20 July 2020
R&I update - July 2020 – 2 of 2 Insights
The economic fallout from the COVID-19 pandemic has hit all industries in Germany. To mitigate the negative impacts of the pandemic, the government has implemented loan programs and introduced various emergency measures in the COVID-19 Insolvency Suspension Act (COVInsAG), such as temporarily suspending the obligation to file for insolvency and limiting the personal liabilities of the managing directors. As a result, the number of insolvency proceedings in Germany is decreasing significantly.
However, the number of insolvency proceedings may increase drastically in autumn when the obligations to file for insolvency revive after 30 September 2020. Unless the measures in COVInsAG are extended until 31 March 2021, companies must be fully financed and have a positive going concern from 30 September 2020 until the end of 2021.
Since the debt burden for many companies will be higher than before COVID-19 and the economy overall is facing a recession, many companies will face difficulties in bearing the financial burden. This is especially the case for companies that were already in financial difficulties before COVID-19.
Suspending the obligation to file for insolvency therefore merely postpones, rather than resolves, the problem. In order to prevent companies from being overwhelmed by debt, there is a real need to find sustainable solutions alongside stakeholders and creditors to reduce or restructure the debts; the sooner the solutions can be introduced, the better. If solutions can't be found, there will be a wave of bankruptcy cases from autumn onwards.
by Multiple authors