March 26, 2020

Law to mitigate the consequences of the COVID-19 pandemic in civil, insolvency and criminal procedure law passed by the German Parliament


With unanimous vote, the German Parliament passed the Law to mitigate the consequences of the COVID-19 pandemic in civil, criminal and insolvency law. This new law brings with it several (temporary) changes of law all of which aim at mitigating the consequences of the COVID-19 pandemic in both private and business life. Inter alia, the following provisions have been implemented:

1. Suspension of the obligation to file for insolvency

The obligation to file for insolvency has in general been suspended until 30 September 2020, with the option of an extension by the German Ministry for Justice and Consumer Protection until no later than 31 March 2021. This suspension does not apply, however, if the insolvency reason is not a consequence of the COVID-19 pandemic or if there is no prospect of the insolvency being resolved. In this context, debtors who were not insolvent on 31 December 2019 can benefit from a presumption according to which the suspension applies.

The suspension of the obligation to file for insolvency is accompanied by further provisions providing managing directors, contract and financing parties with more comfort when it comes to personal liability, subordination and challenge rights usually faced in distressed situations.

2. Measures regarding the execution of shareholder meetings, passing of resolutions, etc.

Further, the law provides a mechanism to prevent companies from becoming incapable of acting due to the restrictions on freedom of association that particularly affects shareholder meetings. In particular, shareholder meetings to be held in 2020 (whether ordinary or extraordinary) of, inter alia, stock corporations can be held by using electronic communication and, even without physical presence of the shareholders, regardless of whether or not such possibility has been provided in the company's articles of association. In addition, the new law shortens deadlines with regard to the convocation of meetings and implements an expanded possibility for e.g., shareholder resolutions to be passed in writing or by using electronic means. Furthermore, stock corporations can distribute interim dividends, regardless of whether the articles allows this or not.

3. Moratorium

Consumers and micro-entrepreneurs are entitled to refuse fulfillment of essential continuing obligations (i.e., contracts required for adequate utility services, such as electricity, gas, telecommunication and water) if such contracts had been concluded prior to 8 March 2020 and provided that the respective consumers or micro-entrepreneurs are unable to perform such contracts without jeopardizing their decent livelihood due to the COVID-19 pandemic. This moratorium does not apply with regard to lease agreements, loan agreements or labor law requirements.

4. Protection of tenants against eviction

With regard to tenancy agreements, the new law prohibits a lessor from terminating a lease agreement prior to 1 July 2022 if the only reason for termination is that the tenant has not paid its rent for the period between 1 April 2020 and 30 June 2020 and provided that the nonpayment is based on the COVID-19 pandemic. The regulations are intended to prevent residential tenants from losing their homes and tenants or leaseholders of commercial premises and land from losing their livelihoods as a result of a temporary loss of income due to the COVID-19 pandemic. However, this does not enable tenants to defer payments. Therefore, a tenant not paying its rent on time will still face late payment fees.

5. Loan agreements

With regard to loan agreements entered into by consumers prior to 15 March 2020, lenders' claims for repayment, interest or redemption that become due between 1 April 2020 and 30 June 2020 are by law deferred for a period of three months if consumers face a loss of income that is based on the effects of the COVID-19 pandemic and, thus, the payment obligations become unreasonable for them. During this period, termination of a loan agreement due to late payment is prohibited. Following the deferral period, the lender shall discuss with the borrower the possibility of an unilateral amendment of the loan agreement. With regard to these provisions, the German Federal Government has been enabled to expand the scope to also include micro-entrepreneurs, as well as small and mid-sized entities.

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