Obligations to file for insolvency will be suspended

***** Update from 20.03.2020 *****

The bill already announced last week is expected to be passed by the Bundestag and Bundesrat next week. However, it remains to be seen what the bill actually states.

• Based on the current state of discussions, it is expected that the obligation to file for insolvency will be suspended for a few months.
  
  The prerequisites under discussion are:
  > illiquidity/over-indebtedness is due to the impact of the coronavirus pandemic;
     this is presumed when factual insolvency has occurred from a reference date
     in March 2020 yet to be determined
  > serious funding or restructuring efforts
  > reasonable prospects of restructuring 

• It appears that payments made during the period of suspension for the purpose of maintaining the operation of the business are supposed to be considered compatible with the requirements of emergency management (section 64, 2nd sentence, German Limited Liability Companies Act (GmbHG) and section 92(2), 2nd sentence, German Stock Corporation Act (AktG)).
• It is also considered granting lenders liability relief in the case of new loans to coronavirus-hit companies.
• If these parameters are implemented, in order for the management team to benefit from a suspension of the obligation to file for insolvency and the presumption of emergency management, the management would have to demonstrate at least the following: 

           -     no illiquidity or over-indebtedness l before the reference date
           -     serious funding or restructuring efforts
           -     reasonable prospects of restructuring
           -     payments to be made after factual insolvency serve to maintain business operations 

*****

The Federal Ministry of Justice and Consumer Protection is preparing legislation suspending the obligation to file for insolvency in order to protect companies that encounter financial difficulties due to the coronavirus epidemic.

https://www.bmjv.de/SharedDocs/Pressemitteilungen/DE/2020/031620_Insolvenzantragspflicht.html

For comparison, the regulations from 2013 and 2016: 

“Section 1 [Suspension of the obligation to file for insolvency]
If the occurrence of illiquidity or overindebtedness is due to the effects of the catastrophic floods in May and June 2013, the obligation to file for insolvency pursuant to section 15a of the German Insolvency Code (InsO) will be suspended as long as those required to file an application are engaged in serious financing or restructuring negotiations and there are reasonable prospects of restructuring as a result, but for no longer than until the end of 31 December 2013.”

“Section 1 [Suspension of the obligation to file for insolvency]
If the occurrence of illiquidity or overindebtedness is due to the effects of the heavy rainfall and floods in May and June 2016, the obligation to file for insolvency pursuant to section 15a of the German Insolvency Code (InsO) will be suspended for as long as those required to file an application are engaged in serious financing or restructuring negotiations and there are reasonable prospects of restructuring as a result, but for no longer than until the end of 31 December 2016.”

Insofar as the wording of the new regulation is based on the legislation adopted in 2013 and 2016, companies should ensure that they can prove that the overindebtedness or illiquidity was caused by the Covid-19 epidemic, in order to be able to provide the necessary evidence that the obligation to apply for insolvency is also suspended in the specific case. 

It remains to be seen whether and to what extent the requirements for emergency management in accordance with section 64 of the German Limited Liability Companies Act (GmbHG) and section 92(2) of the German Stock Corporation Act (AktG) will be adjusted, in particular to what extent there will be any relaxation or easing of the burden of proof regarding payments whose omission is not permitted by law.