15 September 2020
R&I update - September 2020 – 3 of 3 Insights
Under section 64 of the German Companies Act (GmbHG), the managing director of a company is obliged to reimburse payments which have been made after the company becomes illiquid or over-indebted but not when the payments are made with the diligence of a prudent businessman. Such permitted payments include those that are necessary for production, internal operation, and the maintenance of the business concern.
According to COVInsAG, the obligation to file for insolvency is suspended until 30 September 2020 under certain conditions. Even when COVInsAG is applicable and the insolvency filing obligation is suspended, the obligations resulting from section 64 of GmbHG remain. However, section 2(1) of COVInsAG stipulates that payments which are made in the ordinary course of business, in particular those payments which serve to continue business operations or to implement a reorganisation concept, are deemed to be compatible with the diligence of a prudent businessman. Therefore, in addition to the mere continuation of the existing business operations, reorganisation should also be permissible as a necessary measure.
In light of COVInsAG's aim to stabilise the running business, the position in relation to payments under section 64 of GmbHG has been modified in favour of the idea of restructuring; when it is within the suspension period under COVInsAG, satisfying creditors may no longer be the primary route to show that due care of a prudent businessman has been exercised.