Looking back at the last few months, the COVID-19 pandemic has hit many companies hard and amplified disruptive trends in various sectors. In addition to other measures to address COVID-19 impact on businesses, Germany has made significant progress toward international best practices for restructuring: StaRUG — known as the German scheme — came into effect on 1 January 2021, as one of the most modern restructuring laws in the world. But how will StaRUG help German companies survive the crisis and what if insolvency is unavoidable?
On 17 December 2020, the German Parliament passed the Act on the Further Development of Restructuring and Insolvency Law ("SanInsFoG"), which is expected to lead to a fundamental change in the restructuring landscape in Germany.
In a recent judgment on directors’ liability (Bundesgerichtshof, 18 November 2020, IV ZR 217/19), the German Federal Court of Justice (Bundesgerichtshof) has clarified the scope of D&O insurance coverage, holding that company directors are entitled to its protection.
Background
In brief
Die Zahl der Insolvenzen in Deutschland war 2019 auf einem Rekordtief und die Insolvenzverwalter fühlten sich unzureichend ausgelastet. Und dann kam ein Virus, das die wirtschaftliche Realität im Handumdrehen veränderte. Der deutsche Gesetzgeber hat zwar sein Möglichstes getan, um die wirtschaftlichen Folgen abzumildern, jedoch bedarf es nicht des magischen Talents eines Wahrsagers, der in die Zukunft blicken kann, um zu erkennen, dass es in den Jahren 2020 und 2021 zahlreiche Insolvenzen und damit Schnäppchen für Investoren geben wird.
Insolvencies in Germany were at a record low in 2019 and insolvency administrators were feeling underworked. And along came a virus that changed economic reality in a heartbeat. Whilst the German legislative has done its utmost to mitigate the economic consequences, it does not take the magical talent of the future-teller to realize: there will be numerous insolvencies in 2020 and 2021, and with that bargains for investors. Obviously, there are not only opportunities, but also risks in acquiring a company out of bankruptcy.
According to German law, managing directors of limited liability companies are personally liable for payments made despite insolvency. Directors may even be liable when third parties make payments to the insolvent company's current account that has a negative balance because such payment will constitute a payment by the insolvent company to the bank
The German Federal Government’s various aid measures for employees, self-employed persons, small, medium and large enterprises are suitable for alleviating personal hardships, reducing the economic costs of insolvencies and plant closures and supporting the economy. In addition, it is important that the German Federal Government will play also a constructive role in overcoming the crisis on a European level, to avoid the COVID19 pandemic leading to a European sovereign debt crisis.
We have reported that the law for the Mitigation of the consequences of the COVID-19 pandemic in Civil, Insolvency and Criminal Proceedings Law of 27 March 2020 ("COVID-19 Law") extended the commercial law retroactive effect of restructuring (Link).
In collaboration with our foreign law firm partners, we continue to update our chart of COVID-19 measures taken by governments around the world. Today’s update includes new information for many countries as indicated in the chart: Global Government Measures Taken in Response to COVID-19.