Debt-To-Equity Swaps To Be Codified In The ESUG

An Interesting Alternative For Creditors And Company In Crisis And Insolvency

Through the introduction of Sec. 225a of the German Insolvency Code [Insolvenzordnung, InsO] within the scope of the German Act to Further Facilitate the Restructuring of Enterprises [Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen, ESUG], attention has now been drawn to debt-to-equity swaps. The creditor of a company waives its claim (from the company's perspective: a debt) and acquires shares in such company (equity) in return. The ESUG has codified the share swap within the insolvency plan procedure; important questions, however, especially regarding the claim valuation, remain unanswered. The legislative reform will doubtlessly also boost swaps prior to insolvency.