Facilitated corporate reorganization for corona-impacted companies

23.04.2020

Despite extensive aid measures taken by the public sector, many previously healthy companies are facing the threat of existential liquidity bottlenecks. Additionally, the question arises as to how the aid loans granted should and can be repaid In the long term.

These companies need to consider the legal reorganization options at an early stage. German law offers numerous and flexible options for corporate reorganization that avoid “hard” insolvency proceedings.

Reorganization proceedings under court supervision allow for the opportunity to shake off the burden of the corona crisis once and for all. This offers then a solid condition for a carefree new start – while also providing a considerable advantage over competitors that are set to carry the burden of the corona period for a long time to come.

Reorganization proceedings under court supervision are offering the advantages of insolvency proceedings, such as

  • reduction or deferment of creditors’ claims,
  • special termination rights for existing contracts (e.g., longterm leases),
  • tax benefits, and
  • quick and facilitated implementation of reorganization.

The disadvantages of insolvency proceedings are avoided, such as

  • loss of control through the appointment of an insolvency administrator,
  • impaired image and uncertainty caused to employees, customers, and suppliers, and
  • unintended contract terminations.

The list is only exemplary and, depending on the industry and needs, may be highly diverse and extensive. Moreover, as part of the reorganization, legacy issues from the period prior to the corona crisis may also be cleaned up virtually in passing.

In the wake of the corona pandemic, such reorganization proceedings will become considerably more important. Two very important conditions must be met, however, to keep this elegant way of crisis management open:

  • The company must not have been in crisis on December 31, 2019.
  • At the time at which reorganization proceedings are initiated, the company may not yet be insolvent within the meaning of the Insolvency Code.

Consequently, it is not an option to wait until own reorganization efforts have failed, or even until the crisis has passed, but “Plan B” must be included in the considerations from the outset. It is then that the stereotypical phrase can be used yet again: “The crisis may also be a new opportunity ....”

Status: April 23, 2020