(Limited) extension of the suspension of the obligation to file for insolvency?
The Act to Temporarily Suspend the Obligation to File for Insolvency and to Limit Directors’ Liability in the Case of Insolvency Caused by the COVID-19 Pandemic1 (COVInsAG, Gesetz zur vorübergehenden Aussetzung der Insolvenzantragspflicht und zur Begrenzung der Organhaftung bei einer durch die COVID-19-Pandemie bedingten Insolvenz), which is part of the Act to Mitigate the Impact of the COVID‑19 Pandemic in Civil, Insolvency and Criminal Procedural Law (Gesetz zur Abmilderung der Folgen der COVID-19-Pandemie im Zivil‑, Insolvenz‑ und Strafverfahrensrecht), retroactively suspended under certain conditions from 1 March 2020 until 30 September 2020 (see “Aussetzung der Insolvenzantragspflicht”) certain obligations, including the obligation to file for insolvency proceedings.
On 2 September 2020, the Federal Government decided to extend the suspension of the obligation to file for insolvency until 31 December 2020, once again under modified conditions. On Thursday, 10 September 2020, the Bundestag will discuss the bill out forward by the CDU/CSU and SPD in a first reading. After the subsequent committee consultations and readings in the Bundestag, however, the bill still has to pass the Bundesrat. In any case, this Act is not expected to be executed and come into effect until shortly before the actual suspension period expires on 30 September 2020.
The extension of the suspension of the obligation to file for insolvency is designed to help companies in difficulty to mitigate the consequences of the COVID‑19 pandemic. They will continue to be given the opportunity to restructure and finance themselves by taking advantage of state assistance offerings and through out-of-court negotiations; however, this will no longer apply to insolvent companies as is currently the case.
The key points in detail
The renewed extension of the obligation to file for insolvency will only apply to companies that are over-indebted as a result of the COVID‑19 pandemic without being insolvent. The reason being that the Federal Government takes the view that overindebted companies – unlike insolvent companies – have a chance of averting insolvency permanently. Insolvent companies, on the other hand, were already unable to pay their due liabilities, the crisis had progressed too far. In order to maintain the necessary confidence in the integrity of the market process, the legislator therefore decided not to apply the extension to insolvent companies or companies not over-indebted due to the COVID‑19 pandemic.
The liability and rescission relief provision under the COVInsAG, which came into effect in March, will presumably continue to apply until 31 December 2020 exclusively to companies that are over-indebted due to the COVID‑19 pandemic, provided they are not insolvent. The draft law also states that the legislator already intends to implement initial regulatory mechanisms to allow for a possible further extension beyond 31 December 2020.
Note: The obligations to file for insolvency which are suspended under the rules of the COVInsAG are likely to change from 30 September 2020 onwards in a way that is highly relevant for a large number of companies in crisis. Companies that have been in crisis as a result of the COVID‑19 pandemic and that have had a prospect of restructuring up to now, must examine by 30 September 2020 whether there is an obligation to file for insolvency because insolvency has already occurred. If the company finds itself to be insolvent or expects this to soon be the case, and if this cannot be averted by other restructuring measures, the managing director of a private limited company (GmbH, Gesellschaft mit beschränkter Haftung), for example, is obliged to file for insolvency proceedings without delay.
Note: The three-week period for filing for insolvency pursuant to section 15a (1) of the Insolvency Statute2 (InsO, Insolvenzordnung) after the occurrence of insolvency or indebtedness only applies with a view to criminal cases. Secondly, the three-week waiting period is only legitimate if there are still serious prospects of rehabilitation. In any case, the persons who are obliged to file for insolvency within this three-week period are subject to a considerable risk of personal liability. It is therefore essential that professional assistance be sought in good time.
8 October 2020 update: The Act Amending the COVID‑19 Insolvency Suspension Act (Gesetz zur Änderung des COVID-19-Insolvenzaussetzungsgesetzes) was published in the Federal Gazette (BGBl, Bundesgesetzblatt) on 30 September 2020 and came into effect in the form described above on 1 October 2020.
1 COVID‑19 Insolvency Suspension Act
2 Insolvency Statute
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