Suspension of obligation to file for insolvency for illiquid companies

Despite suspended obligation to file for insolvency – do not lose sight of liquidity!

“The suspension of the obligation to file for insolvency gives companies in distress the necessary scope to apply for state aid and to press ahead with restructuring efforts”.

Federal Minister Christine Lambrecht

With the introduction of COVInsAG, the obligation to file for insolvency would be suspended for the duration of the Corona crisis until 30 September 2020 under certain conditions. This suspension in accordance with § 1 COVInsAG applies to the reason for insolvency, i.e. inability to pay and overindebtedness.

When is insolvency and when is over-indebtedness present?

According to the wording of the law, insolvency within the meaning of section 17 InsO exists if the debtor is not in a position to meet the due payment obligations. The case law of the Federal Court of Justice (BGH) specifies the law to the effect that insolvency exists if the debtor is unable to pay 90 percent of his due liabilities within three weeks. Illiquidity is determined by comparing means of payment and payment obligations.

Over-indebtedness in accordance with section 19 InsO exists if the debtor’s assets no longer cover the existing liabilities and a positive continuation forecast is not given. For a positive going concern prognosis a reliable business concept with liquidity planning based on it is required. The latter must show that the company will become solvent again within a certain time frame – usually in the current and subsequent financial year.

If the continuation of the company as a going concern cannot be affirmed on the basis of the forecast, it must be checked on the basis of liquidation values whether the assets of the company still cover the debts. If this is also not the case, the reason for insolvency is usually overindebtedness.

And how is the obligation to file for insolvency suspended?

In the period from 01.03.2020 to 30.09.2020, the obligation to file for insolvency with a penalty is temporarily suspended. However, this only applies to the extent that one of the two reasons for insolvency is caused by the current COVID 19 pandemic, i.e. conversely: if one of the reasons for insolvency is not caused by the pandemic, it is mandatory to file for insolvency in order to avoid criminal and liability law consequences. If the reason for insolvency is inability to pay, it is also necessary that there are prospects of eliminating the inability to pay.

The proof that a reason for insolvency is based solely on the consequences of the worldwide distribution of COVID-19 is a legal presumption: If there was no inability to pay on 31.12.2019, it is assumed that the insolvency was caused by the SARS-CoV-2 virus and that there is a chance of reorganisation. However, this assumption can be refuted – under strict conditions.

In this respect, it is advisable to develop a concrete financial and liquidity concept – which is also helpful when applying for state support – in order to meet the requirements. If the company was solvent on 31.12.2019, the obligation to file for insolvency and any associated legal disadvantages should be regularly excluded.

And how do you meet these requirements?

The basic prerequisite for the suspension of the obligation to file for insolvency under COVInsAG is a complete documentation of the company’s financial and liquidity situation. It must be proven that the company was solvent on 31.12.2019, § 1 S.1 COVInsAG.

But all entrepreneurs should also prepare themselves for the time when the obligation to file for insolvency is revived on 30.09.2020. Business operations will not run as usual for some time yet and it is all the more important to know the earnings, financial and liquidity situation of the company. Only in this way can positive trends be encouraged, negative trends stopped and insolvency avoided.

How do you create such documentation?

There are no legal requirements as to how such documentation is to be prepared, so it can be prepared using any commercially accepted method. We recommend a method that is in line with the pronouncements of the Institut der Wirtschaftsprüfer in Deutschland e.V. (short: IDW):

  • Determination of the actual financial situation;
  • Realistic financial planning of the company over a period of approximately two to three months, taking into account known figures, circumstances and the experience of the entrepreneur;
  • Development of a financial back-up plan for the event that the assumed circumstances do not occur;
  • Determination of a date and conditions under which to switch from the original plan to the back-up plan.

Further information:
Federal Ministry of Justice and Consumer Protection (Bundesministerium der Justiz und für Verbraucherschutz)


If you need support or have any other questions about these topics, please contact us. We are happy to assist you with advice.

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Our recommendation

Liquidity is the order of the day in the current crisis and difficult economic times. Despite, but also because of state support, sound financial and liquidity planning is essential, as this is the only way to properly document the suspension of the obligation to file for insolvency. If this is not successful, the company is threatened with serious disadvantages despite the COVID 19 crisis.

Our experts will be happy to answer all your questions regarding liquidity planning, legal questions regarding the obligation to file for insolvency, but also to apply for state aid at any time.
Simply contact us!

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