Suspension of Duty to File for Insolvency
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Suspension of Duty to File for Insolvency

Many companies are suffering hardship as a result of the corona crisis. The Federal Ministry of Justice and Consumer Protection is planning changes to the duty to file for insolvency. This could prevent insolvencies. We explain the coming changes.

Many companies are already experiencing revenue losses as a result of the restrictions caused by the coronavirus – others will be affected down the line. Insolvency and restructuring consultants are forecasting a marked rise in insolvencies. This would have far reaching implications for the economy.

But the ministry is preparing measures intended to help many of the companies in crisis to avoid insolvency. The federal government has already initiated several steps as part of a bundle of measures to soften the economic impact. Apart from changes regarding requests for deferrals and reductions in tax law this also includes easing the rules for short-term worker compensation.

The federal government is now adding changes to the duty to file for insolvency to the bundle.

Suspension of Duty to File for Insolvency

Currently, the management of any company facing excessive debt or an inability to pay has to file for insolvency immediately. Those missing the filing deadline of three weeks are subject to legal sanction. The government is now planning to suspend this requirement temporarily.

This is to prevent companies who are entitled to state support in the current situation from having to file for insolvency. At the moment, state authorities are often unable to provide the necessary funds within three weeks due to the current avalanche of applications. Suspending the duty to file for insolvency mitigates that.

Duration of Suspension

Naturally, the duty to file will not be suspended indefinitely. The measures are to remain in effectuntil September 2020 initially. Beyond that, an extension until no later than 31. March 2021 can be suggested by the Federal Ministry for Justice and Consumer Protection.

To whom does the suspension of the duty to file for insolvency apply?

However, the duty to file for insolvency will not be suspended in general. It will only apply to companies if their reasons for insolvency are directly connected to the corona crisis and who can be expected to bounce back after the crisis.

This assessment will likely be difficult in certain cases. Companies should prepare for this early.

How do I prove that my company’s insolvency is due to corona?

Those responsible in the company should preemptively document trends in company liquidity. Based on these trends, it will be possible to later retrace how restrictions caused by corona affected revenue.

That way, you can retroactively prove that the suspended duty file for insolvency applies in your case. This will save resources that can be used elsewhere after the crisis.
Our experts are ready to help you collect data at an early stage to be able to fulfil the evidence requirements later.

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