Restructuring Expert Opinion
Requirements for Restructuring Concepts
German case law — in particular the decisions of the Federal Court of Justice (BGH) — has established a comprehensive framework for the requirements of restructuring concepts in numerous rulings. These high court decisions are decisive for the form, scope, and content of a restructuring concept. Concepts that do not meet these requirements do not have an exculpatory effect and therefore cannot provide legal protection for management or financing parties. In Germany, the auditing standard IDW S6 – “Requirements for Restructuring Concepts” issued by the Institute of Public Auditors in Germany (IDW) has become the de facto market standard for the preparation and assessment of restructuring concepts. In practice, a restructuring concept is typically reviewed by experienced restructuring advisors to determine whether it fulfils the IDW S6 requirements and whether the company in question is capable of being successfully restructured. The resulting expert assessment is commonly referred to as a restructuring expert opinion.
The version dated 22 June 2023, titled “IDW Standard: Requirements for Restructuring Concepts (IDW S 6)”, takes into account, clarifies, and integrates all relevant decisions of the Federal Court of Justice (BGH).
The IDW S6 standard can be understood as the business-economic translation and interpretation of the undefined legal terms established by the BGH through its rulings and decisions.
In practice, it has become common for restructuring concepts to be reviewed by specialised experts or restructuring advisors to determine whether they meet the requirements of IDW S6 — and thus the requirements set by high court jurisprudence.
Restructuring concepts that include an expert opinion on the company’s ability to be restructured are referred to as restructuring expert opinions (Sanierungsgutachten).
- Description of mandate and scope of assignment
- Basic information on the company’s economic and legal situation, including asset, financial and earnings position
- Analysis of crisis stage and causes plus the question of whether there is a threat of insolvency
- Presentation of the target profile with the business model of the rehabilitated company
- Presentation of the measures to avert insolvency risk and to execute the restructuring strategy (in line with the target profile of the rehabilitated company
- Integrated business planning
- A concluding assessment of restructuring capability
The focus is on the current state analysis, which — based on objective criteria — evaluates the situation and crisis stage. From there, using an integrated corporate planning model (profit, asset and cash-flow planning), including the effects of the restructuring measures, the prospects of restructuring success and a successful turnaround management are assessed.
Expert assessment in the restructuring report
The assessment is conducted in stages. The preliminary stage involves evaluating whether there are grounds for filing for insolvency (usually in accordance with IDW S11). If an acute liquidity crisis is identified, immediate measures must be defined and implemented to resolve it without delay.
Stage 1 focuses on ensuring the company’s ability to continue as a going concern in the sense of a positive going concern assessment. Such an assessment is considered positive if, during the assessment period, the company’s financing is secured (“fully financed”) and it has sufficient financial resources to continue its business operations. A period of approximately 24 months is generally regarded as relevant for this evaluation.
Stage 2 goes beyond the requirements of a going concern assessment and involves the development of a restructuring concept that demonstrates the company’s sustainable ability to continue operations (i.e., its restructurability). According to IDW S6, this requires that “the company is competitive in its relevant market” and “is capable of generating a sustainable and industry-typical return with an adequate equity base.”
However, the sustainability of a restructuring concept is not limited to the company’s ability to continue its operations over time. It also includes the consideration of environmental, social, and governance (ESG) factors. In line with the standard, the assessment period must therefore be extended when evaluating the company’s competitiveness and profitability.
Relevance in the restructuring process
When a company is in crisis, management (keywords: restructuring obligation, obligation to file for insolvency, liability for delayed insolvency filing, and liability for payments made after insolvency maturity) as well as lenders (keyword: self-serving restructuring loan) must carefully assess the legal risks associated with restructuring measures.
To avoid legal consequences — particularly liability risks — the highest court rulings require a range of analyses to determine whether the planned and implemented restructuring measures are capable of restoring the company’s financial equilibrium. It is therefore required that a company must be objectively capable of being restructured and that the measures undertaken are, collectively, objectively suitable to achieve a comprehensive restructuring within a manageable period of time.
Management and lenders can only meet these requirements — and thus avoid potential legal consequences — by preparing and relying on a comprehensive restructuring concept.
Furthermore, the Minimum Requirements for Risk Management (MaRisk) stipulate that any credit institution considering participation in a restructuring process must obtain a restructuring concept (also known as a restructuring plan) to assess the debtor’s restructurability before making a lending decision.
In German restructuring practice, the proof and documentation of these analyses are typically provided in the form of a restructuring expert opinion (Sanierungsgutachten). A company in crisis will, as a rule, not receive any new financing from credit institutions without such an opinion, prepared by an independent, qualified restructuring advisor.
With our specialised focus and expertise in all components of a restructuring expert opinion, we have demonstrated in numerous projects that we can efficiently and cost-effectively meet the IDW S6 requirements for such reports.
When preparing restructuring expert opinions, we are fully aware that companies are often under significant pressure due to the prevailing crisis situation and day-to-day business operations. At Turnaround Management Partners, we ensure that the preparation of the expert opinion does not place an additional burden on you — but instead helps to quickly relieve the situation.
Please feel free to contact us for a non-binding discussion about how we can support you and your company.
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