Debt-equity swap

In a debt-equity swap, creditors waive part or all of their claim in exchange for newly issued shares or membership interests in the debtor company. The legal basis in an insolvency plan is § 225a InsO, which expressly allows the plan to convert claims into equity or membership rights — even against the will of existing shareholders, whose consent is not required (shareholder rights are overridden within the plan). A debt-equity swap is likewise available as a restructuring measure in a StaRUG proceeding.

Economically, the swap immediately deleverages the company without any cash outflow — creditors move from lender to shareholder and share in the future business risk instead of receiving a (often lower) cash payout ratio. For creditors, the swap only makes sense if the going-concern value of the restructured company exceeds the expected insolvency payout ratio — valuing the new shares is accordingly a central point of dispute in plan negotiations.

For buyers and investors, the debt-equity swap matters mainly as an entry channel: an investor who acquires claims against a distressed company cheaply on the secondary market (a loan-to-own strategy) can convert them into a majority or controlling stake under the plan — an alternative route to a classic asset or share deal, especially common in Eigenverwaltung and StaRUG cases with a viable core business.