UK Restructuring Plan: An Exportable Solution for Germany?

Like its forerunner, the Scheme of Arrangement, the UK’s Part 26A Restructuring Plan (the ‘Plan’) has become a powerful restructuring tool for UK and EU-based debtors alike since its introduction in 2020.

1.  A Flexible Tool

The Plan gives companies in “financial difficulty” the ability to compromise their debt obligations with secured and unsecured creditors and may even compromise shareholders’ rights. It has no prescribed content and can be tailored to specific circumstances, making it a very flexible tool. The Plan has the added innovation of the “cross-class cram-down” - a feature that permits a Plan to be imposed on “out-of-the-money” dissenting creditor classes where at least one “in-the-money” class votes in favour.

The Plan builds on, and benefits from, the caselaw established by the over century old Scheme of Arrangement, making the Plan attractive to debtors and creditors alike with its relatively predictable outcomes.

2.  German Link

The Plan is available to non-English companies provided there is a “sufficient connection” with England, a test which it is a relatively low jurisdictional bar, which can for example, be established where the debt is governed by English law

In 2024, the German property group, Adler Group, sought a Plan despite a limited connection to the UK. The Luxembourg issuer of Adler’s debt was substituted with an English incorporated company to establish a sufficient connection with the UK, despite the debt being governed by German law.

3. German StaRUG

Germany’s alternative restructuring tool was introduced in January 2021 under the German Corporate Stabilisation and Restructuring Act (StaRUG).

It is very similar to the UK Plan, offering early intervention and cross-class cram-down and the distinctions between the two tools are somewhat limited but notably:

a)     StaRUG is more rigid in its eligibility criteria, only accessible to companies that are “imminently illiquid”, while the Plan is available to those facing “financial difficulties”;

b)     StaRUG also has less international appeal, only being available to debtors with their “centre of main interests” (‘COMI’) in Germany while the Plan can be used by non-English companies with a “sufficient connection” to England;

c)      StaRUG is also bound by the absolute priority rule (with some exceptions) meaning that junior creditors/shareholders may only receive value if senior creditors are paid in full or approve the plan, while the Plan is not bound by such strict rules, albeit the English Courts will consider whether the Plan is ‘just and equitable’; and

d)     the Plan benefits from specialist judges who take a commercial approach and can offer speed of adjudication. It remains to be seen whether StaRUG will offer similar commerciality and speed.

4.  Conclusion

Rather than a competitor, StaRUG may be better seen as a domestic alternative that currently lacks the UK Plan’s international reach and flexibility, and the Plan should continue to be seen as offering  non-English debtors and creditors a speedy and more assured route to restructure liabilities, albeit the international reach of the Plan is still being tested, as recognition of a recent Plan by German property group, Aggregate Holdings Group, which shifted its COMI from Luxembourg to England, is currently being tested in the German courts.