On 25 March 2020, the German Parliament passed a comprehensive rescue law in order to mitigate the negative effects of COVID-19 on companies and natural persons in Germany. The Rescue Law was publicized on 27 March 2020 and, with very few exceptions, has become effective as of 28 March 2020. Amongst other things, the Rescue Law deals with a suspension of the duty to file for insolvency and related directors’ duties, loosens the clawback and lender liability regime, restricts landlords’ termination rights owing to non-payment of leases and allows companies to convene virtual shareholder meetings, even if the articles of the company do not otherwise allow for such meetings.
Overview of Main Changes
1. Director’s duty to file for a COVID-19-caused insolvency suspended
- The duty to file for insolvency will be suspended unless: (i) insolvency is not caused by effects of COVID-19; or (ii) there are no prospects of recovering from cash flow insolvency. The law provides for a rebuttable presumption that (i) and (ii) are satisfied if debtor was not cash flow insolvent on 31 December 2019. The Federal government is authorized to extend this suspension until 31 March 2021.
2. Safe harbor for management to continue business operations
- No management liability for payments made until 30 September 2020 (the “Suspension Period”) in the ordinary course of business (in particular, payments made to maintain or revive the business, or in connection with the implementation of a restructuring plan).
3. Legal certainty and privilege for rescue funding by shareholders and outside lenders
- The repayment of “new loans” and collateral granted during the Suspension Period that are repaid by 30 September 2023 are not considered detrimental to creditors and cannot be clawed back by an administrator.
- The repayment of shareholder loans cannot be clawed back by an administrator. However, granting security is not covered by the exemption and therefore remains subject to clawback. Shareholder loans granted within the Suspension Period and repaid by 30 September 2023 will not be equitably subordinated.
4. Protection for tenants against default-triggered termination
- The Rescue Law provides for restrictions on landlords’ extraordinary termination rights based on delayed lease payments that fall due in the period from 1 April 2020 to 30 June 2020, provided that the delay/non-payment is attributable to the effects of the COVID-19 pandemic. This shall apply until 30 June 2022.
- The Rescue Law authorizes the Federal government to extend this restriction on termination for lease payments that fall due in the period from 1 July 2020 to 30 September 2020.
5. Continued shareholder governance by virtual general meetings and electronic voting
- The Rescue Law also provides for temporary relief for shareholder meetings, including the ability to hold virtual meetings and vote electronically without any pre-existing permissions in the articles of association or shareholder consent.
For further information, please see our detailed deck on the new law and additional state aid.
With questions, please contact Leo Plank, Sacha Luerken, Bernd Meyer-Löwy, Wolfram Prusko, Wolfgang Nardi or any other member of Kirkland’s Munich restructuring team.