Germany: Update | Rights for debtors to refuse performance in the Corona crisis – creditors can take countermeasures

What is at issue here?

The German Bundestag has passed the act to mitigate the effects of the Covid 19 pandemic. Among other things, this provides for rights of refusal of performance for consumers and small enterprises (fewer than 10 employees and annual turnover totalling a maximum of EUR 2 million). These are to be given the right to refuse the fulfilment of the obligation to satisfy a claim in connection with a continuing obligation until 30 June 2020 if the obligation cannot be fulfilled as a result of the corona crisis or if the fulfilment leads to a threat to the existence of the debtor. The prerequisite is that the relevant contract was concluded before 8 March 2020. Generally, all agreements with continuing obligations are affected, except for rental, lease, loan and employment contracts.

What is to be done from the creditor’s perspective?

In practice, especially medium and large enterprises that have entered into continuing obligations with consumers and micro-enterprises before 8 March 2020 must therefore be prepared for defaults. Since the act does not differentiate according to which side the debtor is on, both payment defaults and default on performance can threaten companies. From the creditor’s perspective, there are now two options. Either the creditor accepts this fact and trusts that the debtor will fulfil its obligations properly. Or the creditor prefers an active approach. For example, it may make sense to renegotiate contracts that were concluded before 8 March 2020. In this way, one can evade the scope of application of the draft law. Especially as long as the debtor is still well off, he might be accept such renegotiation. After all, the parties are only renegotiating what both parties currently want.