Insolvency in the Coronavirus Crisis The COVInsAG

The current coronavirus pandemic also has consequences for insolvency law. Companies whose financial situation has deteriorated massively as a result of the restrictions imposed due to the coronavirus pandemic and which have virtually no income are at serious risk of sliding into insolvency. On the basis of a new act, these companies that are threatened with insolvency are to be given financial support in order to avert insolvency. The German parliament has passed and published this act, the Act on the temporary suspension of the duty to file for insolvency and on limitation of the liability of governing bodies in the case of insolvency caused by the Covid 19 pandemic, the COVInsAG, in order to prevent a wave of insolvencies.Changes to insolvency law in detailThe duty to file for insolvency is suspended retroactively from 1 March 2020 until 30 September 2020 under the new act, so that companies are given the opportunity to survive this economic crisis. Terminations of contracts on the ground of payment arrears are also to be made more difficult. Government support payments are also intended to help companies through this bridging period. A condition for the granting of government support is that the economic problems and resulting insolvency are caused by the coronavirus pandemic. There must also be a foreseeable and generally positive prognosis for the continuation of the company and its business operations and for elimination of the insolvency. In addition, the company must not already have been insolvent before the outbreak of the coronavirus pandemic.Focus of the change in the lawThe focus is on suspension of the duty to file for insolvency. Previously, companies were required to file for insolvency within three weeks at the latest when they were insolvent or overindebted. This three week period is now suspended, retroactively from 1 March until 30 September 2020.As a rule, a company is insolvent if it is insolvent or overindebted. A debtor is insolvent if it is unable to fulfil due payment obligations and there are no liquid funds, for example to pay wages or suppliers. Insolvency is presumed if the debtor has ceased making payments. A debtor is overindebted if the assets of the company are less than its liabilities unless the continuation of the company is predominantly likely in the circumstances.If these conditions are met, the managing directors of companies are obliged to file for insolvency. The managing director’s personal knowledge of the insolvency is not relevant. It is sufficient that these grounds are present from an objective point of view.The occurrence of insolvency for companies as a result of the coronavirus pandemic is determined as follows. If companies were not insolvent before 31 December 2019 and therefore only ran into financial difficulties due to the crisis caused by the coronavirus, it is presumed that the insolvency is due to the corona crisis. These companies are to be given access to government support and assistance. If these requirements are not met, government support is refused because the reasons are not due to the coronavirus crisis. Misuse by companies that would have become insolvent even without the coronavirus pandemic is thus to be prevented.Delayed filing for insolvencyIn the case of delayed filing for insolvency by the managing director of a company, strict rules continue to apply. The managing director is personally liable for the resulting consequences. This may even amount to criminal liability for delayed filing for insolvency.There is also a risk that transactions that disadvantage creditors or security granted when insolvency has already occurred may be avoided.Payment restrictions also continue to apply for companies, which can significantly impair the continuation of business operations.New rules in the coronavirus crisisThe main focus of the new rules is the suspension of the duty to file for insolvency until 30 September 2020.In addition, the right of creditors to apply for insolvency in respect of debtor companies is suspended for three months where the company was not already insolvent before 1 March 2020.Payments that disadvantage creditors or the granting of avoidable security remain prohibited.New rules are also planned for natural persons in personal insolvency. The discharge of residual debt is not to be refused on the ground that the opening of insolvency proceedings between 1 March 2020 and 30 September 2020 was delayed.Finally, the changes provide for the possibility of extending the special rules by statutory order until 31 March 2021.Support to avert insolvency during the coronavirus crisisGovernment support from the federal government and the federal states is being made available on a large scale in order to avert insolvencies during the coronavirus crisis. These state support measures are intended primarily to give affected companies time so that they can rebuild their ongoing business operations after the corona crisis.For many companies and self employed persons, these rules are often difficult to implement, especially in times of crisis, so that legal advice and support is frequently needed.Attorney at law Hans Jörg Briest and his team in Berlin advise companies and self employed persons even in times of the coronavirus pandemic and in particular assist with applications for government support. Advice can be provided by telephone and email without personal meetings, even though personal contact would usually be preferred.Do not hesitate to seek help and contact attorney at law Hans Jörg Briest with any questions relating to insolvency in the coronavirus crisis.