Bridge loans and restructuring loans


As a rule, the granting of bridge loans and restructuring loans to enterprises in situations of distress is subject to specific rules and limitations. If they are not observed, and if the restructuring of the borrower is unsuccessful in insolvency, there is a risk of avoidance in insolvency and claims for compensation of damages, as well as supervisory measures. In the coronavirus crisis, however, new loans regularly are at risk of becoming problem loans. That in turn would make it difficult to provide liquidity. Governmental authorities and the legislators have responded to this.

In the regulatory area, the German Federal Financial Supervisory Authority (BaFin) and the European Central Bank have introduced a series of measures designed to provide relief. For instance, the application of BTO 1.2.5 No. 3 of the German Minimum Requirements for Risk Management (Mindestanforderungen an das Risikomanagement, MaRisk) has essentially been suspended.

Ability to avoid transactions temporarily suspended

In order to give legal certainty to lenders that have provided financing to enterprises struggling with the coronavirus pandemic, the Bundestag and the Bundesrat have adopted the following temporary suspensions on the ability to avoid transactions in order to protect those creditors in the event that a subsequent restructuring ultimately fails.

  • If an enterprise receives a loan in the period 1 March to 30 September 2020, known as the “suspension period”, all repayments that are made against that loan through 30 September 2023, as well as all collateral that is (subsequently) provided in the period 1 March to 30 September 2020, will not be subject to avoidance. They will not be classified as prejudicial to creditors.
  • Granting a loan or providing collateral during the suspension period will not be considered as contributing to delay in the filing an application for commencement of insolvency proceedings in a manner that is contra bonos mores.
  • For shareholders and equivalent lenders, the following applies: Repayments of shareholder loans granted during the suspension period that are made through 30 September 2023 will not be subject to avoidance. This does not however apply to any collateral that is provided. The arrangements concerning subordination and the consequences of it, particularly under section 39 (1) No. 5 of the German Insolvency Code (Insolvenzordnung, InsO), are suspended where an application for commencement of insolvency proceedings is filed on or before 30 September 2023.

As a general rule, congruent coverage – i.e. payments or collateral that the recipient needed to claim in that manner and at that time – will not be subject to avoidance in subsequent insolvency proceedings. In the same way, certain types of incongruent coverage transactions that are listed in the law will as a rule not be subject to avoidance. However, the privileged status enjoyed by congruent and certain types of incongruent coverage does not apply if the recipient was aware that the debtor’s restructuring efforts were not suited to remedying its illiquidity, in which case the transactions may be avoided.

However: Suspension is subject to a limitation!

However, the suspensions occasioned by the coronavirus pandemic apply only where the obligation to apply for insolvency proceedings has also been suspended for the affected enterprise. In order to qualify for a suspension, the enterprise’s material insolvency has to be the result of the coronavirus pandemic, and it must be likely that current illiquidity is only temporary. For all other cases, the current statutory arrangements in insolvency law, civil law, and company law continue to apply.

This is intended to prevent so-called “zombie companies” with no chance of survival irrespective of the coronavirus crisis from receiving artificial life support from government assistance measures, which would then cause further damage to their creditors and contract partners.

The new statutory arrangements do not address how finance providers are to obtain certainty that the specified requirements are met. In particular, there is no obligation to obtain an expert opinion or a confirmation that the enterprise is capable of being restructured, such as in the case of the “protective shield” procedure.

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