Businesses whose existence is threatened by the crisis surrounding the coronavirus are to be lent a helping hand. Germany’s lower house of parliament, the Bundestag, has legislated for the suspension of the obligation to file for insolvency.
Businesses on the brink of insolvency, i.e. unable to pay or overindebted, must file for insolvency as soon as possible, but at the latest within three weeks. This obligation is now being relaxed in order to avoid a deluge of insolvencies in the midst of the coronavirus crisis. We at the commercial law firm MTR Rechtsanwälte can report that the Bundestag has approved a temporary suspension of the obligation to file for insolvency until September 30, 2020 with retroactive effect from March 1, 2020.
It should be noted, however, that suspension of the obligation to file for insolvency is conditional on a given company’s economic difficulties being attributable to the crisis surrounding the coronavirus. There is assumed to be a causal relationship between the coronavirus pandemic and the onset of insolvency if the business was still solvent on December 31, 2019.
A business is considered to be insolvent if it is no longer able to pay its bills, loans, or wages. It is deemed to be overindebted if the debts exceed the total value of the business. In both cases, the business is on the brink of insolvency and, depending on its corporate form, the managing director or executive board is obliged to file for insolvency as soon as possible. A delay in filing for insolvency may render those responsible liable to prosecution. Thanks to the suspension of the obligation to file for insolvency until September 30, 2020, businesses have more time to consolidate as well as potentially take advantage of other government support measures or loans from Germany’s state-owned development bank, the KfW.
Businesses on the brink of insolvency are normally not permitted to make any further payments. Requirements are now set to be relaxed even for payments made after the onset of insolvency. This includes making it easier for businesses to maintain their commercial relationships. While creditors are also entitled under normal circumstances to file for insolvency in relation to a business, this right is restricted as well. Insolvency proceedings will only be opened if the grounds for doing so predate March 1, 2020. The restrictions on creditors’ rights are initially limited to three months, whereas the suspension of the obligation to file for insolvency lasts until September 30, 2020. However, the latter may be extended until March 31, 2021.
Lawyers with experience in the field of insolvency law can advise businesses.