On January 28, 2021, the German legislator adopted the further extension of the suspension of the obligation to file for insolvency in the event of over-indebtedness and illiquidity until April 30, 2021. To benefit from the (further) suspension, the affected company must file an application for financial aid in the period of November 1, 2020, until February 28, 2021. If the affected company generally qualifies for financial aid, it may still benefit from the suspension, even if it was unable to file for financial aid due to legal or factual grounds. However, the suspension of the obligation to file for insolvency does not apply where the application for financial aid has apparently no prospects, or the amount of financial aid that may be obtained would not be sufficient to remedy the insolvency.

Originally, the obligation to file for insolvency was suspended in the event of over-indebtedness as well as illiquidity for the period from March 1, 2020, until September 30, 2020. The suspension has since been extended several times by the legislator: for the period from October 1, 2020, until December 31, 2020, in the event of over-indebtedness only; for the period from January 1, 2021, to January 31, 2021, in the event of over-indebtedness and illiquidity. Since mid-November 2020, a renewed lockdown to contain the spread of the novel SARS CoV-2 virus (COVID-19 pandemic) is in place. Due to the renewed lockdown, companies are in financial difficulties, and to mitigate these the legislator provides financial aid. However, the slow disbursement of those financial aids made it necessary to extend the suspension of the obligation to file for insolvency.

1. Current situation

In light of the drastic surge of infections, the German government decided to implement further measures to contain the spread of the COVID-19-pandemic in October 2020, first as a “light lockdown” and, starting December 16, 2020, as a “tough lockdown”. These measures have been extended and even intensified until February 14, 2021. The impact on the economy of such measures especially affects small and medium-sized enterprises. Affected companies and their management continue to face the question of whether there is a reason for insolvency and therefore - to avoid civil and criminal liability – whether they have to make a corresponding filing.

2. No short-term liquidity support

To mitigate the financial difficulties encountered by companies due to the – seemingly endless – measures implemented to contain the COVID-19-pandemic, the legislator provides further financial aid. Since November 2020, the so-called “November and December Aids” (“November- und Dezemberhilfen”) were made available and are enhanced by the “Interim Aid III” (“Überbrückungshilfe III”) since January 2021. The amount available under the “Interim Aid III” is supposed to be greater than the amount under the financial assistance available so far. However, due to the slow disbursement of those financial aids, the suspension of the obligation to file for insolvency was extended until December 31, 2020, and then until January 31, 2021.

3. Suspension of the obligation to file for insolvency

In light of the further extension of the “tough lockdown” until mid-February 2021, on January 20, 2021, the German government approved a drafting proposal on extending the suspension of the obligation to file for insolvency until April 30, 2021. The German legislator adopted the proposed provisions on January 28, 2021.

The (further) suspension applies to both the reasons for insolvency, over-indebtedness and illiquidity. To benefit from the suspension, an application for financial aid must be filed in the period between November 1, 2020, until February 28, 2021. However, if the affected company generally qualifies for financial aid, it may still benefit from the suspension even if it was unable to file for financial aid due to legal (such as reasons based on the law on subsidies) or factual (such as technical reasons) grounds. 

However, the Act contains additional qualifications and exceptions in relation to the suspension of the obligation to file for insolvency.

Thus, the affected company may not benefit from the (further) suspension of the obligation to file for insolvency, where

• the application for financial aid has apparently no prospects, or
• the amount of financial aid that may be obtained would not be sufficient to remedy the insolvency.

Furthermore, the suspension of the obligation to file for insolvency does not apply where 

• the insolvency is not a consequence of the COVID-19-pandemic or 
• there are no prospects of remedying the illiquidity. 

If the company (otherwise) obligated to file for insolvency was not yet illiquid on 31 December 31, 2019, it is presumed that its insolvency is a consequence of the COVID-19-pandemic and that there are prospects of remedying the illiquidity. This presumption is rebuttable.

The regulation on the suspension of the obligation to file for insolvency (“COVInsAG”) contains many undefined legal terms that need to be substantiated in practice. Whether the obligation is actually suspended needs to be assessed carefully. Furthermore, applications for financial aid will need to be well substantiated and documented.

4. Further extension seems likely

An end to the measures to contain the COVID-19-pandemic and the financial difficulties encountered by affected companies is nowhere in sight, especially in view of the new mutations of the SARS-CoV-2-virus currently emerging. Thus, a further extension of the suspension of the obligation to file for insolvency seems likely.