In Germany, a growing wave of discontent is rising among small, individual investors. Their grievance is stark: after losing their entire investment in companies on the brink of collapse, they are being barred from putting fresh money into these same businesses during their restructuring. This controversial practice, emerging from a relatively new legal process, has ignited social media fury and legal battles, putting the spotlight on the rights of minority shareholders in corporate distress.
The StaRUG Process: A Lifeline for Companies, A Wipeout for Shareholders
The heart of the controversy is a German law known as StaRUG, introduced in 2021. It allows companies to restructure their debts before formally becoming insolvent. A key feature is that existing management stays in control, and no court-appointed administrator is brought in. While designed as a faster, more efficient rescue tool, the outcomes for equity investors have been severe.
High-profile cases like battery maker Varta AG, auto supplier Leoni AG, and communications-equipment firm Mynaric AG have all used StaRUG in recent years. In each instance, existing stockholders were completely wiped out. When these companies later sought new equity capital to fund their recovery, these same minority investors were not given the rights to subscribe to new shares. Instead, the opportunity was often reserved for major creditors or large, strategic shareholders.
This exclusion has left a community of retail investors feeling indignant and betrayed. They argue they are being unfairly shut out from any potential upside in a company they supported until the very end. Shareholder advocates have taken to social media, and legal challenges are mounting against these restructuring plans.
Clashing Perspectives: Risk vs. Right to Recovery
The situation has created a clear divide in the financial world. On one side, restructuring experts express bewilderment at the small investors' complaints. They point out that investing in distressed companies is inherently high-risk, and by the time StaRUG is invoked, the existing equity is typically worthless.
"Subscribing for new capital typically does not rescue their existing investment," explained Marlene Ruf, a restructuring partner at law firm Milbank LLP in Munich. "The existing investment in these situations is typically worth zero." She cautions that the emotional desire to salvage the old loss can cloud judgment about the risks of a new investment.
On the other side, advocates for small shareholders insist they deserve a chance to participate in a potential turnaround. They point to a rare counter-example: the restructuring of BayWa AG, an agriculture and renewables conglomerate. In its "StaRUG-light" plan, not only did banks and major shareholders provide new financing, but ordinary shareholders were also given a chance to chip in. The move was successful, with an 89% takeup raising about €179 million.
"BayWa is a really positive signal," said Holger Clemens Hinz of Quirin Privatbank. "From a stakeholder perspective: Why wouldn’t you want to include the shareholders that have remained with the company right until the end?" However, experts note BayWa was in better financial health than most StaRUG candidates, making it an outlier.
The Varta Case: A Constitutional Challenge
The most scrutinized case is that of Varta AG. Once valued at over €7 billion as a supplier for Apple's AirPods, the company, burdened by debt and failed investments, underwent a StaRUG restructuring in 2024. Shareholders were wiped out. The new equity was split among creditors, a customer (Porsche AG), and the original majority owner, Austrian industrialist Michael Tojner.
Minority investors' legal appeals failed at lower courts. Now, some are taking a groundbreaking step: appealing to Germany's constitutional court. Lawyer Markus Kerber, representing 130 Varta shareholders, argues that StaRUG's impact on property rights is incompatible with the German constitution. The court has yet to decide if it will hear the case, a process that could take months.
In defense, Michael Tojner told the Frankfurter Allgemeine Zeitung that including shareholders was impossible because the company lacked audited accounts, preventing the creation of a legally required prospectus for a capital raise. Disgruntled investors counter that a new corporate entity could have been used to raise cash, making the accounting issue moot.
The animosity towards the process is palpable. In a 2024 survey by the Düsseldorf Stock Exchange, the "most hated word" among market participants was 'StaRUG'. "When investors realize that, as in the aforementioned cases of Varta and Leoni, they will suffer a complete loss of capital, this does not inspire confidence," said exchange managing director Rolf Deml.
For now, a major overhaul of the StaRUG law seems unlikely, as more companies use it to avoid costlier insolvency. The fundamental tension remains. As Marlene Ruf of Milbank states, "Individual shareholders losing their investments is not a consequence of the StaRUG... It reflects the inherent risk of an equity investment decision." Yet, for thousands of German retail investors, the feeling of being unfairly excluded in the final act is a bitter pill to swallow, potentially deterring future stock market participation.
