More and more companies in Germany are running into financial difficulties as a result of the corona crisis. Although the first federal aid packages have been launched, many measures will probably not reach the affected companies in time.
When does a German company have to file for insolvency?
The persons responsible for a company (managing directors, board members) must file for insolvency if one of the three grounds for insolvency applies:
- imminent insolvency
Insolvency occurs when the company is no longer able to meet its payment obligations due to lack of financial resources.
Over-indebtedness occurs when it is no longer possible to continue operating, i.e. when the assets of the company no longer cover the existing liabilities and the continued operation of the company is unlikely given the circumstances.
Imminent insolvency also entitles the company to file for insolvency at an early stage in order to protect the company and to avoid being charged with criminal conduct.
Filing for insolvency too late is punishable by law!
Pursuant to Section 15a of the German Insolvency Code, an insolvency application must be filed no later than three weeks after the occurrence of insolvency or over-indebtedness. Failure to do so may result in a prison sentence of up to three years or a fine, even if the offense was committed by negligence.
Support for companies in the corona crisis
The German government has announced that it will provide various instruments to support companies’ liquidity. However, these measures will probably not reach companies in time. A legal provision will therefore suspend the obligation to file for insolvency until 30 September 2020. This is designed to prevent affected companies from having to file for insolvency just because applications for federal aid or financing or restructuring negotiations cannot be completed within the three-week period in the current situation.
Suspension will be conditional on the grounds for insolvency having arisen due to the effects of the corona epidemic. In addition, there must be reasonable grounds to believe that the company applying for suspension will be able to restructure as a result of an application for federal aid or serious financing or restructuring negotiations. In addition, the introduction of delegated legislation is planned which will enable the German Federal Ministry of Justice and Consumer Protection to extend the measure until 31 March 2021 at the latest.
In practical terms, this means it will now be important to collect and keep any appropriate evidence that the company crisis was caused by the effects of coronavirus. Otherwise, companies risk incurring the above-mentioned penalties.
WINHELLER provides legal advice to companies
If your company is affected, please contact us. Our criminal defense attorneys will assist you with matters of so-called preventive criminal defense, so that you do not become liable to prosecution through negligence. You can contact us by e-mail or telephone (+49 (0)69 76 75 77 80).