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Hope for Easier Restructuring of SMEs: German Institute of Public Auditors Propose New Standard Restructuring Opinions

German insolvency laws are very strict. The management of an insolvent company is under strict obligations to file for insolvency, and failure to comply with such obligation may result in civil and criminal liability. Other stakeholders, like financing banks or suppliers, who are dealing with a distressed company, require documentation that their contract partner can be restructured, in order to avoid potential liability and claw back risk in case of a future insolvency. Shareholder loans which are granted as restructuring loans are exempted from the statutory subordination in insolvency under certain circumstances.

Consequently, there are many occasions where a distressed business needs to obtain a restructuring opinion. For many years, the standard for such restructuring opinions has been the “IDW S 6”, a standard set by the Institute of Public Auditors in Germany (“IDW”). This standard has successfully been used by many distressed companies to help their restructuring. However, restructuring opinions in accordance with IDW S 6 are usually large documents, in most cases with more than 100 pages of paper, which take several weeks to prepare, and the costs to obtain such an opinion often runs into six-digit Euro-sums. Therefore, small and medium sized enterprises (“SMEs”) have often not been able to finance the preparation of a restructuring opinion in accordance with IDW S 6.

On 8 September 2017, the competent committee for restructuring and insolvency (Fachausschuss Sanierung und Insolvenz) of the IDW has adopted the draft of a new version of the standard for restructuring opinions (“IDW ES 6 n. F.”). This draft was approved by the main committee of the IDW (Hauptfachausschuss) on 15 September 2017. Interested parties are able to comment on this draft until 31 January 2018, and the IDW will then evaluate these comments before the new standard will finally be adopted.

IDW ES 6 n. F. focusses on the principle of relevance (Grundsatz der Wesentlichkeit), and explicitly states that for smaller companies the scope of the review and the reporting in the opinion shall be adjusted to the reduced complexity of such companies. On the other hand, it also points out that the requirements which the rulings of the German courts have established for restructuring opinions need to be maintained in accordance with the standard, which should ensure that opinions obtained under this new standard can give comfort to the stakeholders.

On that basis, in the case of SMEs, restructuring opinions should become leaner, can be prepared more quickly and at lower costs, making them more affordable for distressed SMEs. And the good news is that it will not be necessary to wait until the final version of the new IDW S 6 n. F. has finally been adopted, because auditors can already issue restructuring opinions by applying the standard as laid out in the draft.

Hopefully, this will lead to more successful restructurings of SMEs in Germany in the future.

© Copyright 2017 Squire Patton Boggs (US) LLP

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About this Author

Andreas Lehmann, Squire Patton Boggs, Corporate Finance Transactions
Partner

Andreas Lehmann’s practice focuses on financial services and corporate finance transactions as well as restructuring & insolvency.

He advises banks on all aspects of debt financing structures including syndicated loans, corporate bonds and securitization transactions. Andreas has advised institutional investors, in particular investment funds, venture capital funds and real estate funds, in respect to their investments in Germany.

Andreas’ finance experience includes financial restructurings and non-performing loan...

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