May 22, 2022

Volume XII, Number 142


May 20, 2022

Subscribe to Latest Legal News and Analysis

May 19, 2022

Subscribe to Latest Legal News and Analysis

Out-Of-Court Restructuring Alternatives in The European Union, Germany and The United States

Restructurings are ideally carried out early, quietly and quickly. Efficient tools for out-of-court restructurings play a decisive role in value preserving restructurings.

The Coronavirus (COVID-19) pandemic has had a huge impact on the global economy and most businesses. Thousands of companies currently have urgent restructuring needs and every jurisdiction has responded differently. The following is a brief overview of some of the key tools available in the European Union, Germany, and the United States. More details and guidance can be found in our full special report, Out-of-Court Restructuring Alternatives in the European Union, Germany and the United States


On 26 June 2019, the European Union issued new EU Directive 2019/1023 on preventive restructuring frameworks, discharge of debt and disqualifications, and measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt (the Directive).

A primary objective of the Directive is to ensure that viable enterprises and entrepreneurs with a “likelihood of insolvency” have access to effective national preventive restructuring frameworks that will enable them to continue operating.

EU Member States must implement the Directive by 17 July 2021. In light of the COVID-19 pandemic, many Member States, including Germany, intend to implement the Directive much earlier.


The German Federal Government has published a draft of the Restructuring and Insolvency Law Further Development Act (the draft law). The draft law is very ambitious in two respects: it aims to implement the Directive in its broadest sense, and Germany expects to make it effective as of 1 January 2021.

The draft law intends that the restructuring court should be involved only to make use of the available restructuring instruments, i.e.,

  • Preliminary examination of the plan and voting rights

  • Judicial approval of the plan

  • Termination of executory contracts

  • Stabilisation measures (stay of individual enforcements)

  • Confirmation of the plan if not all affected parties have granted their consent

EU Member States must implement the Directive by 17 July 2021.

In contrast to insolvency plans, restructuring plans do not need to cover all creditors; they may be limited to appropriately selected groups of creditors. Within each group, creditors holding at least 75 per cent of the total amount must approve the restructuring plan. Under certain conditions, the consent of a dissenting group will be deemed to be granted.

The draft law provides a limited stay of actions upon application by the debtor and allows the debtor to terminate executory contracts, subject to certain requirements. It also modifies manager duties for a company facing “imminent illiquidity,” which is also the eligibility threshold for a company wishing to avail itself of the new preventive restructuring framework or voluntary insolvency proceedings.


There are several viable options for restructuring or liquidating a business outside a traditional chapter 7 or 11 bankruptcy filing. Specifically, insolvent companies may consider an assignment for the benefit of creditors (an ABC), or dissolution under state law.


ABCs provide an alternative to filing a federal bankruptcy case and involve the assignment of an insolvent company’s assets to a third-party assignee that is selected by the company and charged with liquidating the company’s assets to satisfy creditors’ claims.

Insolvent companies may consider an assignment for the benefit of creditors or dissolution.

ABCs differ from state to state but the fundamentals remain the same. First, the company must obtain approval of the ABC, which often requires board or shareholder approval. Second, the company assigns all of its right, title, and interest in the company’s assets to the assignee, which then steps into the role of a fiduciary to the company’s constituents. 

State Law Dissolution

Dissolution involves proper approval of the ABC, filing a certificate of dissolution with the state in which the company was formed, paying certain outstanding taxes, and winding-up the company’s affairs. In certain states, insolvent companies have two methods by which they may wind-up. These methods are commonly referred to as the “safe harbor method” and the “non-safe harbor method.”

Safe Harbor Method

This method generally requires public notices in newspapers and, in some states such as Delaware, a petition to the appropriate court to determine the amount and form of security that will be reserved for certain future or contingent claims. This method shields shareholders, officers and directors from liability, particularly because a court determines the reasonable reserve for unliquidated, contingent, or unmatured claims.

Non-Safe Harbor Method

Under this method, a company may simply dissolve, adopt a plan of distribution, pay the claims of any of its known creditors, and set aside what it thinks are appropriate reserves for unliquidated, contingent, or unmatured claims. In Delaware, this applies to claims that are likely to arise or become known within 10 years after the date of dissolution.

© 2022 McDermott Will & EmeryNational Law Review, Volume X, Number 353

About this Author

Darren Azman Restructuring Lawyer McDermott Law Firm

Darren Azman focuses his practice on corporate restructurings, creditors’ rights and distressed acquisitions. Darren’s clients include private equity sponsors, troubled companies and their boards of directors, secured lenders and other constituents in connection with in-court and out-of-court restructurings.

Darren has distinct restructuring experience in the fields of manufacturing, renewable energy, health care, technology, maritime and transportation, and cross-border restructurings, including insolvency proceedings in Brazil, Germany, Japan and Korea. He routinely litigates...

212 547 5615
Uwe Goetker, Transaction Attorney, McDermott Will Law Firm

Dr. Uwe Goetker is a transaction lawyer with in-depth knowledge of restructuring/insolvency who counsels companies and managements on out-of-court and in-court restructurings (including self-administration and insolvency plan proceedings), creditors and shareholders on the pursuance of their interests in distressed situations and distressed debt/asset investors/sellers regarding transactions—often in complex situations with groups of companies, various layers of financial instruments and/or cross-border issues. In addition, Uwe has extensive experience in national and international mergers...

49 211 30211 360