January 2022 Up until now, the German economy has looked incredibly stable. However, after the pandemic has subsided and state subsidies come to an end, there may be a palpable increase in the instances of restructuring and the number of insolvencies. Hamburg Commercial Bank's restructuring experts Norbert Krüger and Tim Wierzbinski talk about how to proceed in such a scenario, and how the Hamburg Commercial Bank is supporting its corporate clients.
There have been warnings of a huge wave of insolvencies in Germany following the economic fallout of the pandemic for some time now. However, such a wave has yet to materialize Are the skeptics wrong here?
Krüger: No, the incredibly generous state aid and the consistently low interest rate have not offset this wave, they have simply postponed it. A big problem here is that the majority of this aid has been given in the form of loans. Consequently, these loans must be paid off after the grace period has elapsed. In addition to this, we have structural market problems – first and foremost energy and transport costs, which have skyrocketed, alongside supply chain bottlenecks, which are slowing down recovery.
Through its interventions in insolvency law, the government has been accused of simply disguising the genuine financial trouble that some companies have found themselves in, and of delaying necessary restructuring. What is your opinion on this position?
Krüger: Deferring the obligation to file for insolvency represents a serious encroachment on the rights of creditors. As such, cautious action is required here. Suspension of filing obligations does not simultaneously mean that the reason for the filing has gone away. Consequently, the legislature is accepting that this decision will result in collateral damage elsewhere in the economy. Such as suppliers, who are left waiting for their money.
What is the outlook for 2022 from the perspective of restructuring experts? Is this year threatening to be a year of bankruptcy?
Wierzbinski: The outlook is very mixed. In some areas, state aid and measures toward recovery taken by stakeholders and banks have brought about positive change. At the same time, we will also see further insolvencies or other court-ordered forms of restructuring.
Which sectors are facing particular hardship?
Wierzbinski: Chiefly hotels and retailers.
What are the early warning indicators for insolvency?
Krüger: Early warning indicators primarily become apparent in the phase of intensive supervision and restructuring support. Whether these warning signs develop into insolvency depends heavily on the individual case or industry. Nevertheless, lack of further stakeholder engagement is a key criteria for insolvency.
In January 2021, StaRUG – the Corporate Stabilization and Restructuring Act – came into effect in Germany. What is the purpose of this act and what has it achieved in practice so far?
Wierzbinski: Since its inception, StaRUG has been intended as a way of giving small and medium-sized enterprises the opportunity to bring about a turnaround under their own steam. However, in the German version, the legislature explicitly excluded the restructuring of continuing obligations, particularly in the case of personnel. Consequently, the thrust of the law has been targeted restructuring of client liabilities. So far, across Germany there have only be isolated cases with very specific problems, mostly among shareholders and not on the bank level. How the situation will develop remains to be seen, since the instrument, if necessary, could be used for the restructuring of coronavirus financial aid.
What role does a financial institution such as the Hamburg Commercial Bank play in the restructuring process?
Krüger: As a rule, we are the primary creditors and with that one of the key stakeholders in the process and the often biggest risk carriers. We have a causal interest in ensuring companies do not find their way into financial difficulties. Or if they do, ensuring that they quickly find a way out of the situation. Based on a restructuring concept in accordance with the IdW S6 standard, we actively supervise the restructuring process and monitor the implementation of the restructuring concept. However, we do not supervise restructuring activities at any cost. Depending on the situation of the borrower, insolvency proceedings, in their various possible forms, may be a satisfactory approach. The sale of securitized loans is also playing an increasingly important role.
How exactly is HCOB's restructuring team organized?
Wierzbinski: Restructuring and insolvency cases are processed in a single department at the Hamburg Commercial Bank. This guarantees clear responsibilities for the clients in this difficult phase. Trained specialists support bank clients through the crisis and help them implement restructuring and liquidation measures.