What the new COVID-19 related German insolvency legislation means for businesses

In Germany, the duty to file for insolvency if there is illiquidity (Zahlungsunfähigkeit) and/or over-indebtedness (Überschuldung) was suspended under certain circumstances due to the COVID-19 pandemic until the end of September 2020.

The German Federal Government has passed a limited extension of the suspension period regarding over-indebtedness. We summarise the new legislation and outline the key takeaway for your business below.

What does the new legislation say?

The new legislation states that only over-indebted (not illiquid) companies will further exempted from the obligation to file for insolvency until 31 December 2020, including the following protections: 

• reduced liability of managing directors for payments during over-indebtedness
• repayments of loans granted during the suspension period (including shareholder loans) not contestable until September 2023
• loans granted and collateralisation during the suspension period do not constitute an unlawful contribution to the delay in filing for insolvency, and
• no contestability of "congruent cover" and limited contestability of "incongruent cover".

Furthermore, the legislation makes it clear that there is no "corona bonus" in the sense of a "universal excuse under insolvency law" from 1 October 2020 onwards in Germany. The duty to file for insolvency and the associated liability facts are essentially applicable once more, without restriction regarding illiquidity.

Key takeaway

If your company has already invoked the suspension under the German COVID-19 legislation, it's important that you re-assess your current situation – you may have to file for insolvency if you are, or have become, illiquid. 

Find out more

We expect further fundamental legislative changes over the coming months and into the new year, and we'll keep you updated on any new developments as they happen. To discuss any of the issues raised in this article in greater detail, please contact me or a member of our Restructuring and Insolvency team.