MEMBER ARTICLE | Europe, Mi d d le East a n d Af ri ca
How to Avoid a Fire: Establishing Effective Crisis Monitoring In 2019, the European Union launched a new
German companies were able to make use
restructuring tool for companies regulated in
of a temporary suspension of the obligation
the Restructuring and Insolvency Directive,
to file for insolvency if the reasons for
the so-called “preventive restructuring
insolvency were due to the pandemic.
framework.” Germany has since fulfilled its
However, the obligation to file for insolvency
obligation to implement the directive into
was reinstated on October 1, 2020. This
its national law. Effective January 1, 2021, the
could blindside companies in the future,
Act on the Stabilization and Restructuring
as practice shows that managing directors
Framework for Companies (StaRUG) came
often do not have the necessary tools at
into effect.
their disposal to recognize a crisis, or even a
maturity for insolvency, in time.
This article highlights why, in light of the
StaRUG, companies should not hesitate to
establish effective crisis monitoring.
obligated to keep a monitoring system that
Obligation to Monitor Crises
indicates crises in advance. This obligation applies to every managing director,
In 2020, many companies in Germany, as well as across Europe and the world, found themselves in an earnings and financial crisis (through no fault of their own).
For legal reasons, managing directors are
regardless of whether he or she has recently joined the company or whether there is a division of responsibilities between several managing directors. StaRUG has removed the last doubts about this obligation to monitor crises on a regular basis. Section 1
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of StaRUG states that “the members of the body appointed to manage a legal entity (managing directors) shall continuously (!) monitor developments that could jeopardize the continued existence of the legal entity.”
Fight Smoldering Fires in Good Time
Only those who discover a smoldering fire in time retain sufficient leeway to prevent greater damage. Crisis signs of a smoldering fire go through different stages (e.g., stakeholder crisis, strategy crisis, sales crisis, etc.). Without suitable tools, such signs of crisis will usually not be recognizable, and there won’t be sufficient preparation time for effective countermeasures. In restructuring processes, however, time and the trust of stakeholders are of the essence, as more extensive restructuring measures require a lead time for the involvement of experts.
Moreover, in the event of a crisis, the
managing director also faces personal liability. For example, he is liable for payments made after the occurrence of an (unrecognized) obligation to file for insolvency or for unpaid company taxes and employee contributions to social security. Special attention is also required if group subsidiaries are integrated into a cash pool of the parent company. The automated
Tel: +49 40 37 09 05 0 Dr. York Zieren york.zieren@german-law.com Sebastian Kühn sebastian.kuehn@german-law.com
Dr. York Zieren is a partner at Brödermann Jahn in Hamburg. He advises on insolvency law, most recently as the reorganization managing director of Dolzer Maßkonfektionäre GmbH. York also advises on conflicts among shareholders.
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Dr. York Zieren
Sebastian Kühn
Sebastian Kühn is counsel at Brödermann Jahn, where he works as a specialist lawyer for banking and capital markets law, as well as a mediator. He advises banks and companies on all aspects of banking and capital markets law and on insolvency law issues, particularly in the context of restructuring measures.
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