The German court has published LG München I v. 13.07.2021 - 6 O 17571/20 – the first published ruling on COVInsAG. We unpack the key takeaways from the decision below.

Background

To mitigate the economic effects of the pandemic, the German government passed the COVID-19 Insolvency Suspension Act (COVInsAG) to temporarily suspend the obligation on directors to file for insolvency where the debtor's insolvency was due to the pandemic. The COVInsAG (Section 2(1) Nos.2 and 4) also suspends large parts of the rules on insolvency avoidance.

Under Section 2(1) No.4 COVInsAG, where the obligation to file a request for insolvency has been suspended in accordance with section 1, legal acts entered into by the debtor which grant or enable the other party to obtain collateral or satisfaction to which it is entitled at that time may not be avoided in subsequent insolvency proceedings.

Decision

In the first ruling on the COVInsAG, a Munich district judge held that: 

• The privilege of avoidance under Sec. 2(1) No.4 COVInsAG does not apply to legal acts performed after an application by the debtor for the opening of insolvency proceedings.
• Non-contractual creditors – eg tax authorities, social security agencies and employers' liability insurance associations – are not covered by the protection under Sec. 2(1) No.4 COVInsAG.

Key takeaways

This restrictive interpretation of the COVInsAG (which the district judge justified as reflecting the law's intent) will benefit insolvency administrators looking to avoid payments made during the suspension period. The decision is not yet legally binding, however, and it remains to be seen whether it will be upheld. 

Find out more

To discuss the issues raised in this article in more detail, please reach out to a member of our Restructuring & Insolvency team.