Restructuring

A restructuring is the reorganisation of a company's business, balance sheet, or financing, usually in a crisis. The goal is to put the company back on a sustainable footing. This may involve reducing costs, selling divisions, or reorganising debt. Two levels must be distinguished, though in practice they usually occur together.

Operational restructuring addresses cost structure, product range, sites, processes and headcount and aims to restore earning power. Financial restructuring reorganises the liabilities side, through deferrals, extended maturities, adjusted interest, debt waivers with recovery clauses, converting debt into equity or injecting new capital. Without a robust operational concept a financial solution is rarely sustainable, because it only buys time. Several routes exist in Germany: an out-of-court restructuring based on a restructuring opinion, proceedings under the stabilisation and restructuring framework which allow a plan to be imposed on dissenting creditors, and insolvency proceedings in self-administration or in the standard form. The framework under the StaRUG requires imminent, not actual, illiquidity. Timing is critical for management, because illiquidity and over-indebtedness trigger filing duties with personal liability.

For buyers such situations create opportunities, because time pressure and limited competition reduce the price.

Note: This explanation is for general information only and does not constitute legal advice. The legal position depends on the individual case and may change with new legislation or case law. For a binding assessment, please consult a qualified lawyer.