In a financial crisis distressed businesses are often in need of fresh money. Financial support during a restructuring can be categorised according to whether it aims simply to provide bridging finance or facilitate a full restructuring. The distinction is important in practice, as German jurisprudence sets out different requirements – loans provided for restructuring and those provided as bridging finance are treated differently. In particular, loans for restructuring must be based on a positive restructuring opinion. It must be assured that the loan provided for restructuring suffices to fully finance the company throughout the period deemed necessary for restructuring, which is usually two to three years. Otherwise, these loans could be considered contrary to public policy (Section 138 of the Civil Code) and thus void. In addition to the loan agreements being potentially void, lenders might be held liable to pay damages under Section 826 of the Civil Code if they act in a way that is driven by self interest to delay an inevitable insolvency and thereby to harm other creditors.

Unlike restructuring loans, bridging finance does not aim to provide full financing throughout the whole restructuring period. It provides the distressed business with liquidity in order to fill a liquidity gap in the period during which a restructuring opinion will be sought and provided. The latter is typically established in accordance with Standard 6 as provided by the Institute of Public Auditors in Germany. Hence, it is important to know the courts' criteria in determining whether a loan qualifies as bridging finance.


On November 4 2015 the Berlin Higher Regional Court dealt with certain aspects concerning the distinction between loans provided for restructuring and bridging finance. In particular, the court limited the permissible term allowed for bridging finance loans and declared a loan defined by the parties as bridging finance to be void for not meeting the permissible term requirements. The court justified its decision by stating that the loan in question was not aimed solely at bridging a liquidity gap to facilitate the possibility of effectively restructuring the distressed business, but also at ensuring the survival of the business.

In particular, the loan in this case had a term of one year. Further, the loan documentation provided the lender with a special right of cancellation if either the request to provide a restructuring opinion was withdrawn or if the restructuring opinion predicted a negative restructuring forecast. Additionally, the borrower was obliged to keep the lenders up to date about the progress of the restructuring on a monthly basis.

The court regarded this information duty as evidence that the loan's main purpose was not merely to allow a restructuring opinion to be sought, but was predominantly aimed at restructuring the business.

As such, the bridging finance was recharacterised as a restructuring loan, but fell short of meeting the criterion for such a loan. In particular, the loan was insufficient to provide for a serious restructuring attempt and was therefore held to be void according to Section 138 of the Civil Code.

In general, the court held that in order for a loan to be characterised as bridging finance it must comply with two criteria:

  • It must aim to assist in facilitating the procurement of a restructuring opinion (usually the opinion will be provided in accordance with Standard 6 of the Institute of Public Auditors in Germany); and
  • The credit period for bridging finance must not exceed three weeks.

The court derived the maximum three-week period by referring to previous case law issued by the Federal Court of Justice and Section 15a of the Insolvency Code. According to the code, a request for the opening of proceedings must be filed at the latest within three weeks after the distressed business becomes cash-flow or balance-sheet insolvent.

The decision is not final, as the plaintiff has lodged an appeal with the Federal Court of Justice.


The judgment is not understandable from either a legal or practical viewpoint.

The court derived the three-week period from Section 15a of the Insolvency Code. However, no serious link can be established between Section 15a and bridging finance, as the injection of new money removes the obligation to open insolvency proceedings and in particular resolves the short-term illiquidity of the business. Therefore, the time limit provided for in Section 15a should not be applied to bridging finance.

The Federal Court of Justice's judgment cited as precedent for its three-week ruling does not seem to be transferable to the case at hand, or to bridging finance generally. The second chamber of the Federal Court of Justice dealt with a completely different legal question, namely the exceptional case of when a shareholder loan is not deemed to be equity. The court ruled that a loan under those particular circumstances could not be recharacterised as equity, especially if the loan's term was, among other things, limited to three weeks. The ruling does not therefore provide any guidance in relation to the time limit for bridging finance provided by third-party creditors.

Further, another chamber of the court previously ruled that bridging finance usually has a term of one to three months. That chamber also mentioned the possibility of further extending the term of the bridging finance.

From a practical viewpoint, if the three-week term applied to bridging finance, many companies worth saving could simply not be saved. Banks would not risk granting bridging finance, as issuing a serious restructuring opinion usually takes longer than three weeks. Consequently, these loans would be in danger of being qualified as void. The required time to issue a serious restructuring opinion depends on various factors, such as the size of the distressed business, the number of creditors and the financing structure. In practice, bridging finance often has an initial term of two to three months. This longer timeframe is essential, as the restructuring opinion must be provided and banks must carry out a plausibility check on the restructuring opinion once it is available. Further, it is usually possible to extend the bridging finance. Such extension is important in order to prevent a liquidity shortage in the time necessary for the final drafting of the subsequent restructuring documentation.

In the present case, the loan which was categorised by the parties as bridging finance had a term of one year. This is an unusually long term for bridging finance, therefore the re-characterisation by the court as a restructuring loan is unsurprising. What is of general concern are the remarks establishing a three-week time limit for bridging finance, which does not reflect market practice and is in fact completely unrealistic. Further, the court took the borrower's duty to inform the lender about the restructuring progress as evidence that the loan in question did not solely aim at facilitating the provision of a restructuring opinion. However, such information duties are recognised as standard in most bridging finance loan documentation.

The three-week period as established by the court must be considered as both legally wrong and out of step with market practice. An application of the court's criteria would mean the end of bridging finance and consequently in many cases would also signify the end of out-of-court restructurings. The general approach of the court will not be welcomed by stakeholders in a restructuring, as it fails to appreciate the legal context and practical application of the rules which are for the benefit of the debtor and creditor alike. It is hoped that the position will be clarified on appeal.

For further information on this topic please contact Stefan Sax or Martin Jawansky at Clifford Chance LLP by telephone (+49 69 7199 01) or email ([email protected] or [email protected]). The Clifford Chance website can be accessed at