#COVInsAG

The obligation to file for insolvency is temporarily suspended

The obligation to file for insolvency is temporarily suspended

The previous obligation to file for insolvency was suspended until September 30, 2020 if the insolvency maturity is based on the consequences of the COVID-19 pandemic. The aim of the adjustment is to prevent the imminent insolvency of companies.

Conditions for the suspension of the obligation to file for insolvency

  • If an inability to pay or overindebtedness is the reason for insolvency, legal entities are obliged pursuant to section 15a of the German Insolvency Act to file for insolvency without culpable delay, but in any case no later than three weeks after the occurrence of the reason for insolvency
  • According to the amendment to the law in force, the obligation to file for insolvency is suspended until September 30, 2020 if the insolvency maturity is based on the consequences of the COVID-19 pandemic, if there are prospects of eliminating the inability to pay (pursuant to Section 1 of the COVID-19 Insolvency Suspension Law). If the debtor was not insolvent on December 31, 2019, it is assumed that the insolvency maturity is based on the consequences of the COVID-19 pandemic
  • The coalition committee has decided to extend the above measures as a result of the continuing and recently even increasing number of cases. A legislative proposal to this effect has been submitted to the Federal Cabinet. According to the previous version of Section 1 COVID-19 Insolvency Suspension Law (COVInsAG), the obligation to file for insolvency pursuant to Section 15a of the German Insolvency Act and Section 42 (2) of the German Civil Code is suspended until September 30, 2020. This suspension of the obligation to file for insolvency is now to be extended until December 31, 2020 for the event of over-indebtedness under insolvency law pursuant to section 19 (1) of the German Insolvency Act. According to COVInsAG, the obligation to file for insolvency is not suspended if the insolvency maturity is not based on the consequences of the COVID 19 pandemic and there is no prospect of eliminating the inability to pay. An extension of the suspension of the obligation to file for insolvency due to illiquidity is not planned. In other words, companies that are illiquid will be legally obliged to file for insolvency again as of October 1, 2020 at the latest.
  • The extension of the suspension of the obligation to file for insolvency was already laid down in the COVInsAG and was able to be implemented by decree by the Federal Government until at most March 31, 2021. At present, this authorization laid down in the COVInsAG is not being exercised. Rather, the legislator has decided to extend the suspension by law and to delete the authorization laid down in the COVInsAG of the Federal Government to extend such suspension. Consequently, a further extension of the suspension period beyond December 31, 2020, can likewise only be adopted by law.

What are the main consequences?

Limitations of liability/restriction of §§ 129 German Insolvency Act ff. and § 64 Limited Liability Companies Act in case of suspension of the obligation to file for insolvency (the regulated consequences of the suspension will also be extended until December 31, 2020 in the event of further suspension, provided that no insolvency exists):

  • Suspension of liability for payments made in the ordinary course of business, in particular for the maintenance or resumption of business operations or the implementation of a reorganisation concept (in case of overindebtedness under insolvency law until December 31, 2020)
  • Suspension of creditor disadvantage for the repayment of new loans granted during the suspension period up to September 30, 2023 and the provision of collateral during the suspension period. This also includes shareholder loans and payments on claims arising from legal acts which are economically equivalent to such a loan (in case of overindebtedness under insolvency law until December 31, 2020)
  • Suspension of the possibility of rescission in subsequent insolvency proceedings for legal acts which granted or enabled the other party to secure or satisfy claims of that kind and at that time; this shall not apply if the other party was aware that the debtor's restructuring and financing efforts were not suitable to remedy an insolvency which had occurred (in case of overindebtedness under insolvency law until December 31, 2020)

You are welcome to contact us for clarity regarding your current financial situation and any shortages. Our experienced restructuring experts will advise you professionally and guide you safely through the crisis.

Sources: *Law to mitigate the consequences of the COVID-19 pandemic in civil, insolvency and criminal proceedings, of March 27, 2020, Federal Law Gazette I 2020, No. 14, p. 569 et seq.

PLUTA provides support for:

  1. The examination of the conditions attached to the suspension of the obligation to file for insolvency, which must be carefully examined in each individual case
  2. The preparation of liquidity plans. Even if the obligation to apply is suspended, it must be possible to maintain the operation of the company with the available financial resources
  3. The elaboration of a restructuring concept. The well-founded prospect of a reorganization requires at least a rough concept by a neutral third party
  4. The examination of the solvency as of December 31, 2019, which is necessary to avoid an obligation to file for insolvency
  5. The verification and documentation of payments after the occurrence of insolvency reasons, which is in any case still necessary
  6. The examination of alternatives - in particular insolvency proceedings in self-administration (§ 270a/270b of the German Insolvency Act) - may be appropriate or even necessary in individual cases

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further measures to mitigate COVID-19-related economic damages

#ShortTimeWork

  • Application possible retroactively to March 1st.
  • Allowed in case of absence from work by >10% (previously 30%) of the workforce with more than 10% of the salary
  • Full refund of social security contributions
  • Also applies to temporary employment agencies
  • Abstention from building up negative working time accounts
  • Term up to 12 months

#TaxDeferral

  • Application for interest-free deferral of mature and maturing taxes until end of 2020
  • Applications for adjustment of advance payments (income tax / corporate tax / VAT)
  • Refund of advance payments is possible
  • Suspension of late payment penalties / enforcement measures until the end of 2020

#KfWLoans

  • Risk assumption by KfW of up to 90% of the loan volume
  • Application for and granting of loans via intermediary financing partners ("house banks")
  • Up to 800 TEUR with 100% assumption of the credit default risk

#LiquidityAid

  • Liquidity assistance from the Bundesländer for companies and the self-employed (including emergency aid, guarantees, bridging loans, mezzanine)

#CovCivilLaw

  • Temporary right to refuse performance in the context of continuing obligations (for consumers and micro-entrepreneurs**)
  • Temporary deferral within the framework of consumer loan agreements
  • Restriction of the possibility of termination of a rental and lease agreement by the landlord
  • Holding of general meetings and shareholders' meetings by means of electronic communication
  • Measures for holding staff council elections in order to ensure that staff councils as well as works councils have the basic capacity to act and make decisions (implementation planned)

*) Act on the mitigation of the consequences of the COVID-19 pandemic in civil, insolvency and criminal proceedings of March 27, 2020, Federal Law Gazette Part 1 No. 14, 569 ff.

To mitigate COVID-19-related economic damage, further extensive measures by companies are necessary.

PLUTA supports