In order to mitigate the economic impact of the spreading SARS CoV-2 virus (“COVID 19 Pandemic”), the German government has introduced a protective shield for companies in crisis, which, in addition to short-time work benefits and tax deferrals, also provides for an unlimited credit line from the Kreditanstalt für Wiederaufbau (“KfW”).
As an accompanying measure, the German legislative bodies additionally now adopted a temporary suspension of the obligation to file for insolvency, since due to organizational and administrative reasons stemming from the approval process it cannot be guaranteed that such government aid will reach the affected companies in time. As a direct legal consequence, the management of such companies might be legally obligated to file for insolvency on behalf of the company in the meantime if over-indebtedness or insolvency occurs. This welcome suspension of such obligation will give companies that have fallen into economic difficulties as a result of Covid-19 more time to survive the crisis without necessarily having to file for insolvency.
1.Which companies are exempt?
Prerequisites for the suspension of the obligation to file for insolvency are that
- the insolvency or over-indebtedness is caused by the consequences of the COVID 19 pandemic, and
- there are reasonable prospects of eliminating the existing insolvency.
However, these prerequisites are legally considered to be met if the company concerned had not already been insolvent on 31 December 2019.
2. What does “suspension of the obligation to file for insolvency” mean exactly?
If these prerequisites are met, the persons normally obligated to file for insolvency pursuant to section 15a of the German Insolvency Code (e.g. the managing directors of a limited liability company) are temporarily not required to do so during the suspension period. If the crisis of the company is not averted even after the end of the suspension period, the regular 3-week period to file for insolvency starts to run again.
3. How long does this suspension apply?
The suspension applies retroactively from 1 March 2020 and for the time being until 30 September 2020 but may be extended by the Federal Government until 31 March 2021.
We will keep you updated!