COVID-19 coronavirus is now a global pandemic. As has been seen, the virus not only brings health risks but also economic damage. The true economic cost of this spread is impossible to calculate as Europe and the USA brace themselves for a rise in cases over the next weeks. Even at this early stage in the pandemic, there have been noticeable effects on companies in many sectors of the German economy.

In our articles “Employment Law and COVID-19 Coronavirus” and “Commercial Law, Force Majeure and COVID-19 Coronavirus” we have looked at how the outbreak has impacted some aspects of the German economy. One of the other areas that COVID-19 coronavirus impacts is in insolvency law which we will analyse in this article.

If you have a particular issue or legal question concerning events related to the COVID-19 coronavirus, please contact our law office directly. Our lawyers can be reached by phone, email and also provide video conferencing options. For more legal information on the Corona crisis, please visit our Crisis Dashboard.

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Economic Effects of COVID-19 Coronavirus and Insolvency

Companies in the leisure and tourism industry are having to contend with cancellations and a decline in demand. Other companies such as those in the event industry have also suffered the consequences of the political and social measures taken in recent weeks. In other sectors, supply bottlenecks are occurring as supply chains come to a standstill due to virus-related delivery stops. Production is being delayed and even stopped in many cases. Unsurprisingly, numerous companies in Germany are now fearful for their future.

The reduced economic activity due to COVID-19 coronavirus has resulted in a slump in sales and thus liquidity difficulties for many companies. In turn – should a company not have sufficient financial reserves or if a company lives from seasonal business – serious liquidity problems are now arising and, for some companies, their management is faced with the crucial question of solvency.

An example of this dates from the beginning of March. During this time, the tour operator China Tours Hamburg filed for insolvency proceedings before the Hamburg District Court after 22 years in operation. This makes CTH the first company during the current COVID-19 coronavirus crisis to file for insolvency.

In the last published financial year 2018, the company had achieved a net profit of 122,000 euros. On the balance sheet date, CTH listed a total of 2.7 million euros in liabilities. For all companies out there, it is now vital to recognise and prevent the early signs of an impending economic problems.

What is Insolvency and Steps to Avoid it

Insolvency can even affect companies that have not previously suffered economic losses. The state of insolvency concerns companies, but also private persons, and concerns them no longer being able to pay their debts as they fall due. If the debtor is no longer able to meet his payment obligations, this is usually considered insolvency.

There are several possibilities for averting insolvency. With a guarantee from a solvent company or a credit institution, it is often possible to avert insolvency. Most often, creditors negotiate with debtors and thgis can lead to agremments to defer invoices or to pay in instalments. The creditors in question can be suppliers, lenders, business partners and employees.

As part of the insolvency proceedings or to avert insolvency, total or partial debt relief can be sought, depending on the creditors and the amount of debt. In many cases due credit instalments can be reduced, liabilities can be deferred. With patience, understanding ad a solid business relationship, a debtor’s solvency can be restored in this way.

In order to avert insolvency, it is important to recognise the warning signs at an early stage and carry out a sound analysis of the company’s figures and data. The earlier the risk of insolvency is recognised, the better the chances of averting it. Legal advice can often help to avert insolvency, so that the necessary measures can be discussed with the entrepreneur. Contact our insolvency lawyer Dr. Richard Nouvertné and describe your situation to him. He will assist you in an advisory capacity.

COVID-19 Coronavirus: Insolvency Delay

As a result of COVID-19 coronavirus, hotels are losing a lot of money while night clubs and bars even have to close completely. As a result, companies could become overindebted and insolvent. Should this be the case, management must immediately file for bankruptcy. If a company does not file for insolvency despite being insolvent or in the case of excessive indebtedness, there is a risk of being accused of delaying insolvency. The delay in filing for insolvency is prosecuted and can be punished with up to three years imprisonment.

According to the German Insolvency Code, companies based in Germany must apply for insolvency proceedings immediately after recognising their inability to pay, but no later than three weeks after the reason for insolvency has been established. Young companies in particular have to cease their business activities within the first three business years.

In order to prevent such problems from arising, business start-ups and young entrepreneurs need to know what an insolvency delay is in detail. This means knowing when it threatens and how the delay can be prevented. For this reason, comprehensive legal advice is recommended. Our lawyer for insolvency law, Dr. Richard Nouvertné, can advise you individually and answer your questions on insolvency proceedings and thus provide you with comprehensive support.

Reasons for a Delay in Filing for insolvency

Especially at the beginning of a business start-up, business that has already begun can come to a standstill. In times of the coronavirus, legal deadlines and obligations can quickly get out of focus and lead to infringements.
There are three main reasons for the penalties for delaying insolvency under § 15a of the Insolvency Code:

  • Non-filing of insolvency petition,
  • The deadline for the insolvency application was not met,
  • Incorrectly completed insolvency application .

The reasons for this are that many decision-makers misjudge the risk of insolvency or regard it exclusively as a crisis and not as insolvency. However, many also hope to be able to avert insolvency on their own and thus miss the deadline for filing for insolvency. A frequent reason is insufficient knowledge of the legal provisions.

Our law firm Schlun & Elseven can support companies in this area. Our lawyer can assess your current situation and prepare an expert opinion. If you have to file for insolvency, we can take the necessary steps and answer your questions. To ensure the benefit of our legal expertise, it is important that you contact us in good time.

Suspension of the Obligation to File for Insolvency

As a matter of principle, an application for the opening of insolvency proceedings must be filed immediately after the company becomes insolvent. According to the law, under certain conditions, a maximum of three weeks remains for this purpose. The current coronavirus crisis is an exceptional situation and requires appropriate measures.

The Federal Ministry of Justice and Consumer Protection has announced that it is preparing a draft law to this effect, according to which the obligation to file for insolvency will be suspended until 30 September 2020. This step has of course arisen due to the projected rise in COVID-19 coronavirus insolvency cases. In the event that public aid is not granted in time or financing or restructuring negotiations cannot be concluded, this delay will apply.

A temporary suspension of the obligation to file for insolvency can help to prevent a flood of insolvency applications, especially as this could also affect companies with an actually functioning and promising business model.

Legal assistance with Insolvency law and other COVID-19 Coronavirus Issues

We at Schlun & Elseven operate in Germany as a comprehensive law firm with a special focus on insolvency law. The COVID-19 coronavirus affects all areas of human interaction and has a massive impact on our clients’ businesses. Against this background it is clear that the COVID-19 coronavirus will affect numerous areas of law.

Further information on the COVID-19 coronavirus outbreak can be obtained from the Robert Koch Institute.

If you need legal advice regarding the effects of the COVID-19 coronavirus on your company, contracts or other legal issues, please contact us directly. Our offices are located in Cologne, Düsseldorf and Aachen, but we are available by phone, e-mail and through video conferencing. Our lawyers can discuss your insolvency issues in English and other languages if preferable. We look forward to working with you.

German Insolvency Information Center
Practice Group for German Insolvency Law
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