Suspension of the Obligation to File for Insolvency: What does it mean for Creditors?
With the suspension of 15a InsO, the central creditor protection provision is suspended. This provision is intended to ensure that where insolvency or over-indebtedness occurs, a reorganisation of the limited liability business operation through insolvency law means (or its orderly liquidation) takes place.
COVInsAG / Coronavirus Act aims to enable and facilitate the continuation of companies that have become insolvent or are experiencing financial difficulties due to the coronavirus. The companies should be given time to take the necessary precautions to eliminate the insolvency problems, particularly to take advantage of state aid for this purpose or to make financing or restructuring arrangements with creditors and capital providers.
The limitation of liability and rescission risks in § 2 COVInsAG is also intended to create the conditions for granting restructuring loans to such companies and ensuring that the creditor does not break off the business relationship.
Which Companies will not survive the Crisis?
It is to be hoped that the legislator’s goals will become a reality and that a multitude of companies will survive the crisis. However, the crisis has already led to numerous changes in the behaviour of market participants, which will continue to apply even after the end of the crisis and will make it very difficult for some affected companies to “recover” and survive. Examples of behavioural changes include the greatly intensified use of home office work, telephone and video conferences, online training and delivery services of all kinds.
The advantages (and disadvantages) of the above-mentioned uses are currently being intensively experienced. These COVID-19 work practices perceived as beneficial will continue to hold sway even after the end of the crisis. The first three changes of use mentioned above affect the need for central office space and all annexes, such as restaurants and canteens as well as sales outlets at office locations, parking requirements, etc.
Furthermore, the convenient delivery service of any goods will put the raison d’être of many a sales outlet and restaurant into question. The COVID-19 coronavirus crisis will lead to changes in how business is conducted but knowing how to respond to these changes is the biggest issue.
Suspension of Insolvency Filing Obligations: How should Creditors behave?
Every creditor should check whether his contractual partner is likely to be among the winners or losers of the current COVID-19 crisis in the medium term and act accordingly. The COVID-19 crisis has led to considerable solidarity among market participants. Some creditors have deferred their claims or have declared partial waivers and are making their own contribution to the recovery of the contracting partner. Credit institutions are prepared to relax their credit standards, which is made considerably easier for them with indemnities of 90% and, in individual cases, 100%.
However, if the creditor’s analysis concludes that the business environment of his contractual partner has deteriorated massively, they can try to secure their economic position contractually – or have their claims determined by the court.
The Collateralisation of Claims
For example, the creditor could defer their claim, which ultimately constitutes a credit, conditional on its collateralisation. One argument favouring such a collateral requirement is that the alternative lender – the bank – receives 90% indemnity for its loan, which ultimately means 90% security for its credit.
There are no legal objections to such secured deferrals (crediting), as these are expressly recognised as permissible under Section 2(1) COVInsAG. By the way, such deferrals are also permissible for non-liable business entities, such as sole traders, OHGs and KGs (§ 2(2) COVInsAG).
Suspension of Insolvency Filing Obligations: The Enforcement of the Claim
Finally, the creditor can assert their claim in court. The suspension of important creditor protection regulations (§ 15a InsO and § 42(2) BGB) and the market changes described above will lead to a larger number of corporate entities with limited liability operating in the market for a longer period of time, which, despite all the assistance measures, will not be able to eliminate the incoming insolvency and will ultimately have to file for insolvency.
The non-opening of insolvency proceedings restores the principle of creditor competition and can lead to creditors trying to persuade the debtor to make voluntary payment after all or realise the claim in enforcement. In this “first-come-first-served” procedure, it is important to take action as early as possible to obtain payments from the few liquid assets, to achieve a forced realisation or reservation of valuable assets and not to have to join the ranks of the normal insolvency creditors in an expected later insolvency procedure.
At Schlun & Elseven Attorneys, our insolvency lawyers are committed to providing continuous support and counsel to our clients throughout this crisis. Our main offices are located in Cologne, Aachen and Düsseldorf and with conference rooms in Berlin, Munich, Hamburg, Stuttgart and Frankfurt, we are available nationwide. 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.
Please visit the Robert Koch-Institut website for updates on the COVID-19 coronavirus crisis in Germany as they occur. Updates here can be found in English as well as German.
If you require advice on your possible options as a creditor when it comes to an insolvency proceeding, please contact our lawyers. We operate in several 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.