The Act to mitigate the consequences of the COVID-19 pandemic in civil, insolvency and criminal procedure law (BT-Drs. 19/18110) was adopted by the Bundestag on 25 March 2020.
The Federal Council approved the law on 27 March 2020. We have outlined some of the key points below.
Key contents of the law in favour of companies and their executive bodies:
- Suspension of the obligation to file for insolvency and the payment prohibitions for managing directors until 30 September 2020 for the time being, in conjunction with the facilitation of evidence for companies
- Suspension of the right of creditors to file for insolvency for the time being until 30/09/2020
- Incentives for loans to companies
- Suspension of the obligation to file for insolvency and the regulation on the grounds for opening creditor insolvency proceedings to be extended by regulation until 31 March 2021
- Simplifications with regard to shareholder meetings
- Extension of the period in which a company conversion can be carried out retroactively from eight to twelve months
In detail:
Insolvency law
The draft law regulates a Suspension of the obligation to file for insolvency until 30/09/2020. In addition, the draft contains an important Facilitation of evidence for affected companies. Accordingly, the suspension of the application only does not apply if the insolvency maturity is not due to the consequences of the spread of the SARS-CoV-2 virus (Covid-19 pandemic) or if there is no prospect of eliminating an existing insolvency.
The suspension of the application deadline does not apply if third parties (e.g. creditors) prove that the insolvency maturity is not a consequence of the coronavirus pandemic or that an insolvency that has already occurred is unlikely to be remedied. However, this presumption can only be rebutted in cases where there can be no doubt that the Covid-19 pandemic was not the cause of the insolvency maturity and that it was not possible to eliminate an insolvency maturity that had already occurred. Such "counter-evidence" by third parties can be quite difficult in individual cases and therefore take some time, during which it remains unclear whether the counter-evidence will be successful. Payment prohibitions for the period after insolvency maturity remain unchanged in principle. However, management board members and managing directors are to be suspended insofar as the obligation to file for insolvency is suspended, not for payments liable, which in the ordinary course of business in particular payments that serve to maintain or resume business operations or to implement a reorganisation concept. What falls under this must be examined on a case-by-case basis.
In order to avoid liability risks, it is strongly recommended that the requirements for a suspension of the application are carefully examined or, if necessary, that qualified advisors are consulted, particularly as creditors can provide evidence to the contrary. Ideally, the management should be able to prove that the company was not yet insolvent on the last balance sheet date. In this case, the draft law provides for a presumption that insolvency maturity is based on the effects of the Covid-19 pandemic and that there are prospects of eliminating an existing inability to pay.
It should be noted that even in times of the coronavirus crisis, employees and co-managing directors have a proper duty of control and supervision. Even in cases of explicit and clear allocation of responsibilities, many duties remain the overall responsibility of the managing directors, especially when the company is in crisis.
Excursus:
Insolvency law standardises the obligation for managing directors and board members to file for insolvency if their company is insolvent or overindebted (Section 15a (1) sentence 1 InsO). As a rule, managing directors can wait up to three weeks before filing for insolvency, but only for as long as it can be expected that a reason for insolvency that has arisen can still be remedied within the three weeks. Failure to fulfil this obligation to file for insolvency can lead to considerable consequences under liability and criminal law for managing directors and board members. In particular, payment prohibitions must be observed in the event of insolvency maturity (§ 64 sentence 1 GmbHG, § 92 para. 2 sentence 1 AktG, § 130a para. 1 sentence 1 in conjunction with § 177a sentence 1 HGB and § 99 sentence 1 GenG). The managing director is liable within the scope of this liability for diminution of assets for all payments made after the company has become insolvent
Suspension of creditor insolvency applications
Pursuant to section 14 (1) sentence 1 InsO, a Creditors request the opening of insolvency proceedings about a company apply forif they have a legal interest in doing so and can credibly demonstrate their claim and the reason for the opening (insolvency or over-indebtedness). Such applications by creditors are suspended in principle between 01/03/2020 and 01/06/2020 or should only be permitted if the reason for opening already existed on 1 March 2020.
Limited insolvency avoidance
In the event of insolvency, there is a fundamental risk that contractual partners of the debtor will have to return services and payments as a result of subsequent insolvency challenges by the insolvency administrator. This could deter business partners from providing services and, in particular, from making payments during the crisis and thus further jeopardise the companies affected. Therefore, legal acts that have granted or enabled the other party to obtain security or satisfaction, which the other party was entitled to claim, cannot be contested in subsequent insolvency proceedings, unless the other party was aware that the debtor's reorganisation efforts were not suitable for eliminating an insolvency that had occurred.
Incentive for loans
In addition, the following applies until 30/09/2023 Restitution of a new licence granted during the suspension period Credits as well as the appointment of the following persons during the suspension period Collateral to secure such loans not as a creditor disadvantage. This also applies to the restitution of Shareholder loans and payments on receivables from legal acts that correspond economically to such a loan. Furthermore, the granting of loans and collateralisation during the suspension period are not to be regarded as an immoral contribution to delaying insolvency.
Company law
In company law, co-operative law, association law, foundation law and residential property law Facilitating participation in a meeting or general meeting created. Key aspects here are the possibility for the Management Board/managing director of the company to enable online participation in the Annual General Meeting even without authorisation in the Articles of Association, the possibility of an Annual General Meeting without a physical presence with limited opportunities for contestation, the possibility of shortening the convocation period to 21 days and the authorisation of the Management Board to decide during the crisis to pay a discount on the net profit to the shareholders in accordance with Section 59 (2) AktG (net profit for the year according to the preliminary annual financial statements) even without authorisation in the Articles of Association.
By way of derogation from Section 48 (2) GmbHG Resolutions of the shareholders of a GmbH in text form or by casting votes in writing can also be adopted without the consent of all shareholders
Conversion law
In the Conversion law the deadline is extended to twelve months in accordance with Section 17 (2) sentence 4 UmwG. This means that company transformations such as mergers, demergers or spin-offs can now be postponed by up to twelve months. twelve months retroactively take place.
The utilisation of these measures requires careful examination and, if necessary, rapid implementation. Your TAXGATE team will support you in both legal and tax matters.
