In an increasingly dynamic and interconnected economic environment, cross-border restructuring issues are becoming ever more significant. To ensure successful restructuring, international standards and best practices are now increasingly being applied even to purely domestic restructuring cases. The harmonisation of restructuring practices is progressing, with internationally established frameworks such as the INSOL Principles serving as strategic guidelines.

The key to any successful reorganisation lies in cooperation between stakeholders. It requires a balance of interests between parties whose respective interests are often highly diverse.

The Stakeholder Dilemma – Conflicting Interests in a Crisis

Successful crisis management requires coordinated cooperation among the key players: the company—including its management and employees—as well as owners and creditors. Unlike rigid, court-based proceedings, out-of-court restructuring aims to achieve a consensual balance of interests among these parties.

The particular challenge lies in the heterogeneity of the stakeholders and also within the individual stakeholder groups. This is particularly evident among financial creditors, who already constitute a subset of the total creditor base: Financial creditors are usually crucial to the implementation of a restructuring, but by no means represent a homogeneous group. The spectrum ranges from traditional financial institutions offering a wide variety of instruments (such as term loans, revolving credit facilities (RCF), government-backed financing, or supply-chain financing models) to promissory note creditors and specialized funds.

The core task of professional crisis management is to reconcile these widely divergent interests under the common goal of a successful restructuring.

The Path to Balancing Interests

A viable compromise must always be based on the company’s operational and financial circumstances. In practice, consultants are often faced with a choice: If the pool of financial creditors consists primarily of unsecured creditors, this may lead some consultants to hastily opt for the path of court-supervised insolvency. However, this often proves to be a fallacy: Court-supervised insolvency generally leads to significantly worse outcomes—not only for the creditors themselves, but also for the company’s continued existence, its supply chains, and its future refinancing prospects.

The appropriate balance of interests is achieved within a flexible system guided by two key questions:

1. Can the company achieve a turnaround on its own?
2. Is a contribution from the owners (particularly through equity) necessary and feasible, or must the financial creditors step in—for example, through payment deferrals or the provision of fresh capital (fresh money)?

Ultimately, this dynamic (economic viability) determines whether the restructuring is implemented as a shareholder-led or a lender-led solution.

Implementation Tools

Once the restructuring path has been defined through negotiations, the appropriate legal and economic instruments must be selected:

1. The key implementation tool is the restructuring agreement, which serves to establish the developed restructuring plan as a legally binding framework. This agreement may provide for a purely out-of-court process or a targeted combination with court-based elements.
2. If the restructuring is combined with and supported by court proceedings (such as the German StaRUG, the Restructuring Ordinance, or reorganization proceedings), another key player enters the picture: the restructuring officer or insolvency administrator.

Out-of-court restructuring is clearly characterized by unanimity, whereas Austrian restructuring and insolvency law reaches its limits when a debt-equity swap or a class cram-down involving the owners is required.

Structure Through International Standards

To prevent out-of-court negotiations from descending into chaos, INSOL (International Association of Restructuring, Insolvency & Bankruptcy Professionals) offers a globally proven, 8-part framework in its “Statement of Principles for a Global Approach to Multi-Creditor Workouts.”

The structured process is essentially divided into two phases:

Standstill Phase

A temporary standstill period serves to gather reliable information about the debtor’s financial situation and to develop and review concrete proposals for resolving the crisis.

Restructuring Phase

The analysis and negotiation phase is followed by the actual implementation of the tailored restructuring plan.

These principles must be continuously validated at the national level and adapted to the respective framework conditions in order to maintain their viability.

Experience and Standardization

Despite international guidelines and structured processes, every restructuring is ultimately a unique case. Negotiating and reconciling highly complex and conflicting interests remains a unique challenge for stakeholders and their advisors. It is the sound legal and business expertise, combined with the practical experience of those involved, that safely guides a company back to safe harbor in a volatile restructuring environment.

Translated with DeepL.com (free version)