Suspension of obligation to file for insolvency for illiquid companies

“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 launch of the COVID-19 Insolvency Suspension Act/ COVID-19-Insolvenzaussetzungsgesetz (COVInsAG), the Bundestag and Bundesrat decided last year to suspend the obligation to file for insolvency for over-indebted and insolvent companies from 01.03. – 30.09.2020.

However, this only applied if the reasons for insolvency were due to the COVID-19 pandemic. As of 01.10.2020, insolvent companies again had to mandatorily file for insolvency. For over-indebted companies, the duration of the suspension of the insolvency filing obligation was further extended until Dec. 31, 2020.

At the turn of the year, it was decided to suspend the suspension of the obligation to file for insolvency for both over-indebted and insolvent companies until Jan. 31, 2021. By resolution dated Jan. 19, 2021, this suspension is again extended until April 30, 2021. However, this only applies if certain conditions are met.

Under what conditions is the obligation to file for insolvency suspended?

The prerequisite for the suspension of the obligation to file for insolvency until April 30, 2021 for over-indebted and insolvent companies is,

  • that a company has filed an application for financial assistance under state aid programs in the period from Nov. 1, 2020, to Feb. 28, 2021, or
  • that for legal or factual reasons it was not possible for companies to submit an application within this period and there is a reasonable prospect of receiving this state aid.

In addition, it is required that the insolvency or over-indebtedness is based on the COVID-19 pandemic. The reliance is presumed if the company was not yet insolvent on Dec. 31, 2019. In addition, there must be no circumstances indicating that there are no prospects for a successful reorganization of the company in the future.

When is insolvency and when is overindebtedness?

Insolvency exists when the debtor is no longer able to meet the payment obligations due. Insolvency can be assumed if the debtor has stopped making payments.

Over-indebtedness exists when the debtor’s assets no longer cover its existing liabilities, unless it is predominantly probable that the company will be able to continue as a going concern under the circumstances. The forecast period for such an over-indebtedness test was shortened by the COVInsAG from twelve to four months if the over-indebtedness is attributable to the Covid 19 pandemic. For the shortened forecast period, it is further presumed,

  • that the debtor was not insolvent on Dec. 31, 2019,
  • that the debtor generated positive income from ordinary activities in the fiscal year ended prior to Jan. 1, 2020, and
  • that sales in the calendar year 2020 fell by more than 30% compared to the previous year.

Liability privilege for managing directors

In principle, managing directors are liable for payments they make after the occurrence of insolvency or overindebtedness insofar as they are not consistent with the due care of a prudent and conscientious manager. This prohibition on payments is relaxed by the new provisions of COVInsAG: This is because payments made by an insolvent company during the suspension period are compatible with the due care and diligence of a prudent and conscientious manager. This includes, in particular, payments that serve to maintain or resume business operations or implement a restructuring concept.

What must be observed if the aforementioned prerequisites are not met?

If the aforementioned prerequisites for the suspension of the obligation to file an insolvency petition are not met, an insolvency petition must be filed without culpable hesitation. However, this must be done at the latest within a period of three weeks after the occurrence of insolvency and at the latest within a period of six weeks after the occurrence of overindebtedness.

For companies whose obligation to file for insolvency was suspended until December 31, 2020 due to overindebtedness, but which do not meet the above requirements for further suspension of the obligation to file for insolvency, the obligation to file for insolvency shall arise without further ado on January 1, 2021. This does not apply if the over-indebtedness has been eliminated or the reason for insolvency no longer exists because a positive prognosis for continued existence can be made.

For companies that were or will become insolvent before 01.01.2021, the obligation to file for insolvency already exists now or from the time of the occurrence of the insolvency.


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

Questions?

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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