On Monday, 16 March 2020, the German Federal Ministry of Justice and Consumer Protection (Bundesministerium der Justiz und für Verbraucherschutz) announced that they are working on a legislative provision according to which the obligation to file for insolvency within three weeks following the occurrence of a reason for insolvency (i.e. illiquidity or over-indebtedness) would be suspended for such entities which face liquidity issues due to the Corona (COVID-19) pandemic.

Envisaged is currently a suspension of the obligation to file for insolvency for a period until 30 September 2020 with the option of an extension by the German government until no longer than 31 March 2021. Precondition of such a suspension shall, however, be, that the respective entity’s grounds for filing for insolvency are based on the effects of the corona pandemic. Furthermore, the entity which would otherwise be obliged to file for insolvency must have reasons to believe that it can be successfully restructured (e.g. due to public aids it has applied for or other serious financing or restructuring negotiations).

With this new legislation, the ministry intends to prevent entities from having to file for insolvency simply due to the fact that the processing of public aid applications, etc. takes longer than the three week period during which the entity might otherwise have to file for insolvency.

It remains to be seen how the legislator implements this suspension of the obligation to file for insolvency, in particular how the preconditions to benefit from the suspension will be designed. In any event, the new legislation will likely reduce the potential liability risks for the acting managing directors in case of uncertainties.

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