Corona pandemic – far-reaching changes in insolvency law resolved

In order to avoid a large number of impending corporate insolvencies as a result of the corona pandemic, the Bundestag passed a law on March 25, 2020 to mitigate the consequences of the corona pandemic in civil, bankruptcy and criminal procedural law. The changes take effect retroactively as of March 1, 2020.

The core of the economic support measures for companies affected by the corona crisis is the suspension of the obligation to file for insolvency which is subject to punishment and liability and the payment prohibitions for the managers of insolvent companies until September 30, 2020. This does not apply if the insolvency maturity is not due to the consequences of the spread the corona pandemic or if there is no prospect of eliminating existing insolvency. The burden of proof for this lies with the insolvency administrator.

If an insolvent company was not yet insolvent on December 31, 2019, it is legally assumed to protect the managers of the company concerned that the insolvency maturity is based on the effects of the corona pandemic and that there are prospects of eliminating existing insolvency. However, this assumption is contradictory. According to the justification of the law, a refutation by the later insolvency administrator can only be considered in those cases where there can be no doubt that the corona pandemic was not the cause of the insolvency maturity and the elimination of the insolvency maturity could not be achieved. In this respect, the highest demands have to be made on the refutation of the legal presumption effect.

In the law, further consequences are attached to the suspension of the obligation to file for insolvency, which are intended to ensure that the objective pursued is achieved, to give affected companies the opportunity to continue business operations and to eliminate the insolvency situation.

For example, payments made by managers of insolvent companies with limited liability before September 30, 2020, which are made in the ordinary course of business, in particular payments that serve to maintain or resume business operations (such as payments to landlords, suppliers or utilities) or to implement them of a renovation concept are allowed.

Corresponding to this, payments made by insolvent companies in the period up to September 30, 2020 to their contractual partners such as landlords, suppliers or utility companies in accordance with the contract in a later insolvency cannot be challenged by the insolvency administrator. This prohibition of contestation does not apply only if the contract partner was aware that the reorganization and financing efforts of the company concerned were not suitable for eliminating the need for bankruptcy. However, the burden of proof for this lies again with the insolvency administrator. The contract partner therefore does not have to convince himself that the insolvent company is developing suitable restructuring and financing efforts. Only a proven positive knowledge of the lack of renovation and financing efforts or of the obvious unsuitability of the renovation and financing efforts would eliminate the protection against challenge.

Protection against contestation for the contracting parties of insolvent companies is also extended to the granting of payment facilities, such as deferrals of receivables, because these strengthen the liquidity of the affected company and have a similar effect to the granting of new loans.

Finally, agreements made before September 30, 2020 between an insolvent company and its contractual partners to shorten payment terms are insolvency-proof. According to the justification of the law, this is intended to offer the contractual partners a further incentive to continue the contractual relationship. For example, if a supplier of operationally necessary components is only ready to continue supplying the insolvent company if the payment periods previously agreed in a framework contract are shortened, he should not be pushed to a complete termination of the contract simply because he would expose himself to the risks of avoidance through the contract adjustment.