Corporate Reorganisation Act (URG)
What is the Corporate Reorganisation Act?
The URG has been in force since 1997 and aims to reduce the number of insolvencies through the early and professional restructuring of companies. The URG was based on the realisation that the earlier restructuring measures are initiated, the more likely they are to be successfully implemented.
When can reorganisation proceedings be initiated?
The URG provides for the possibility of initiating judicial reorganisation proceedings where a company’s continued existence is at risk – known as a ‘need for reorganisation’ – but not where the company is insolvent or over-indebted (in which case there is an obligation to file for insolvency). However, there is no obligation to file an application.
What does such a procedure involve under the Corporate Reorganisation Act?
Upon the commencement of reorganisation proceedings, the court appoints a reorganisation examiner, who must first obtain information on the company’s financial position and assess the prospects of success of the reorganisation plan to be submitted by the entrepreneur, as well as the appropriateness of the reorganisation measures provided for therein, and submit an expert report on this to the court. If, in his expert report, the reorganisation examiner concludes that the reorganisation plan is appropriate and that there are good prospects of its implementation, the court must set aside the reorganisation proceedings; otherwise, it must discontinue them.
What are the benefits of the Corporate Reorganisation Act?
The reorganisation procedure is intended to provide positive incentives for the entrepreneur in that restructuring loans granted as part of the reorganisation or within 30 days of its termination are, to a certain extent, immune from challenge. This improves the prospects of obtaining restructuring loans. A further advantage is that reorganisation measures are not subject to the rules on the subrogation of equity. A shareholder loan provided as a reorganisation measure may therefore be repaid and, in the event of any insolvency proceedings against the company, is in principle also to be taken into account on a pro rata basis as an insolvency claim.
Where does the Corporate Reorganisation Act still apply?
On the other hand, the liability sanctions enshrined in the URG are intended to encourage the governing bodies of legal entities subject to audit that operate a business to initiate reorganisation proceedings where there is a need for reorganisation (liability under the URG). Apart from the liability provisions, the URG is of little practical significance.
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