Basic information on Section 1 StaRUG
Section 1 of the Act on the Stabilisation and Restructuring Framework for Companies (StaRUG) obliges a company's management to continuously monitor developments that could jeopardise the continued existence of the legal entity (early crisis detection). In addition, Section 1 StaRUG requires countermeasures to be taken against recognised risks (crisis management) and the supervisory bodies to be informed accordingly (duty to inform).
Section 1 StaRUG only lays down minimum standards and is not exhaustive; rather, other duties of care and responsibilities under company law continue to apply.
Content of the new IDW ES 16
On 3 February 2025, the IDW's Expert Committee on Restructuring and Insolvency adopted a draft (not yet finalised) on the structure of early crisis detection and crisis management in accordance with Section 1 StaRUG. This draft specifies the requirements that Section 1 StaRUG places on members of the management board. IDW standards are not directly legally binding for directors. Rather, their duties are derived solely from the law and from case law that specifies them. However, the standards reflect the opinion of the IDW with reference to the applicable standards and thus provide valuable information to all users in the respective regulatory areas addressed. It is therefore worth taking a look at the new IDW ES 16 for all company directors.
Crisis detection
Risks that could jeopardise the continued existence of a company are developments that, without countermeasures, could lead to significant unfavourable changes in the net assets, financial position and earnings of the company and thus create or significantly increase the risk of insolvency. Such developments regularly occur before an insolvency materializes. They can occur at company level but also in relation to the group of companies to which the company belongs (and on which certain dependencies exist). These developments can be exogenous shocks or sector-specific legislation, for example.
According to IDW ES 16 the law assumes that corporate planning is an obligation of every director. However, the specifics of this corporate planning depends on whether or not the company is already in a crisis and in what phase, and how susceptible it is to crises. However, planning is a necessary but not a sufficient part of early crisis detection. In addition to such planning, there a risk management system has to exist, i.e., an internal organisational measures for identifying, analysing and evaluating, managing, communicating, monitoring and improving risks. How this risk management system is implemented and in particular the level of detail required is at the discretion of the management, taking into account the sector, size and structure of the company. Corporate planning and risk management systems must be mutually harmonised. Corporate planning reflects the company's financial and liquidity position, which in turn depends on the development of certain recognised risks. IDW ES 16 then describes the individual areas of a (possible) risk management system in more detail.
Documentation is not mandatory under the law. However, this certainly makes sense in the director's own interest. This also includes all planning assumptions, which must be comprehensible. Planning should cover 12-18 months, possibly up to 24 months, depending on the business model.
Crisis management
Recognised risks that could jeopardise the company's continued existence must be eliminated by means of suitable countermeasures. IDW ES16 uses the components of the IDW standard on restructuring concepts (IDW S 6) for the recommendations for identifying these measures – at least in the case of an advanced crisis (but without imposing the same formal and documentation requirements). The measures identified in this way must then be implemented accordingly.
Conclusion and evaluation
It is not only in view of the current economic development that it is to be welcomed that the IDW deals in detail with the duties of early crisis detection and crisis management. Managers should also do this for the benefit of their company. The threshold of jeopardising the continued existence of the company, which Section 1 StaRUG contains, only plays a subordinate role. Even low-threshold risks must be managed and can quickly become existential if accumulated; this is a general duty of every managing director.
For early crisis detection, every manager is recommended to have meaningful business planning taking into account the results of all identified risks. This is the only way to reliably assess the impact of the identified (potential) risks on the continued existence of the company. Internal processes that are firmly anchored in everyday working life are important for recognising and classifying potential risks. Each manager must then assess the level of detail of these processes that is appropriate for their respective company. For example, it is important to consider whether there are dependencies on an (international) groups of companies, how "dependent" the company is on legislation, how likely it is that legislative proposals will have a negative impact and what impact even smaller risks could have. It is important to consider how large the company is, how complex its own organisation is and how quickly processes can be changed in order to react to signs of crisis.
Whether the core components of a restructuring report in accordance with IDW S 6 must always be implemented in crisis management seems very questionable. At least in the case of individual, definable risks, early crisis stages or small, non-complex and group-independent companies, this may be helpful in principle (and may often be carried out without knowledge of the content of IDW S 6), but cannot be seriously required to fulfil the obligations of Section 1 StaRUG.
The detailed description of the process of early risk identification in IDW ES 16 (cf. 35-54) is very helpful. Further, more concrete examples of early crisis detection would be possible and desirable for a further developed version of IDW ES 16. Naturally, these are often specific to individual sectors, but examples can certainly help managers to organise the content of the processes for their company.
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