Covid 19 - Suspension of the obligation to file for insolvency and other changes in insolvency law
In the following we show under which conditions the suspension of the obligation to file for insolvency applies and what other changes have been introduced in the area of insolvency law to mitigate the economic consequences of the corona epidemic.
What conditions must a company meet in order to benefit from the suspension of the obligation to file for insolvency?
One condition for suspension is that the reason for insolvency (i.e. illiquidity, impending illiquidity or over-indebtedness) must be caused by the effects of the corona epidemic – which must be proven by appropriate documentation of the liquidity development of the company before and after the occurrence of the corona-related restrictions. In addition, the suspension only takes effect if the company has reasonable prospects of restructuring, be it due to an application for public assistance or due to serious financing or restructuring negotiations. In this context, if the company was not illiquid on 31 December 2019, it is presumed that the insolvency maturity is caused by the effects of the corona-epidemic and that there are prospects of eliminating the reason for insolvency.
If the management or the executive board makes payments after the company has become illiquid or over-indebted, this may lead to a liability of the management and executive board under German corporate law. How does the suspension of the obligation to file for insolvency affect this liability?
If the obligation to file for insolvency is suspended, payments made in the ordinary course of business, in particular payments which serve to maintain or resume business operations or to implement a reorganisation concept, shall be deemed compatible with the diligence of a prudent and conscientious manager. Accordingly, no liability of the management and executive board shall derive from such payments; this means a considerable liability relief for managers.
Are there other things that companies need to be aware of during the suspension period?
Repayments of new loans granted during the suspension period and the provision of securities for such loans are deemed not to be disadvantageous to creditors until 30 September 2023 and are therefore only partially contestable in any subsequent insolvency. This also applies to repayments of shareholder loans granted during the suspension period until 30 September 2023. Loans and securities for such loans provided until 30 September 2020 are not to be considered an immoral contribution to a delay in filing for insolvency (Insolvenzverschleppung). This should make it considerably easier to grant loans, as in most cases the submission of a restructuring report in cases of this kind will not be requested. These privileges also apply without restriction to loans granted by the Kreditanstalt für Wiederaufbau (KfW) and its financing partners or by other institutions under state corona assistance programmes, even if the loan is granted or secured after the end of the suspension period. It should also be noted that the opening of insolvency proceedings for creditor insolvency applications filed by 28 June 2020 is additionally subject to the condition that the reason for insolvency already existed on 1 March 2020.
What happens if the application process for public assistance is not completed by the end of September 2020?
The German Federal Ministry of Justice and Consumer Protection may extend, by regulation, the suspension measure until 31 March 2021 at the latest.
What does it mean for the business partners or creditors of the companies concerned if their supplier or customer is illiquid or over-indebted for months without filing an insolvency application?
As soon as there are indications that a business partner has entered a financial crisis as a result of the corona epidemic, the usual measures that apply to business relationships with companies in crisis should be taken, whether on the supplier or customer side. We are happy to advise you on the appropriate steps in your case.
If you have any questions in connection with the suspension of the obligation to file for insolvency and its effects, or regarding any of the other changes in the area of insolvency described above, please reach out to your usual kallan contact persons or contact us at firstname.lastname@example.org.
The situation resulting from the effects of coronavirus is changing rapidly. The above information reflects the situation on 3 April 2020,which may have changed since then.