COVID-19 insolvency emergency measures in Germany

The German Government recently decided on various measures to mitigate the effects of the COVID-19 pandemic by means of cost reductions and short-term loans. One further measure is introducing law to mitigate its impact in civil, insolvency and criminal proceedings (CorInsAG).

The CorInsAG does this by preventing companies from having to file for insolvency because they have no other option due to legal reasons, since restoring solvency using loans or state aid would take longer than the deadlines German insolvency law "normally" allows to file for insolvency.

Furthermore, the CorInsAG suspends the duty to file for insolvency until 30 September 2020. This suspension is not applicable if the insolvency is not a consequence of the COVID-19 pandemic, or if there is no prospect of eliminating an existing illiquidity.

Insofar as the obligation to file for insolvency is suspended, the CorInsAG – to systematically preserve economic commerce – further protects, inter alia, the exchange of services from the danger of insolvency law reversals by way of an avoidance action.

Regular transactions are only contestable when contracting parties, as potential opponents of avoidance, were aware that the debtors' restructuring efforts were not suitable for eliminating existing illiquidity, easing claw back risks that normally exist under German insolvency law.

The temporal suspension of the duty to file for insolvency creates an opportunity for companies to reduce the impact of the coronavirus crisis. However, the new law might also be seen as a way to prolong the economic struggle.