Obligation to apply for insolvency proceedings

Sales have collapsed. Revenues have declined sharply. But costs for staff and buildings still have to be paid. Liquidity is shrinking, putting companies at risk of illiquidity. Therefore, many board members and managing directors are beginning to ask themselves whether they now have to apply for insolvency proceedings. The good news is: No! But there is one limitation: This applies only under certain conditions.

The obligation to apply for insolvency proceedings is suspended

The Bundestag and the Bundesrat have voted to suspend the obligation to apply for insolvency proceedings. This arrangement applies retroactively from 1 March 2020 and is initially scheduled to end on 30 September 2020. In general, the obligation to apply for insolvency proceedings is not abolished. Rather, it is suspended, but only if the following two requirements are met: first, material insolvency has to be the result of the coronavirus pandemic, and second, it must be likely that current illiquidity is only temporary. It is automatically presumed that both of these requirements are met if the company was not illiquid on 31 December 2019.

However: Statutory provisions still apply!

If the company does not satisfy these two requirements, the current statutory provisions continue to apply. In that case, if the company is illiquid or overindebted, the management must promptly apply with the competent insolvency court for the commencement of insolvency proceedings. This must take place within three weeks of the start of material insolvency, at the latest. Put very simply: A company is illiquid if its liquidity is insufficient for satisfying due and owing payment obligations on time.

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