Can restructuring by means of debtor-in-possession management be an alternative to government support measures during the corona crisis?


For several weeks now, companies worldwide have been in a state of emergency. The COVID-19 pandemic has caused a sudden collapse in sales in many companies. The retail trade, the tourism industry, the catering trade and many other sectors are particularly affected. Many companies are experiencing economic difficulties.

The Federal Government is supporting German companies with extensive immediate relief packages such as short-time working allowances, liquidity assistance through tax deferrals and bridging loans from the KfW.

In these times, the managers of the companies have to monitor the economic situation of the company particularly closely and initiate measures at an early stage if there are signs of negative developments. When considering suitable measures, however, managers should not focus exclusively on the public immediate relief packages but should also take the restructuring options available under the German Insolvency Statute (Insolvenzordnung, InsO) into consideration.

Restructuring by means of debtor-in-possession management as an alternative?

In each individual case, it should be examined on the basis of liquidity planning whether the public immediate relief packages, such as taking out KfW loans, are suitable for improving the company's economic situation in the long term. For in many cases it is already apparent now that taking out KfW loans will only have a short-term effect. For example, it will not be possible to compensate for lost sales due to business closures in the future. The companies will therefore have to bear a high debt burden. Restructuring a company by initiating a debtor-in-possession management can therefore be a real alternative to the immediate relief packages offered provided by the Federal Government. In this way, restructuring measures can be developed under this procedure to enable the company to become competitive on the market again and operate profitably.

The debtor-in-possession management procedure

According to the German Insolvency Statute, the company may restructure itself in the course of insolvency proceedings by means of debtor-in-possession management. The aim of the procedure is to preserve the company and restructure it in a sustainable manner.

In the case of suitable companies, restructuring succeeds through early coordination with the
parties involved in the proceedings, in particular with the company's creditors, and the preparation of an insolvency plan. The insolvency plan includes in particular the proportionate satisfaction of unsecured creditors and measures under company law, such as a capital cut, transfer of shares, capital increases in kind through the contribution of receivables (debt equity swap) and conversion measures.

In contrast to regular insolvency proceedings, no insolvency administrator is appointed in debtor-in-possession management proceedings. The previous management is allowed to control the proceedings itself and is supported by an experienced restructuring expert. During the debtor-in-
possession management procedure, the management is supervised by a court-appointed insolvency monitor who is independent of the debtor company and the creditors. In the case of larger companies, a provisional creditors' committee must be formed to represent the interests of creditors in the debtor-in-possession management procedure. The debtor-in-possession management procedure ends one the insolvency plan drawn up is approved by the creditors. The company will then be released from the proceedings after a restructuring phase of about 6 months with debt relief.


If there are signs of a negative development, the managers of the companies should include in their examination, in addition to the public immediate relief packages, the restructuring options offered by a debtor-in-possession management procedure. With sufficient preparation time, the main creditors, customers and suppliers can be analysed in advance. On this basis, a holistic assessment can then follow for each individual case and a sustainable restructuring strategy can be developed.

Our restructuring and financing experts at Luther support you in examining alternative courses of action and support you in the respective process.