COVID-19 Update Germany: German government enacts a set of measures aiming to protect businesses from the effects of the current Corona crisis; amendments to German insolvency law in preparation

By Dr. Stefan Gottgetreu

03-2020

In order to protect German companies and their employees against the economic impact of the coronavirus, the German government has resolved on 23 March 2020 on a comprehensive set of measures. It is the largest government support programme which was ever enacted in Germany. These measures even go beyond the support organized by the government during the financial crisis. The goal of this “protective shield” is to provide businesses with sufficient liquidity to help them make it through the crisis. The draft law resolved by the government (titled “Draft law to mitigate the consequences of the COVID 19 pandemic in civil, insolvency and criminal procedure”) yet needs to pass the German parliament which is expected to happen today. 

The package of measures includes the implementation of a state fund (Wirtschaftstabilisierungsfonds, WSF) which shall be funded with € 400 billion in order to guarantee bonds/loan notes and liabilities of companies. There shall be a further amount of € 100 billion allowing the German state to acquire participations in troubled companies to stabilize them. 

Furthermore, the public loan programme run by the state bank KfW shall be substantially increased and expanded. Under the terms of the various KfW credit programmes, companies may apply for loan guarantees allowing them to secure loans from commercial banks secured by KfW. The volume of these programmes and the conditions to apply for it will now be substantially increased and amended in order to enable quicker access to liquidity-enhancing loans from commercial banks. The guarantee risk of the state will be increased from 80 to 90%. For companies not having easy access to existing support programmes, additional special KfW programmes will be launched. 

Specifically for small business, freelancers and self-employed entrepreneurs, the programme will include short-term liquidity support in the form of one-time non-refundable financial aids of up to € 15,000, depending on the number of employees. This measure alone will have a volume of up to € 15 billion.

According to the press, within just one day thousands of companies have already applied for the new emergency loans and support measures. 

The protective shield furthermore includes a variety of further planned measures and financing aids including (without limitation):

  • Short-time work compensation (Kurzarbeitergeld) for employees and a simpler and quicker access to it,

  • Protection for tenants (prohibition for an interim six months period to terminate lease contracts for private spaces due to delay with lease payments),

  • Deferral of obligations under consumer loans for claims for a period up to 30 June 2020 and a general retention right allowing consumers and small businesses to postpone performance of their obligations under pending contractual relationships, and

  • Support measures in the field of tax law: possibility to apply for deferral (Stundungen) of tax payments for various taxes and social security contributions, suspension of enforcement measures by the tax authorities, and others.

Special attention should be paid to a planned protection measure in the field of insolvency law. According to the government plans, the legal obligation to file for insolvency in time (Insolvenzantragspflicht) based on the provisions of the German Insolvency Act (InsO) shall be suspended for the period up to 30 September 2020. The intention is to help companies bridge the time period until they can actually receive funding from the available support programmes. This legal privilege however will only be available for companies where the insolvency is triggered by the effects of the corona pandemic and where there is a viable prospect for a restructuring. According to the draft law (titled “COVID-19-Insolvenzaussetzungsgesetz - COVInsAG”), there is a presumption that the insolvency maturity is based on the effects of the Covid19 pandemic and that there are prospects of eliminating an existing insolvency if the debtor was not insolvent on 31 December 2019. The Federal Ministry of Justice (BMJ) will be authorized to prolong this suspension until at maximum 31 March 2021. 

The text of the draft law resolved by the German government to implement a protective shield may be found under https://www.bmjv.de/SharedDocs/Gesetzgebungsverfahren/Dokumente/Corona-Pandemie.html?nn=6704238.

Last week, the Federal Ministry of Finance and the Federal Ministry of Economy and Energy had issued a position paper summarizing the intended financial support measures. A copy of this publication may be found under https://www.bundesfinanzministerium.de/Content/DE/Pressemitteilungen/Finanzpolitik/2020/03/2020-03-13-download-de.pdf?__blob=publicationFile&v=4.

We will closely monitor the further situation and the further law-making process to enact the “Law to mitigate the consequences of the COVID 19 pandemic in civil, insolvency and criminal procedure” and will provide further updates. 

Our corporate team in Germany is available to provide further guidance on the new regulations and to advise companies specifically on the available support measures and on the changes to the insolvency law.