In the context of rising energy and raw material prices, the German federal government has passed an Act regarding the Mitigation of Consequences of a Crisis under Restructuring and Insolvency Laws (Sanierungs- und insolvenzrechtliches Krisenfolgenabmilderungsgesetz – "SanInsKG"). Effective 9 November 2022, the SanInsKG temporarily adjusts certain insolvency and restructuring rules in respect of a debtor's obligation to file for insolvency on the grounds of over-indebtedness (Überschuldung) as well as of certain planning periods to be observed in debtor-in-possession insolvency and restructuring proceedings. The legislative objective is to respond to the current situation on the energy and commodity markets with price volatilities and resulting difficulties for companies in forward-looking corporate planning and to avoid a wave of corporate insolvencies.
The previous regime
Under the previous statutory regime, pursuant to Section 19 para. 2 German Insolvency Code ("InsO"), a company was over-indebted, i.e. the debtor’s assets do not cover its liabilities (Überschuldung), unless the circumstances indicate that a positive business continuation forecast (positive Fortführungsprognose) can be made. The minimum requirements for the affirmation of such a positive forecast are the debtor’s intention to continue its business and a continuously updated liquidity planning pursuant to which the debtor is predominantly likely to stay in business as a going concern during the next twelve months and to be able to pay its debts when due during the foreseeable future. Also, once a company was over-indebted such that it was required to file for insolvency, Section 15a para. 1 sentence 2 InsO required that such filing be made within six weeks, at the latest.
Hence, prior to this new temporary adjustment, in order not to expose themselves to personal liability risks and criminal law risks due to a belated insolvency filing, business managers were required to file for insolvency without delay if they concluded that the company they managed would not be financed with a predominant degree of probability for at least the next twelve months.
The legislative amendments
In light of the difficulties making such a forecast in the current economic environment, the SanInsKG now shortens the forecast period for the positive continuation forecast in the over-indebtedness test from twelve months to four months. This will make it easier for business managers to assume and present a positive continuation forecast for the continued existence of their company as a going concern and may also prevent companies from being rushed into filing for insolvency, if the going concern of the company is predominantly likely for at least the next four months.
Furthermore, the maximum period granted to a debtor's management for filing for insolvency due to over-indebtedness pursuant is increased from six weeks to eight weeks.
Finally, the period to be covered by the financing plan (Finanzplan) to be submitted by a debtor when filing for opening of debtor-in-possession insolvency proceedings under Section 270a para. 1 no. 1 InsO or for restructuring proceedings plan under Section 50 para. 2 no. 2 Corporate Stabilization and Restructuring Act ("StaRUG"), respectively, is reduced from six months to four months, thus easing the debtor's access to debtor-in-possession insolvency proceedings or to (court/out-of-court) stabilization and restructuring measures under the StaRUG, as the case may be.
It should be noted, however, that the (also mandatory) ground for filing for insolvency due to illiquidity (Zahlungsunfähigkeit) under Section 17 InsO is not affected by the new provisions of the SanInsKG. Here, the previous legal situation pursuant to Section 15a para. 1 sentence 2 InsO remains unchanged, namely that an insolvency filing must take place immediately upon the occurrence of insolvency, but within three weeks, at the latest.
For the insolvency grounds of both over-indebtedness and illiquidity, it must also be noted that the eight-week or three-week period, as the case may be, may only be exhausted if there is a reasonable prospect during this period that the over-indebtedness or illiquidity can be remedied. If there is no such prospect, an application for insolvency must also be filed in the future before the end of the period.
Duration of the amendments
The statutory amendments under the SanInsKG are initially limited in time until 31 December 2023. Whether the regulations will be extended beyond this date (possibly in an amended version) is not yet foreseeable. It is expected that the legislator will not make a decision until the second half of 2023, which will depend to a large extent on how the Ukraine crisis develops by then.
In principle, the forecast period, which has been shortened to four months, applies to a positive continuation forecast until 31 December 2023. However, the original forecast period of twelve months may become relevant again as early as 1 September 2023, if it is then already foreseeable for the management that on the basis of the forecast, which is to be based on a twelve-month period again from 1 January 2024, there will with predominantly likelihood be no through-financing and, thus, no over-indebtedness of the company.
The innovations of the SanInsKG provide relief both for the managers of arithmetically over-indebted companies and for the lenders of these companies, such as banks, in the assessment of an obligation to file for insolvency and their associated liability and criminal liability risks. It is not only the managers of a debtor company who are exposed to personal liability and criminal liability risks if they file for insolvency late. Banks are also at risk of becoming liable for aiding and abetting insolvency delay or for damaged inflicted to a debtor's creditors by violating bonos mores, if they grant a loan to a company in the knowledge of its crisis or insolvency, with the loan not being sufficient to eliminate the insolvency.
As a result of the new provisions of the SanInsKG, many companies may now still be classified as sufficiently healthy, which under the previous legal situation often did not have a positive continuation forecast. This will not only exempt managers of debtor companies from the previous strict obligation to file for insolvency due to over-indebtedness, which in many cases would have led to hasty results during the Ukraine crisis, but may also make it easier for them to raise new capital. This is welcome in view of the legislative goal of avoiding a wave of corporate insolvencies.