the lifetime of the protective shield the company deploys a part-payment settlement process either with the consent of all creditor groups or with court approval: Insolvency plan;
  • The company is set on a new and sustainable course in approx. 6-7 months;
  • The protective shield procedure frees the company from oppressive pension commitments and other liabilities;
  • The protective shield procedure enables the company to bring onerous contracts to an end;
  • During the lifetime of the protective shield the settlement of all old liabilities is halted and the company is reimbursed wages and salaries for 3 months by the Employment Office. After that the company itself again pays wages and salaries in full;
  • The company is led by its own management even during the procedure;
  • The company remains independent;
  • the debtor has the right to make a proposal for the provisional administrator;
  • Rapid implementation of the restructuring.

Years ago, we continuously built up our restructuring practice in this regard and with the access of Dr. Alexander Höpfner, a well-known insolvency administrator and self-administrator, consistently expanded.

At the same time, we have the necessary platform to handle international restructuring cases professionally, because with act legal we have more than 420 professionals with 16 offices in the most important markets in continental Europe. Only the large international law firms have a comparable network, but they do not have their own self-administration and insolvency administration practice.