Covid-19 coronavirus: Amendment to COVInsAG
30 December 2020
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.
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.