Covid-19 coronavirus: Amendment to COVInsAG

Update February 2021

The partial suspension of the obligation to file for insolvency, as provided for under the SanInsFoG with reference to the application for funds under government support programmes to mitigate the effects of the COVID-19 pandemic, ended on 31 January 2021 (see Update December 2020). This suspension has since been extended once more until 30 April 2021 by the legislature (see the Act on the Extension of the Suspension of the Obligation to File for Insolvency and the Protection against Avoidance for Pandemic-Driven Deferrals as well as on the Extension of the Tax Return Period in Advised Cases and the Interest-Free Period for the 2019 Assessment Period (Gesetz zur Verlängerung der Aussetzung der Insolvenzantragspflicht und des Anfechtungsschutzes für pandemiebedingte Stundungen sowie zur Verlängerung der Steuererklärungsfrist in beratenen Fällen und der zinsfreien Karenzzeit für den Veranlagungszeitraum 2019) of 15 February 2021, BGBl. 2020 I p. 237). The renewed suspension of the obligation to file for insolvency by amendments to section 1 (3) COVInsAG is a reaction of the legislator to further delays in the processing of payments under government support programmes (such as the so-called "November and December Support", "November and December Support Plus", "November and December Support Extra", "Bridge Support III") caused by a large number of applications, administrative efforts and technical challenges (see BMJV press release dated 20 January 2021). In addition, the application period has also been adjusted. Hence a company’s eligibility for the suspension of the obligation to file for insolvency now depends on whether or not they applied for funds under government support programmes in the period from 1 November 2020 to 28 February 2021 (previously: 31 December 2020). The scope of the applicable exceptions was not subject to changes. Hence, insolvency proceedings must be filed for if there is no prospect of obtaining governmental support or if such support does not suffice to cure insolvency, see section 1 (3) sentence 3 COVInsAG. The new provisions will apply with retroactive effect as of 1 February 2021.

Furthermore, the legislator took the opportunity to adjust the protection against liability and avoidance following the suspension of the obligation to file for insolvency. These provisions comprise a clarification of the term of the protection against avoidance for payments on deferred claims. Such payments were previously protected under section 2 (1) no. 4 sentence 2 (e) COVInsAG (old version). However, the applicability of this privileged status after the envisaged end of the suspension period (31 January 2021) has been called into question. According to section 2 (1) no. 5 COVInsAG, payments made on or before 31 March 2022 on claims based on deferrals granted on or before 28 February 2021 are no longer deemed to be detrimental to creditors as long as no insolvency proceedings have been opened over the debtor's assets prior to the end of 18 February 2021. The aim of this protection is to encourage creditors to support measures averting insolvency. In addition, necessary adjustments following the transition of the payment prohibitions triggering liability to section 15b InsO were provided within the scope of the COVInsAG (see section 2 (5) COVInsAG and the explanatory memorandum to section 15b InsO-RegE, BT-Drs. 19/24181, pp. 193 ff.).

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Update December 2020

With the Act on the Further Development of Restructuring and Insolvency Law (Gesetz zur Fortentwicklung des Sanierungs- und Insolvenzrechts; SanInsFoG) (→ summary and wording of the Business Stabilisation and Restructuring Act (StaRUG) introduced in the SanInsFoG in German and English) suspension of obligation to file for insolvency was extended until 31 January 2021 for companies entitled to apply for funds under government support programmes to mitigate the effects of the Covid-19 pandemic. In addition, further changes and extensions to the regulations in were made, which also affect the over-indebtedness test:

• Suspension of obligation to file for insolvency is extended once more from 1 January to 31 January 2021.
• Suspension of obligation to file for insolvency is linked to the application for financial support under government support programmes to mitigate the effects of the Covid-19 pandemic.
• The over-indebtedness test must in addition be prepared in the period between 1 January and 31 December 2021 on the basis of a prognosis period of four months instead of twelve months, if the over-indebtedness of the debtor has been caused by the Covid-19 pandemic.

A summary of the amendments to the suspension of obligation to file for insolvency and the new regulations on debtor-in possession schemes and protective shield proceedings can be found in the link below.

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Publication of 4 September 2020

From 1 October 2020 onwards, illiquid companies must once again file for insolvency without undue delay, and no later than within three weeks. In case of doubt, a liquidity status report should be prepared now and, for companies undergoing financial crisis, a rolling 13-week liquidity forecast should be prepared in the interests of legal certainty.

For non-illiquid companies, i.e. companies that are over-indebted but also companies that are neither over-indebted nor illiquid (!), the legislature continues to offer temporary stability during the period of suspension of the obligation to file for insolvency on the grounds of over-indebtedness until the end of 2020:

• Directors are not obliged to issue a positive going-concern prognosis in order to avoid having to file for insolvency on the grounds of over-indebtedness, and payment prohibitions under insolvency law will not apply to them even in a potential situation of over-indebtedness.
• Lenders may grant new loans to companies and may have collateral provided without having to fear liability or avoidance risks. In particular, the requirement to obtain a restructuring opinion generally remains suspended.
• Shareholders may grant shareholder loans without having to fear avoidance or liability risks.

But beware: In addition to the familiar challenges related to mixed financing structures (“new/old money”) owing to the limitation of the various exemptions, it is advisable to prepare not only a rolling liquidity forecast but, where possible, also a restructuring concept serving at least as a “roadmap” through the crisis, because some uncertainties remain as to the exact scope of application of the various exemptions in the run-up to a potential illiquidity situation (= crisis).

From 1 January 2021 – under the current rules – a positive going-concern prognosis will again be important in order to avoid over-indebtedness, and the requirements for restructuring loans will again apply in full. Companies should thus use the time in order to develop at least the basic structures for a conclusive restructuring or refinancing concept.