The Covid 19 pandemic continues to occupy our daily lives and is leading to the worst economic crisis in years. In order to counteract this, various forms of support and emergency aid have been initiated by politicians. Nevertheless, according to current surveys, many experts expect an increasing number of company restructurings and insolvencies in the near future.
In order to further support companies in the current phase and avert a possible future insolvency, the “Act on the Further Development of Restructuring and Insolvency Law” (SanInsFoG) is currently being introduced. The draft law had its first reading in the Bundestag on 18 November 2020 and will be discussed in the Legal Affairs Committee on 25 November 2020. It is planned to introduce the law on 1 January 2021, even though politicians now consider 1 April 2021 to be a more realistic target for parts of the very comprehensive law.
What is the core of the SanInsFoG?
A key focus is to look at the sustainability of liabilities. Many companies that have received special loans from the development banks, for example, may have to deal with restructuring the liabilities side in the next few years because, contrary to expectations, the business model after the Covid 19 pandemic cannot enable full debt service capability.
There are two core elements to this:
- The obligation to file for insolvency due to over-indebtedness is suspended until the end of December 2020 if this results from the Covid 19 pandemic. With the reinstatement of the obligation to file for insolvency on 1 January 2021 – the obligation to file for insolvency has already been in force again since 1 October 2020 – there will be an easing of the requirement for the going concern forecast: The liquidity forecast period is to be only twelve months or four months in the case of a decline in sales of > 40% in 2020 due to the Covid 19 pandemic.
- On the other hand, the personal liability of managing directors and board members before the onset of insolvency will be significantly tightened. In future, companies must be fully financed for the next 24 months in order to safeguard the interests of the creditors as a whole. If a financing gap is not identified in good time or if restructuring measures subsequently do not take effect as hoped, the managing director will be personally liable. Managing directors must therefore deal with their options for action at an early stage in the event of impending insolvency.
How must management / the board of directors react in the future?
On the one hand, the company’s executive bodies must ensure through-financing as soon as the law becomes effective. Therefore, the establishment of a meaningful liquidity planning for the current and the two following financial years is already necessary at the latest at this point in time, as the next 24 months must be monitored on an ongoing basis. If this results in liquidity gaps due to increasing demand or expiring financing, there is an obligation to find a solution in the interest of the creditors thus at most equally in the interest of the shareholders. Transparency in the form of a three-year plan, the development of financing solutions and communication with the financiers and, if necessary, the other creditors become essential and relevant to liability.
On the other hand, the SanInsFoG also brings with it the new Corporate Stabilisation and Restructuring Act (StaRUG), which transposes the preventive restructuring framework required by the EU into national law. This gives companies that basically have a functioning business model a new instrument for restructuring. Without the stigma of insolvency, a (balance sheet) restructuring can take place within the framework of the formation of a majority. In addition to the termination of contractual relationships and the overruling of individual creditors who are unwilling to restructure, other measures will also be possible in future that can currently only be used within the framework of insolvency proceedings.