An Innovative Framework: Evaluating the New German Business Stabilization and Restructuring Law (StaRUG)

Andreas Rauch | January 1, 2022

This comment examines the restructuring framework, restrukturierungsgesetz (“StaRUG”), and argues that this new law represents an effective—albeit radical—departure from Germany’s previous, conservative insolvency regime. Passed in response to a 2019 EU Directive aimed at modernizing restructuring law Union-wide, and integrated into the German legal system against the backdrop of the COVID-19 pandemic, StaRUG and its ancillary reforms in other areas of German law create a restructuring proceeding that places a premium on a debtor’s continued business operations. Thus, in a striking shift from the traditional German approach to business distress, which strongly emphasized creditor rights, the new StaRUG focuses on value preservation and rehabilitation of the debtor. Mirroring many of the provisions of the U.S. Bankruptcy Code’s Chapter 11, the new StaRUG proceeding offers debtors and creditors a flexible, accountable, and stable forum through which to resolve business insolvency. After laying out the features of the new StaRUG scheme and related reforms to German business law, this comment identifies nine general mechanisms and features necessary to a successful and fair business reorganization framework. StaRUG’s performance is measured against these metrics and compared to similar provisions in Chapter 11. In its adoption of certain key mechanisms from Chapter 11 and the rejection of others, StaRUG strikes a unique balance between debtor protection and creditor satisfaction that promises fairer, more efficient outcomes in German business law. And, while a comprehensive real-world evaluation is yet some way off, this note concludes that StaRUG should serve as a model for future reforms to other, international restructuring frameworks.