GERMANY Law and Practice Contributed by: Michael Josenhans, Lucas Lengersdorf and Karl Kuhn, Freshfields
3.6 Recent Legal and Commercial Developments Pre-Insolvency Restructurings German legislation has established a compre - hensive legal framework for voluntary out-of- court restructurings. As a result, certain provi - sions of financing agreements have become subject to increased negotiations, though such renegotiations need to be closely observed in line with the law. For example, certain lenders have intended to include Stabilisation and Restruc - turing Act (StaRUG) proceedings as an event of default, even though such provision would be void and potentially cross-contaminate the rest of the credit agreement. Please refer to 7.4 Res- cue or Reorganisation Procedures Other Than Insolvency for further discussion of StaRUG. Sanctions Sanctions imposed in connection with the Ukraine war are still drawing close attention to the sanctions clauses in financing agreements. While in most cases the previous market stand - ard of flexible sanctions provisions is sufficient to cater for this increased awareness and does not require (extensive) changes, the continuous development of sanctions laws and funds’ inter - nal policies requires a stronger focus on these provisions. Henceforth, loan documents are expected to include more detailed representa - Junior/subordinated financing – despite being an option in Germany – has seen limited activity in 2024, in line with the overall trend in the European market. Junior debt is usually provided through subordinated, mezzanine or profit-participating loans ( Genussscheine ), convertible instruments and HoldCo PIK instruments. These structures, combining debt and equity features, are tailored for growth funding, acquisitions or restructuring tions or covenants in this regard. 3.7 Junior and Hybrid Capital
enhanced security, and robust enforcement mechanisms are prioritised. Additionally, recent restructuring experience as well as macroeco - nomic factors like interest rate volatility have influenced documentation trends, alongside ESG considerations, which are becoming more prominent in loan agreements. 3.3 Restrictions on Foreign Direct Lenders The banking licence requirement applies both to domestic lenders and to foreign lenders equally. Please refer to 2.1. Licensing and Regulatory Approval . Further restrictions could arise for foreign lend - ers if the loans are secured by land charges or mortgages in Germany. In this case, the lenders could be subject to tax liability in Germany in the event of income accruing from those loans. 3.4 Use of Proceeds and Acquisition Financings By law, no restrictions on the use of proceeds arise, other than for non-compliance with applicable sanctions or other public laws and the financial assistance/capital maintenance requirements described in 5.3 Downstream, Upstream and Cross-Stream Guarantees and 5.4 Restrictions on the Target . 3.5 Debt Buyback A debt buyback is often contractually permitted but accompanied by a disenfranchisement of the borrower or sponsor in such a case – meaning that, among other things, they cannot participate (and are not counted) in any decision-making by the lenders. Sponsors need to consider the risk of equitable subordination based on statu - tory German law as well as potential tax conse - quences.
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