Restructuring privilege (§ 39(4) InsO)

Under § 39(1) no. 5 InsO, claims from shareholder loans are generally subordinated in insolvency proceedings — they are only paid after all other insolvency creditors. The restructuring privilege in § 39(4) sentence 2 InsO breaks this subordination for one specific case: whoever acquires shares in a distressed company for restructuring purposes has any loans existing at that acquisition or granted afterwards excluded from subordinated-shareholder-loan treatment.

The privilege is designed to increase the incentive to invest in distressed companies rather than let them run into insolvency — without it, any fresh loan from an acquiring investor would automatically become subordinated and effectively worthless in a subsequent insolvency, making turnaround investments unattractive. It applies for a limited time until sustainable restructuring is achieved; if that fails and the company becomes insolvent, the loan keeps its privileged status as long as the restructuring attempt was genuine and not hopeless from the outset.

For distressed-M&A investors, the restructuring privilege is a key building block when structuring turnaround financing: it allows combining a share acquisition with bridge or restructuring financing without that financing automatically ranking behind every other creditor if the turnaround fails. The preconditions — in particular the restructuring purpose and the distress at the time of acquisition — should be documented, since they get scrutinised if insolvency follows.