The federal government intends to offer companies that are negatively impacted by the corona crisis and their corporate representatives time to conduct the necessary financing and restructuring negotiations. This has now been affected by the Act on the Temporary Suspension of the Obligation to File for Insolvency and to Limit the Liability of Corporate Bodies in the event of insolvencies caused by the COVID-19 pandemic.
Suspending the obligation to file for insolvency until September 30, 2020, and the subsequent lifting of the payment bans under corporate law once insolvency has occurred are the key points of the statutory provisions.
Suspension of the obligation to file for insolvency
The obligation to file an insolvency petition pursuant to Section 15a Insolvency Code will be suspended until September 30, 2020.
It is required that the insolvency must be based on the consequences of the spread of the COVID-19 pandemic. This is presumed to be the case if the insolvency was not yet present on December 31, 2019. It is also required that there are prospects of eliminating the existing insolvency.
This leads to the recommendation that members of the executive board should not rely solely on the presumption rule, but should document the grounds for the financial crisis. Where it is evident that a sales decline, the lack of new orders, or cancellations are due to the COVID-19 pandemic, these documents should be collected in the event of a later dispute.
The legislator continues to expect that the relevant companies will conduct serious negotiations with banks, insurance companies, landlords, creditors, and public authorities. These negotiations should also be documented. Where applications are filed for public assistance, it should be recorded that the relevant conditions are met.
Plans of executive board members for restructuring the company after successful implementation of the measures should be recorded in writing. It is also to maintain a continuous liquidity forecast in the event of business closures.
Should the restructuring negotiations finally fail prior to September 30, 2020, the obligation to file for insolvency will immediately be revived.
Limitation of the liability of corporate bodies
The executive board members of a limited liability company, a stock corporation, a cooperative society, or an association are personally liable for payments made from the company’s assets made after insolvency. The payment bans linked to insolvency will also be suspended for the period of suspension of the obligation to file a petition for insolvency to protect the members of the executive board of limited liability companies from these liability risks.
It is required that the relevant payments are made in the ordinary course of business and services to maintain or resume business operations or to implement a restructuring concept.
The repayment of restructuring loans was facilitated and the right to contest insolvency was restricted in a set of accompanying measures.
Once the insolvency status was reached, there had been a heightened risk to date for creditors and contractual partners of the debtor to have to return services and payments received in subsequent insolvency proceedings as a result of an insolvency challenges. These provisions were relaxed with a suspension of the obligation to file for insolvency to maintain business relations.
Repayment was also facilitated in these cases to encourage the granting of shareholder loans.