Law to mitigate the consequences of the Covid-19 pandemic in civil, insolvency and criminal procedure law
On 25 March 2020, the lower house of the German federal parliament (Bundestag) has enacted the Act on mitigation of the consequences of the Covid-19 pandemic in civil, insolvency and criminal procedure law (BT-Drs. 19/18110 - in German) with the aim of further mitigating the negative effects of the Covid-19 pandemic on companies and private individuals. The vote of the parliament was based on a voting recommendation (BT-Drs. 19/18129 – in German) and a report (BT-Drs. 19/18158 – in German) issued by the committee for law and consumer protection. The draft law provides for temporary adjustments to legal requirements in civil, insolvency and criminal procedure law in order to avoid hardship cases that would otherwise arise as a result of the coronavirus crisis. On 27 March 2020 the upper house of the German federal parliament (Bundesrat) decided not to oppose the act. The act provides for temporary adjustments to legal requirements in civil, insolvency and criminal procedure law in order to avoid hardship cases that would otherwise arise as a result of the Covid-19 pandemic.
The regulations accompany measures already initiated by the German federal and state governments in the areas of financing, employment law and tax law.
A detailed presentation of the Covid-19 pandemic’ including the wording of the Act on mitigation of the consequences of the Covid-19 pandemic can be found here.
A bilingual version of the wording of the act (German/English) can be found here.
- Insolvency law
The obligation to file for insolvency is suspended until 30 September 2020 under certain conditions. For the duration of the suspension of the obligation to file for insolvency, the prohibition of payments is relaxed to such an extent that management is able to maintain orderly business operations. Lenders do not have to fear any liability for immoral involvement in any delayed filing for insolvency if new loans are granted during the suspension period. In the case of loans granted under government aid programmes during the Covid-19 pandemic, this also applies to loans granted after the suspension period ends. At the same time, insolvency claw-back rights are considerably restricted. This applies in particular to the repayment of new loans granted during the suspension period and the collateral provided to secure these loans during the suspension period, but also to congruent and certain incongruent performance in general, irrespective of the type of underlying contractual relationship.
- Civil law
Performance refusal rights are introduced in favour of consumers and microenterprises. The landlord’s right to terminate a lease due to late payment of rent is restricted for both residential and commercial rentals. In the case of consumer loan agreements, statutory deferrals of interest and principal payments under certain circumstances and restrictions on the lender’s ability to terminate the agreement apply.
- Corporate law
Temporary simplifications apply for the adoption of resolutions by the various bodies of corporations, cooperatives, associations and apartment owners’ associations, so that the temporary restrictions on gatherings do not lead to these entities being unable to act. Especially, as regards public companies (AG, KGaA, SE), the possibility of holding completely virtual 2020 annual general meetings is established for the first time (for more detailed information see: 'Corona crisis as a legal challenge for the annual general meeting 2020'). In addition, the extension of the period pursuant to section 17(2) German Transformation Act (Umwandlungsgesetz – UmwG) to twelve months is intended to prevent transformation measures from failing due to the fact that the balance sheet has been prepared as of an effective date which is more than eight months before the application for entry in the register.
- Criminal procedure law
The criminal courts are allowed to interrupt a trial for a maximum of three months and ten days if it cannot be held due to measures to prevent the spread of the SARS-CoV-2-virus.
Entering into force
The amendments regarding insolvency law enter into force with retro-active effect as of 1 March 2020. The amendments regarding civil law (including rental law and lending law) enter into force on 1 April 2020. The amendments regarding corporate law and criminal procedure entered into force on 28 March 2020.
Any questions? Please contact: Thomas Hoffmann, Dorothee Prosteder, Simone Schönen, Martin Kleinschmitt, Annette Pospich, Nikolai Warneke
Practice groups: Restructuring & Insolvency, Corporate, Banking & Finance