In times of economic instability, particularly within complex and cross-border corporate structures, management and stakeholders face the challenge of quickly developing a tailored restructuring plan. The range of options is broad: it extends from court-supervised insolvency proceedings (such as traditional reorganization proceedings or transfer-based reorganizations) to the legal framework provided by the Restructuring Code, as well as purely out-of-court solutions or a skillful combination of these instruments.

At the international level, additional legal dimensions come into play, as the respective national insolvency and restructuring regimes (such as the German StaRUG proceedings, the English Restructuring Plan, or the Schutzschirmverfahren) exhibit significant differences.

In this challenging environment, out-of-court restructuring offers a decisive advantage: it can be significantly standardized and structured through established international standards such as the INSOL Principles (Statement of Principles for a Global Approach to Multi-Creditor Workouts).

The Restructuring Trust in the Restructuring Portfolio

Within this framework, the restructuring trust is not an isolated tool but, ideally, the integrated core of a coordinated, out-of-court restructuring strategy. It should be incorporated at an early stage—as soon as the first signs of crisis appear—into an overall strategy that combines performance-based, financial, operational, and profitability-focused restructuring levers to maximize the potential for restructuring. Nevertheless, the restructuring trust can also be implemented as a standalone solution through supporting agreements.

The Typical Starting Point and Its Core Challenges

The classic starting point is an internationally structured corporate group with an acute need for restructuring. To achieve sustainable restructuring based on a viable financial and performance-based concept, three core tasks must generally be addressed:

1. Settlement of legacy liabilities (old money);
2. Securing new liquidity (fresh money); and
3. Strengthening equity, often through the entry of new strategic partners or financial investors.

The Mechanism of the Dual-Purpose Trust

The operational core of this instrument is the transfer of shares in the central operating company or the holding company to an independent restructuring trustee. This transfer takes place within the framework of a so-called dual-purpose trust. It serves both:

1. the interests of the existing shareholders (as trustors); and
2. the interests of the financial creditors (as beneficiaries).

Depending on the severity of the crisis and the status of negotiations, the transfer can be structured to varying degrees—for example, as a mere offer of transfer or as an immediate transfer. In addition, the process can be structured in phases, typically distinguishing between a restructuring management trust and a restructuring liquidation trust.

Objectives and Liquidation Scenarios

The restructuring trust serves as a stable foundation to support the entire restructuring process. The primary objective is the restructuring and operational stabilization of the company. As the process progresses, there are essentially two paths for the transferred shares:

Retransfer

If the restructuring is successful, the shares are retransferred to the original trustor (the existing shareholders).

Sale via an M&A Process

If predefined conditions—known as trigger events (such as deviating from the agreed-upon restructuring path)—occur, the shares are sold as part of a structured M&A process. The proceeds generated are used to satisfy financial creditors according to a contractually defined order of priority (waterfall principle).

Balancing Interests Amid Stakeholder Tensions

Particularly in complex ownership and creditor structures, the restructuring trust serves as a central balancing mechanism. It resolves the inherent tension by flexibly allocating the trust property (the company). This allocation is based on the company’s economic performance as well as the parties’ willingness to actively shape the restructuring and, for example, to provide new liquidity (fresh money). In this way, the instrument enables both shareholder-led and lender-led solutions.

Legal Pitfalls and Industry-Specific Considerations

Despite its proven strengths, the implementation of a restructuring trust is legally highly complex and requires careful navigation around numerous pitfalls:

1. Equity Substitute Law: Particular caution is required when providing fresh money to avoid it being classified as an equity substitute—which would entail a repayment restriction during a crisis and subordinated status in the event of insolvency.
2. Insolvency resilience: The legal stability of the trust structure must be safeguarded in the event of insolvency of both the settlor (existing shareholder) and the target company itself.
3. Capital markets law: For publicly traded companies, strict reporting and ad hoc disclosure obligations must be observed.
4. Tax Law: Transactions within the framework of the trust raise complex tax issues, particularly with regard to real estate transfer tax.

In addition, a restructuring trust should be designed to precisely reflect the specific operational and legal circumstances of the respective industry—whether it be the real estate industry, the automotive sector, or the retail sector.

Conclusion

The restructuring trust has established itself as an extremely valid and flexible instrument in modern restructuring practice. It offers a viable solution, particularly when the financial capacity or willingness to act on the part of the previous owners reaches its limits. Thanks to its clear legal framework and high degree of flexibility, it makes it possible to respond to changing economic conditions quickly, appropriately, and in a manner that balances all interests.