COVID-19 – German Parliament Adopts Draft Bill on Temporary Suspension of Obligation to File for Insolvency

The draft bill provides regulations regarding the suspension of the obligation to file for insolvency, payment prohibitions for management, new loans and securities, as well as claw-back risks:

1. Obligation to File for Insolvency

• The obligation to file for insolvency is suspended until September 30 2020. The suspension does not apply if the insolvency is not a consequence of the COVID-19 pandemic or if there are no prospects of resolving the illiquidity; in these two cases, the obligation to file for insolvency and the (criminal) legal consequences of late filing remain in force. However, the draft bill provides for a (rebuttable) presumption that the insolvency is a consequence of the COVID-19 pandemic and that there are prospects of resolving the illiquidity if the company was not illiquid on December 31 2019.
• Filings for the opening of insolvency proceedings by creditors require that the reason for the opening of insolvency proceedings already existed on March 1 2020.
• The suspension period can be extended by statutory order until March 31 2021.

2. Payment Prohibitions and Directors’ Liability

• If and as long as the obligation to file for insolvency is suspended according to the above criteria, payments which serve to maintain or resume business operations, or to implement a restructuring concept are not prohibited within the meaning of § 64 sentence 2 GmbHG, § 92 para. 2 AktG, § 130a para. 1 sentence 2 HGB (as well as in conjunction with § 177a sentence 1 HGB) and § 99 sentence 2 GenG. According to the explanatory memorandum to the draft bill, this should also include measures for the reorientation of the business or the business model in connection with a company restructuring.
• Thus, the executive boards or managing directors who initiate payments and economically corresponding actions, do not act in breach of duty and are not obliged to compensation payments for the payments made by the company.

3. New Loans and New Collateral

• Until September 30 2023, repayments of loans which will be newly granted during the suspension period cannot be challenged by an insolvency administrator in case of a subsequent insolvency. The same applies to new collateral which was provided for such new loans. In case of loans granted by Kreditanstalt für Wiederaufbau (KfW) and its financing partners, this shall also apply after the end of the suspension period. According to the explanatory memorandum to the draft bill, however, this shall not apply to novations or prolongations of already existing loans.
• The same applies to the repayment of new shareholder loans (but not to collateral for new shareholder loans).
• Furthermore, shareholder loans newly granted during the suspension period are not subject to the statutory subordination in insolvency proceedings which will have been applied for in the period until September 30 2023.
• Loans granted and collateral provided during the suspension period cannot be challenged according to the principles of a so-called immoral restructuring loan. The legal presumption that the insolvency is based on the effects of the COVID-19 pandemic and that there are prospects of resolving the illiquidity if the company was not illiquid on December 31 2019, also applies in favour of the lenders. Therefore, no restructuring expert opinion is required for the legal protection of newly granted loans and their collateral. According to the explanatory memorandum to the draft bill, this shall also apply to novations and prolongations of already existing loans.
• The new regulations on new loans and securities shall explicitly also apply to companies which are not (yet) insolvent and to businesses without statutory insolvency filing obligations (i.e. sole traders, OHGs, KGs).

4. Claw-back Rights in Insolvency Proceedings

• Actions which are congruent, cannot be challenged in subsequent insolvency proceedings unless the other party was aware that the restructuring and financing efforts were not suitable to eliminate an illiquidity. According to the explanatory memorandum to the draft bill, the other party does not have to actively examine whether the debtor is making suitable restructuring or financing efforts.
• The same applies to the following incongruent actions: Granting of payment facilities, shortening of payment terms, provision of other – but not more valuable – securities, payments by a third party on the instruction of the debtor, and performance in lieu of performance of contract (an Erfüllungs statt) or on account of performance (erfüllungshalber).
• The new regulations on the restriction of claw-back rights shall expressly also apply to companies which are not (yet) insolvent and to businesses without statutory insolvency filing obligations (i.e. sole traders, OHGs, KGs).

The draft bill can be found here (BT-Drucksache 19/18110).