As described in our Client Alert “Proposed Legislation to avoid COVID-19-related Insolvencies in Germany” dated 24 March 2020, the German legislator has comprehensively modified the German insolvency regime with effect as of 1 March 2020 to prevent insolvencies of companies which encounter financial difficulties as a result of the COVID-19 pandemic. This modification has been implemented by the Act to temporarily suspend the Obligation to file for Insolvency and to limit Directors’ Liability in the Case of Insolvency caused by the COVID-19 Pandemic (COVID-19-Insolvenzaussetzungsgesetz – “COVInsAG”) of 27 March 2020 and has addressed nearly all insolvency-related obligations and restrictions which typically apply to insolvent debtors and which would usually frustrate the affected companies’ going concern status and their ability to continue trading by means of:
- suspending the directors’ obligation to file for insolvency;
- limiting the creditors’ entitlement to file for insolvency in the period from 28 March 2020 until and including 28 June 2020;
- suspending the restrictions on the discharge of pre-existing liabilities;
- privileging new shareholder and third-party financings by means of:
- suspending the equitable subordination of shareholder loans;
- excluding lender liability risks in the context of turnaround financings; and
- limiting the claw-back of repayments of third-party and shareholder financings and the collateralization of third-party financings (but not of shareholder financings).
For additional insights into the business and legal implications of the COVID-19 pandemic, please visit our Knowledge Center.
