The haircut
Expert: Dipl.-Ing. / MBA Wilhelm Dahm
F&P BlogIs the haircut too radical or a way to restructure smaller companies?
The new legislation, particularly following the reform of insolvency law, in conjunction with the introduction of the StaRUG on January 1, 2021, offers a number of opportunities to restructure companies.
However, there are also certain restrictions on the use of these procedures. For example, the StaRUg is only applicable if the company structure itself is healthy, as no labor law measures may be implemented.
The classic case for a StaRUG application would be a company that has miscalculated an investment and the resulting obligations threaten to overwhelm the company. It is then only possible to find a solution with the creditor, in court proceedings and out of the public eye, to reduce the burden and thus release the brake on the company’s success.
However, this is of course associated with costs, including restructuring advice, court costs and the high administrative effort involved. Unfortunately, such proceedings are therefore only an option for SMEs that exceed a certain turnover threshold.
But what about companies with a turnover of less than €5 million, for example?
How can these companies get out of the misery that cannot be ignored by society? According to Statista from 2019, there are around 3.3 million companies in Germany. They thus represent a stable foundation of the German economy and should therefore be recognized.
A debt haircut is an option here.
The advantages of a haircut
In this procedure, similar to restructuring by means of insolvency, creditors are shown the quota they would receive if the company were to become insolvent and be liquidated due to a lack of assets. In this case, the quotas are often in the single-digit percentage range. However, if the creditors are prepared to cut their debts, the ratios would increase significantly.
Another advantage would be that they do not lose this customer and therefore also benefit from the preservation of the company. The haircut is therefore a cost-effective procedure.
Of course, there is also a drop of bitterness
The biggest disadvantage of the haircut is that not all creditors can be included. Credit institutions, cash registers or tax offices must be considered separately, as they have already secured their claim. However, skillful negotiation and clarification of all alternatives could also persuade such institutions to support the process unbureaucratically.
Simply put, but difficult to implement. This requires an experienced restructurer who can play the song of skillful negotiation and thereby ensure success.
F&P AG has addressed such issues.
It is ready with a team of experts to accompany the debt restructuring process and, if successful, to support the possible restructuring of the company in many areas and thus ensure the sustainability of its continued existence.
Find out more about our restructuring & reorganization experts here.
