The COVID-19 coronavirus crisis has been a disaster for many businesses in Germany and worldwide. Many firms in Germany now require short-term financial assistance to help them. Supply chains have been disrupted, businesses have been closed down, workers have had to self-isolate or work from home and public life has been changed dramatically. For many companies this has led to financial difficulties.
Some companies have been forced to use the reduced working hours / Kurzarbeit mechanism while others have had to consider filing for insolvency (see our article: “COVID-19 Coronavirus: Insolvency Law in Germany” for more information). The German government has realised the sheer scale of the crisis and have implemented measures to help businesses. In this article we will outline the possibilites for short-term financial assistance due to Covid-19 Coronavirus in Germany.
Financial Assistance for Small- / Medium- Companies
The German government has outlined several financial aid programs available to companies during this time. The government has announced it will provide short-term subsidies to small companies to help with rent and other fixed costs. Companies with up to five full-time workers can avail of up to €9,000 in support. On the other hand, companies with up to 10 employees can avail of up to €15,000 in government support. However, there are other programs available in different states (Bundesländer) with Bavaria, North Rhine-Westphalia, and Baden-Württemberg having state programs for bigger companies, as well as the one provided by the federal government. Support ranging from €25,000 to €30,000 is available for larger companies in some states.
Loans made by the state-owned Kreditanstalt für Wiederaufbau (KfW) are now easier to obtain, and the terms on which they are offered have been designed with the COVID-19 coronavirus crisis in mind. Loans should be less bureaucratic than before the crisis to ensure companies can continue. It is, of course, stated that the measures from KfW are loans and not grants. They will have to be repaid, but they are designed to help companies get through the worst of the crisis. This means there are attractive interest rates and extended deadlines available to companies availing of the loans.
Other banks around Germany are offering attractive loan options for companies at the moment. It is not just limited to KfW. The loans available also depend on the state in which your business is operating and other factors. Seeking support from an experienced partner during this time may help ensure your company secures the financial assistance it needs.
Corporate Restructuring, Insolvency and Other Measures
Keeping paperwork up to date is vital now, as is maintaining bookkeeping records. Recording outgoings at a time like this is of great importance, as it will provide insight into where savings can be made. Assessing proposed financial commitments and projects to determine which are unnecessary is crucial, as is examining agreements with other firms. All companies are facing major challenges at the moment, and finding amicable solutions to disputes and issues arising is strongly recommended.
In some cases, terminations may have to be considered to save costs. On this front, our lawyers can provide the advice needed as to how best to approach the situation. Alternatives to termination can usually be found, but if there is no other choice, we will ensure it is carried out correctly. This aims to prevent unfair dismissal in the future. See our article on “Job Terminations and COVID-19 Coronavirus” for more details.
Regarding insolvency issues, the government has taken a measure whereby the obligation to file for insolvency has been extended until 30th September 2020. This has been put in place to prevent a flood of insolvency filings occurring all at the same time, while allowing firms to avail of government support without having the insolvency filing deadlines placed too close in front of them. Contact our Insolvency Law Team for more advice on all insolvency issues.
Short-term Financial Assistance: Reduced Working Hours and Deferral of Taxes
Another option available to companies is that of Kurzarbeit or reduced working hours. Reduced working hours allows companies to temporarily reduce the hours and thus wage of their employees to deal with a short-term crisis. The federal government has been clear in that companies can use this facility to get through the most difficult stages of the current pandemic. Reduced Working Hours is derived in law from § 95 SGB III and can be availed of where “substantial loss of working hours with loss of earnings” has arisen due to an “unavoidable event”. According to the draft bill of 19 March, at least 10% of employees must have a loss of earnings of more than 10%. With reduced working hours support, the government will pay the rest of the salary which the employee should earn.
Additionally companies can gain financial assistance through a temporary deferral of tax payments. Companies can defer the payment of trade tax and corporation tax temporarily if they can show that the lack of liquidity available to them is due to the coronavirus crisis. In order to avail of tax deferral, applications have to be made in good time.
Once again, gaining assistance from an experienced corporate lawyer will pay dividends for these measures as not going about these measures in the right manner may result in legal trouble further down the road.
Force Majeure and Company Contracts
COVID-19 coronavirus is disrupting every aspect of business, and no more so than in the supply chains. Should companies have contractual obligations that are now not being carried out due to this crisis, they may be able to avail of the force majeure clause. This will not necessarily provide companies with financial assistance, but will offer some relief at a time when paying bills as they fall due is proving very difficult.
Under German law, force majeure events are external occurrences that render a company unable to fulfill its contractual obligations. To be considered force majeure, these events:
- are not related to the actions of the company,
- could not have been foreseen,
- and which cannot be prevented or rendered harmless by economically bearable means,
- even by the utmost care that can reasonably be expected in the circumstances.
Currently many cases involving contract breaches will be deemed as force majeure as the actions taken to prevent the spread of the virus are unprecedented. No company could have predicted or changed how governments responded to the crisis. However, it won’t apply in every case. Make sure to read our article on “Force Majeure, COVID-19 Coronavirus & Commercial Law in Germany” for more details on how this can provide some financial assistance during this time.
Services to Our Clients
At Schlun & Elseven, we are committed to providing our clients with assistance throughout this crisis. For our corporate clients, we continue to aid them in the following ways:
- examine current contracts to explore what opportunities and advantages may be available to you,
- assistance in applying for governmental support and loans available,
- advice as regards corporate restructuring in order to find cost-saving opportunities,
- review the model of corporate financing and outline where changes can be made,
- arbitration assistance in any disputes that arise,
- representation in and out of court if litigation is needed,
- advise on issues around Kurzarbeit / reduced working hours and how to avail of it.
Our aim is to help our corporate clients to weather this storm and make it through to the other side. Once this crisis has subsided, we know that companies and entrepreneurs will require further assistance in returning to financial health.
At Schlun & Elseven Rechtsanwälte, our corporate lawyers are committed to providing continuous support and counsel to our clients throughout this crisis. Our offices are located in Cologne, Aachen, and Düsseldorf. However, at the moment, we would urge our clients to contact us remotely as we can provide our services by phone, through email, and by video conferencing.
If you need help applying for short-term financial assistance due to this crisis, then please contact our lawyers. We operate in a number of languages, including English. We will remain active through this crisis to ensure that our clients receive the assistance they deserve. Contact us today for further counsel.
