Like Denmark, Germany has also acted fast in taking far-reaching legal measures to assist citizens and businesses alike during the COVID-19 pandemic. Read about liquidity measures as well as changes to regulations regarding insolvency, lease agreements, private loans, company law and the labor market. Gorrissen Federspiel has the expertise to help clients navigate the situation of their business in Germany and a strong network of German law firms to refer to for local support.
1. Liquidity measures in Germany
In Germany, several measures supporting the liquidity of businesses have already been taken.
- Several schemes backed by Kreditanstalt für Wiederaufbau (“KfW”) have been introduced, including a guarantee scheme supporting new loans or facilities to finance investments, operating resources or inventory for groups with a turnover of up to EUR 2 billion. The scheme can be used for investments in Germany, or investments outside Germany where the borrower is a German entity or a subsidiary of a German entity.
- In addition, almost every state has introduced measures for small businesses and self-employed entrepreneurs. These measures include grants that are not subject to repayment.
- Nearly all schemes can be used by internationals doing business in Germany.
2. Relaxed insolvency regulations
During this crisis, it is paramount that companies and businesses can survive. In addition to the liquidity measures, the German government has relaxed obligations to file for insolvency, eased the rules on payments during factual and material insolvency and put a moratorium on third party filings for insolvency by creditors. This gives companies time to take advantage of state aid.
- In the event of an actual or material insolvency caused by the effects of the COVID-19 pandemic, the obligation to file for insolvency within 3 weeks for directors is suspended until 30September 2020. This suspension applies if the company did not lack liquidity on or before 31 December 2019.
- In a situation of illiquidity, managers may only make payments that are reconcilable with the diligence of a prudent businessperson. This provision has been relaxed so that all management measures taken in the ordinary course of business are now deemed reconcilable.
- Furthermore, the ability legally to challenge congruent payments (payments made or provided exactly as agreed) to business partners within insolvency proceedings is restricted for payments made until 30 September 2020.
- In addition, new restructuring loans (including shareholder loans) are given a privileged treatment in respect of legal challenges and liability. This also applies to commercial credits in connection with the delivery of goods. The repayment by 30 September 2023 of a new loan granted during the suspension period and the provision of collateral to secure such loans during the suspension period cannot legally be challenged in insolvency proceedings. In respect of financing within the framework of state aid programs granted by the KfW and its financing partners or other institutions due to the COVID-19 pandemic, the privileges apply for an unlimited period of time. Shareholder loans are equally granted a privileged status in respect of a suspension of the subordination of shareholder loans under insolvency law. The privileged treatment of collateral to secure such loan does not apply to shareholder loans. Only new loans enjoy the privileges, meaning that only loans adding additional liquidity are covered. The rules do not apply to extensions or novation of existing debt.
- The ability for third parties to instigate insolvency proceedings will be suspended for three months unless the reason for the insolvency already existed on 1 March 2020.
3. Protection of tenants in private and business lease agreements
The ability to terminate private and business lease agreements or to evict tenants due to the failure to pay rent is suspended until 30 June 2020. The outstanding rent can be repaid until 30 June 2022.
- The rent continues to be outstanding and carry interest. It is advisable for property owners as well as tenants to enter into payment agreements for an orderly payment of the outstanding rent after the crisis.
- The tenant has to claim and make credible that payment is impossible because of effects caused by the COVID-19 pandemic. Certain commercial tenants may make such claim credible to the extent that their business operation is prohibited or restricted by governmental measures.
- Major retailers in Germany controversially announced that they will take advantage of this new regulation. It may be expected that many business tenants will follow this practice even though the rent will have to be repaid with interest after the crisis.
4. Protection of consumers and micro-enterprises under certain agreements
- A moratorium until initially 30 June 2020 in respect of payment and performance obligations for (i) consumers under consumer contracts and (ii) micro-enterprises under certain agreements who cannot fulfil their contractual obligations based on circumstances relating to the COVID-19 pandemic, provided in each case that the underlying agreement constitutes a material continuing obligation;
- Deferral of payments falling due until 30 June 2020 by three months and exclusion of termination rights and adjustments by mutual agreement of consumer loan agreements (and subject to issue of an ordinance, loan agreements with micro-enterprises in particular, but also other corporates)
5. Changes to requirements for general meetings in companies
- For the company forms AG, KGaA and SE, the formal requirements to hold a general meeting have been relaxed. Furthermore, the ability to contest decisions by a general meeting have been greatly reduced.
- In a GmbH, the shareholders can make decisions reserved for the shareholders meeting in writing.
6. Short-time work allowance
As a main tool to offer economic relief, the German government announced a massive extension to the existing “Kurzarbeitergeld” taking effect retroactively from 1 March 2020. This means that employers can reduce their labor costs to a minimum without the need to terminate employees.
- Subsidiaries in Germany of Danish companies can apply for short-time work allowance if at least one third of the workforce has a loss of working hours exceeding 10%. This must be agreed either with the works council or by individual contract.
- Payments to the German social security systems are also suspended during the course of short-time work allowance
Germany has introduced relief schemes in several areas of the law to assist everyone from small businesses to large corporations. The common denominator is that liquidity for businesses and citizens alike should be preserved, and that personal contact should be avoided.
Gorrissen Federspiel together with our network of leading law firms in Germany stand ready to assist you.