DE IT
SNP Schlawien
LawyersTax Advisors

News

April 14, 2020
Common legal issues related to corona (COVID-19)

Image

We have compiled the following information on particularly frequent legal questions in connection with the coronavirus (COVID-19), which will be continuously updated.


Content

I.   Opinion on the law on mitigating the consequences of the COVID 19 pandemic in civil, insolvency and criminal proceedings

       1. civil law regulations in detail

       2. For condominium owners' associations

II.   Building law for clients and contractors as well as planners and engineers

III.  Labour Law

IV.   Company and association law

V.     Social security law

VI.   Tax law

VII.  Liquidity assurance

VIII. Insurance Law

IX. Public law: Current operating restrictions: Are they lawful and without compensation?

 

 

I. Opinion on the law on mitigating the consequences of the COVID 19 pandemic in civil, insolvency and criminal proceedings

On 27.03.2020, the Bundesrat passed the "Act on Mitigation of the Consequences of the Covid 19 Pandemic in Civil, Insolvency and Criminal Proceedings Law" passed by the Bundestag.

The aim of this law is to mitigate the negative - mainly economic - effects and very considerable restrictions in all areas of private and business life.

To this end, adjustments were made to legal requirements in civil, insolvency and criminal procedural law in order to avoid hardship cases that would otherwise arise due to the Covid 19 pandemic and to mitigate the disadvantages resulting from the Covid 19 pandemic.

The following is a summary of the most important provisions of the legislative package and their effects in relation to civil law.

With regard to the civil law regulations presented below, the law will enter into force on 01.04.2020.


1. civil law regulations in detail

1.1 Art. 5 § 1 Moratorium (legally ordered postponement)

Consumers and micro-enterprises (fewer than 10 employees and an annual turnover/annual balance of EUR 2 million is not exceeded) are entitled to a right to refuse performance until 30 June 2020, provided that the obligation to perform results from a material continuing obligation and this contractual relationship was concluded before 8 March 2020.

As a result, the right to refuse performance represents a postponement of all performance and payment obligations. Material continuing obligations are those continuing obligations which are directed towards recurring services and consideration over a longer period of time and which are necessary to cover them with services of appropriate services of general interest for consumers and for the appropriate continuation of the commercial operation of small businesses. This does not therefore include purchase, exchange, gift and work contracts, as these contracts only involve a one-off service and consideration.

However, consumers only have the right to refuse performance if, as a result of circumstances arising from the COVID 19 pandemic, they could not perform the service without jeopardising their reasonable livelihood or the reasonable livelihood of their dependants. For micro-entrepreneurs, the right to refuse benefits applies mutatis mutandis if, as a result of the Covid 19 epidemic, the benefit could not be provided or could not be provided without jeopardising the economic basis of their business.

In addition, the right to refuse performance is not granted to debtors if this would be unreasonable for creditors and the failure to perform would in turn jeopardise the economic basis of their business or lead to a threat to their reasonable livelihood or the reasonable livelihood of their dependants. In this case, however, the debtor may terminate the continuing obligation.

Rental, lease, loan and employment contracts are expressly excluded from the above provision, although these in turn constitute continuing obligations of essential services of general interest. However, more specific regulations apply to these contracts (with the exception of employment contracts), which will be presented and explained below.

The above provisions may not be deviated from to the detriment of the party liable to pay. This means, for example, that creditors and debtors cannot agree on a shorter period of the right to refuse performance or on stricter conditions for the existence of the right to refuse performance.


1.2 Art. 5 § 2 Restriction on the termination of rental and lease agreements

1.2.1 Existing legal situation

In accordance with § 543 BGB (German Civil Code), Landlords are entitled to an extraordinary right of termination in the event that the Tenant is in default with the payment of the rent or a not inconsiderable part of the rent for two consecutive dates or in a period extending over more than two dates is in default with the payment of the rent in the amount of an amount reaching the rent for two months. In principle, the same regulations apply to residential rental agreements, whereby here the arrears of the rent are only considered to be not insignificant if the arrears exceed the rent for one month.

The tenant is released from the obligation to pay the rent if the rented property has a defect that completely nullifies the contractually agreed purpose. However, there is no defect of the rental property itself in the sense of rental law, even if the possibility of use has been completely cancelled due to the containment ordinance or general decree (closure of all shops) on the occasion of the Covid-19 epidemic. For this reason, a right of reduction is widely rejected. The BGH only considers obstacles and restrictions under public law to be defects if they are based on the specific nature, condition or location of the leased property. The Reichsgericht last expressed its opinion on a complete closure for overriding reasons in 1917 in terms of a right to reduction.

Irrespective of any right of reduction, the law (§ 313 BGB) recognises the legal institution of the disturbance of the business basis, which establishes a claim for adjustment of the contract in the case of unforeseeable circumstances which have serious consequences. This could apply to the Covid 19 pandemic. Neither of the parties to the contract had thought of a pandemic with the current consequences when the lease was concluded. To mitigate the consequences, however, the tenant is required to take advantage of government support.


1.2.2 Content

§ Section 2 of the Act serves to protect the tenant and applies to both residential and commercial tenancies.

Landlords may not give notice of termination, whether extraordinary or ordinary, to their tenants who fail to pay the rents for the months April to June 2020 despite the fact that they are due for payment due to the effects of the COVID 19 pandemic. Thus, if the tenant already has rent debts from periods prior to April 2019, which would entitle the landlord to give extraordinary/ordinary notice of termination, the landlord's right of termination will continue to exist.

The tenant has to substantiate the reason for the non-payment of rent due to the effects of the COVID 19 pandemic. Sufficient might be first of all a keyword-like information is like loss of income because of business closing. It is then up to the landlord to prove the contrary, which we think will be difficult.

The above provision does not mean that tenants are released from their obligation to pay rent. Rather, the tenant has to pay the rent debts until 30.06.2022, so he will be granted a deferment of payment. This means that the tenant may only be given notice of termination as of 01.07.2022 due to rent debts for the months April to June 2020.

However, if the tenant does not (also) pay the rent for July and August 2020, the statutory termination provisions of the German Civil Code (BGB) continue to apply as usual.

Other reasons for termination also remain unaffected by the above provision (e.g. sustained disturbance of domestic peace).

It is not permitted to deviate from the above regulations to the disadvantage of the tenant. This means, for example, that landlord and tenant cannot agree in a supplement to the rental agreement to exclude termination for three months' rent only or to shorten the payment period for rent debts. The tenant cannot waive the exclusion of notice even if a new rental agreement is concluded.

For further, individual advice, please contact our real estate law team.


1.3 Art. 5 § 3 Provisions on the right to borrow

§ Section 3 concerns consumer loan agreements concluded before 15 March 2020. This includes not only classic real estate financing agreements with a bank, but also any other monetary payment made by an entrepreneur to a consumer, which is aimed at the repayment of the amount of money in instalments.

§ Section 3 stipulates that claims of the lender for interest, repayment or redemption of the loan, which are due between 01.04.2020 and 30.06.2020, are deferred for three months from the due date, if the COVID-19 pandemic has led to loss of income for the borrower and the payment would endanger his reasonable livelihood. The deferral shall be deemed not to have occurred if the Borrower continues to make the payments in accordance with the contract. The law also stipulates that the contracting parties may also agree on deviating provisions.

Furthermore, termination of the loan agreement due to default of payment, a significant deterioration in the financial circumstances of the consumer or the value of collateral provided for the loan is excluded until the deferral expires.

Furthermore, the law stipulates that the borrower is also supported for the period after June 2020. To this end, section 3 (4) stipulates that the lender should offer the consumer a discussion about the possibility of an amicable settlement and about possible support measures. If an amicable settlement for the period after June 30, 2020 is not reached, the loan is automatically extended for another three months and all payment dates are postponed by three months.

If necessary, the above-mentioned regulations will also be extended to micro enterprises (see above) by means of a regulation. It is not yet known whether such a regulation will come into force or not.


1.4 Art. 5 § 4 Extension

If the consequences of the COVID-19 pandemic persist, the above-mentioned periods (right to refuse performance, tenant's exclusion, loan deferral) can be extended by legal ordinance until 30 September 2020 and the extension of the loan agreement up to a maximum of twelve months if it is to be expected that social life, the economic activity of a large number of companies or the employment of a large number of people will continue to be significantly impaired by the COVID-19 pandemic.

If necessary, the above-mentioned regulations can be extended even beyond 30 September 2020 by means of a legal ordinance.


2. For condominium owners' associations

The law of 27 March 2020 on mitigating the consequences of the COVID 19 pandemic in civil, insolvency and criminal proceedings solves in Article 2 § 6 the problems arising from the fact that owner meetings can no longer be held due to the Corona crisis. The provisions contained therein read as follows:

(1) The last appointed administrator within the meaning of the WEG remains in office until he is dismissed or until a new administrator is appointed.

(2) The business plan last adopted by the condominium owners continues to apply until a new business plan is adopted.

To paragraph 1:

Paragraph 1 prevents a managerless state from occurring because a new appointment is impossible due to the infeasibility of an owners' meeting. As a result, the statutory maximum period of time of § 26 para. 1 sentence 2 WEG and the duration of the term of office determined by the appointment resolution are temporarily suspended. This provision applies both to the case that the appointment period has already expired at the time this provision enters into force and to the case that it expires only after this time.

Regarding paragraph 2:

The adopted business plan is the legal basis for the payment of housing allowance by the condominium owners. By the legal continuation regulation of the last decided upon economic plan the liquidity is ensured also for the case that no continuation resolution was seized.

The following further important information is provided in the explanatory memorandum:

The fact that the manager cannot hold a general meeting of owners and therefore, as a rule, practically no resolutions can be effectively passed any more does not constitute a breach of duty on the part of the manager and does not justify either dismissal/termination or claims for damages.

There should be no further emergency powers with regard to repair and maintenance measures, because in the opinion of the Ministry these are already available through the emergency management authority of the manager. In urgent cases, the administrator may take the measures necessary for the preservation of the common property even without passing a resolution (section 27 (1) no. 3 WEG). An urgent case is deemed to exist if prior referral to a general meeting of owners is not possible. In addition, the manager is entitled to take measures which are necessary to meet a deadline or to avert any other legal disadvantage (§ 27 (3) No. 2 WEG). On the basis of these already existing legal authorisations, the manager can and must take all measures that cannot be postponed, even without a resolution. This applies in particular to cases in which the common property is threatened with damage if immediate action is not taken. The manager may therefore initiate necessary and not deferrable repair measures that must be carried out during the current Corona situation and cannot be postponed until a (currently unforeseeable) owners' meeting. However, this must be handled in an extremely restrictive manner; if, for example, water penetrates the attic apartments due to a leak in the flat roof, the manager may not be commissioned to renew the flat roof, but only to (provisionally) eliminate the leak.

For further, individual advice, please contact our real estate law team.


 

II.   Building law for clients and contractors as well as planners and engineers

With the classification of the Corona crisis as a pandemic by the WHO on 11.03.2020 and the above-mentioned measures, a case of force majeure is likely to have occurred which radiates into all areas of life. Force majeure shall be deemed to exist if the prevention is based on events that could not have been foreseen and prevented even by the utmost care that could reasonably be expected (Palandt, BGB Commentary, 79th ed., § 206 marginal no. 4). However, the corona crisis can probably no longer be classified as "unforeseeable" for contracts that are current or have only recently been concluded. Ultimately, a case-by-case consideration and assessment is required in every case.

The legal consequences of force majeure can be manifold. They must therefore be examined on a case-by-case basis in accordance with the respective contractual agreements. In fact, the official orders and recommendations of the Robert Koch Institute that have already been issued by the authorities are likely to cause considerable disruption to the construction process. In the event of force majeure, the party affected by this, usually the respective debtor, will be temporarily released from its contractual performance obligations without having to fear consequences such as claims for compensation or damages by the contractual partner. This is particularly the case if the performance of the service has been unreasonably disturbed or has even become impossible. In such cases, a contractual adjustment within the meaning of § 313 BGB (German Civil Code) or even the cancellation of a contract may be required. However, even the slightest fault would exclude force majeure.

In the processing of a building contract according to the VOB/B (German Construction Contract Procedures), the contractor shall be entitled to an extension of the agreed execution deadlines in accordance with § 6 Para. 2 No. 1 lit. c) in the event of force majeure. This also includes penalised contractual deadlines, so that the client would be prevented from demanding a contractual penalty or claims for damages. If the structure of the contract, i.e. the ratio of performance to consideration, would be disturbed so drastically due to the force majeure that this disturbance could no longer be compensated for by an adjustment of the contract, in the worst case this would result in a claim for cancellation of the contract. If the construction site were to be shut down for more than three months, both parties would be entitled to terminate the contract, Section 6 (7) VOB/B (German Construction Contract Procedures).

Of course, such effects can also be triggered by official orders such as quarantine measures and curfews.

In general, it should be suggested that in the event of emerging difficulties in the fulfilment of the contract, an obstruction notification should be sent to the client immediately.

For further, individual advice, please contact our real estate law team.



III.  Labour Law

1.   Short-time working allowance

Measure:
The "new" short-time allowance can be claimed if at least 10 percent of the employees could already be affected by the loss of work. The requirement to oblige employees to build up "negative working hours" before the short-time allowance is paid is waived in whole or in part. Temporary workers are also covered by the aforementioned regulation.

stage:
In force (retroactive to 01.03.2020)

Formality:
Application to the employment agency

Information:
https://www.bundesregierung.de/breg-de/themen/coronavirus/bundestag-kurzarbei tergeld-1729626
https://www.arbeitsagentur.de/news/kurzarbeit-wegen-corona-virus
Entrepreneur hotline of the Federal Employment Agency on 0800 455 55 20


2. Right of the employee to refuse to perform work

Measure:
The employee may refuse to perform his work on the grounds of unreasonableness (e.g. childcare, care of seriously ill relatives). In this case, a dismissal or warning is excluded.

Stage:
In force

Formality:
Declaration of the employee to the employer

Information:
https://www.bmas.de/DE/Presse/Meldungen/2020/lohnfortzahlung-bei-kinderbetreuung.html

3. Loss of entitlement to the salary

Measure:
In principle, the employee is no longer entitled to continued remuneration if he does not perform his work for reasons of unreasonableness, he/she cannot visit the place of work (so-called "travel risk") or he is in quarantine (if necessary, the employee is entitled to compensation from the competent authority).

stage:
In force

Formality:
Declaration of the employer to the employee

Information:
https://www.bmas.de/DE/Presse/Meldungen/2020/corona-virus-arbeitsrechtliche-auswirkungen.html


4. Continued entitlement to the wage

Measure:
The employee's entitlement to continued remuneration remains in principle valid if the employee is sick (up to 6 weeks) or the employer ceases operations (so-called operational risk).

stage:
In force

Formality:
Payment of the employer to the employee

Information:
https://www.bmas.de/DE/Presse/Meldungen/2020/corona-virus-arbeitsrechtliche-auswirkungen.html

For further, individual advice, please contact our labour law team.


 

IV. Company and association law

The law on measures to combat the effects of the COVID-19 pandemic, which comes into force on 1 April 2020, has made it considerably easier to take decisions this year without personal meetings. Initially, the law will only apply to 2020, but can be extended by ordinance until the end of next year.

Stock corporations

The strictly formalised provisions of the German Stock Corporation Act on the holding of Annual General Meetings have prompted the legislator to make extensive and detailed special provisions, which can only be briefly described here. In the foreground is the authorization of the Management Board, with the consent of the Supervisory Board, to deviate from legal or statutory provisions regarding the Annual General Meeting:

  • A virtual general meeting can also be held if the articles of association do not yet provide for this.
  • The minimum period for convening the Annual General Meeting is reduced from 30 to 21 days.
  • It can also still be held in the last four months of a financial year.
  • Dividend reductions can also be paid without a basis in the articles of association.
  • The right of rescission due to formal errors is restricted.


GmbH

  • According to § 48 GmbHG, shareholder resolutions must be passed in a personal meeting unless all shareholders agree to a circular resolution. According to § 2 of the law on measures, this consensus is no longer required.
  • The managing director can request to vote on a proposed resolution by e-mail. Attention: Furthermore, an invitation in accordance with the articles of association is required, which contains a proposed resolution in the event of a circular resolution.
  • It is further recommended to give reasons for the resolutions and set a deadline for voting. Without these precautions, resolutions are still only permissible if everyone participates.

Associations

  • As far as the statutes do not contain any facilitations, general meetings in 2020 must also be held in principle at a place to be specified in the invitation. However, without special provisions in the Articles of Association, prior written voting and participation by means of electronic communication may be permitted. All this must be specified in the invitation.
  • Alternatively, a circular resolution may be provided for. In this case, however, half of the members must agree to this type of resolution.
  • Board members remain in office after expiry of their appointment until a new election.


Cooperatives

  • Invitations to General Meetings can be issued by posting them on the website or by e-mail.
  • Resolutions may be passed in writing or electronically.
  • Members of the Executive Board and Supervisory Board remain in office after expiry of their appointment until a new election.
  • Meetings of the Executive Board and Supervisory Board may be held by circular letter or by telephone or video conference.
  • The Supervisory Board alone can adopt the annual financial statements.

 


V. Social security law

Social security contributions

Measure:
Contributions to social insurance that the employer has to pay alone for his employees during the reduced working hours phase (= employer contributions) should be reimbursed to the employer in full or in part.

stage:
In force (retroactive to 01.03.2020)

Formality:
Application to the employment agency

Information:
https://www.bundesregierung.de/breg-de/themen/coronavirus/bundestag-kurzarbeitergeld-1729626

For further, individual advice, please contact our labour law team.



VI. Tax law

1. Deferral of tax payments

Measure:
Tax payments already fixed and due or due to be paid until 31.12.2020 can be deferred. The tax offices may waive the fixing of deferral interest.

Stage:
In force

Formality:
Informal application for deferral at the local tax office

Information:
https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Schlaglichter/Corona-Schutzschild/2020-03-19-steuerliche-Massnahmen.html


2. Reduction of advance payments on income tax and corporation tax

Measure:
Fixed advance payments on income and corporation tax payable up to 31.12.2020 may be reduced.

Stage:
In force

Formality:
Informal application for reduction at the local tax office

Information:
https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Schlaglichter/Corona-Schutzschild/2020-03-19-steuerliche-Massnahmen.html


3. Waiver of enforcement measures & late payment penalties

Measure:
For all taxes in arrears or due by 31.12.2020, the tax authorities should refrain from enforcement measures. Late payment surcharges will not be set until 31.12.2020.

Stage:
In force

Formality:
Informal application to the local tax office for the discontinuation of enforcement measures / remission of late payment surcharges

Information:
https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Schlaglichter/Corona-Schutzschild/2020-03-19-steuerliche-Massnahmen.html

For further, individual advice, please contact our tax law team.



VII. Liquidity assurance

1. KfW - loans

Measure:
Facilitation of conditions and extension of the circle of beneficiaries under the different credit programmes for established companies (more than 5 years on the market), young companies (less than 5 years on the market) and companies in financial crisis

Stadium:
In force

Formality:
Application via the house bank or a financial broker

Information:
https://www.bmwi.de/Redaktion/DE/Downloads/S-T/schutzschild-fuer-beschaeftigte-und-unternehmen.pdf?__blob=publicationFile&v=14
https://www.kfw.de/KfW-Konzern/Newsroom/Aktuelles/KfW-Corona-Hilfe-Unternehmen.html


2. One-off emergency financial assistance

Measure:
Micro-enterprises with up to 10 employees, solo self-employed persons and members of the liberal professions are eligible for (taxable) federal grants of between EUR 9,000.00 and EUR 15,000.00 depending on the size of the enterprise. Depending on the federal state, the emergency aid is topped up.

Stage:
In force (from 11.03.2020)

Formality:
Electronic application including a sworn statement of the threat to the existence or liquidity shortage

Information:
https://www.bundesfinanzministerium.de/Content/DE/Pressemitteilungen/Finanzpoli tik/2020/03/2020-03-23-pm-Emergency Aid Fund download.pdf?__blob=publicationFile&v=2

3. Guarantee facilities

Measure:
For small and medium-sized enterprises and freelancers, a number of measures will be taken for the use of bank guarantees. The guarantee ceilings were raised, the counter-guarantees of the Federal Government to the guarantee banks were extended and bureaucratic relief was provided to accelerate the
Decision created.

Stage:
In effect...

Formality:
Application via the financing portal https://finanzierungsportal.ermoeglicher.de/, the house bank or a financial broker at the responsible guarantee bank of the respective federal state

Information:
https://www.bmwi.de/Redaktion/DE/Downloads/S-T/schutzschild-fuer-beschaeftigte-und-unternehmen.pdf?__blob=publicationFile&v=14
https://www.vdb-info.de/aktuelles/pressemitteilungen/corona-krise-buergschaftsbanken-erweitern-unterstuetzung-von-kmu

 

4. Suspension of the obligation to file for insolvency

10 important regulations under insolvency law which managing directors have to observe since 01.04.2020

Business managers can now breathe a sigh of relief, but should still remain mindful. A change in the law for threatening insolvencies passed by the federal government in record time was passed on 01.04.2020, but already applies retroactively from 01.03.2020. Essential obligations of the insolvency application and the liability of management have been weakened, but caution is advised, because the perfidy is in the details or in the omissions of the hastily written law.

Due to the Corona Pandemic, almost the entire retail, gastronomy, hotel and travel industry has been closed down nationwide. All public events are prohibited. Major events in spring and summer, such as the EM 2020 or Olympia 2020, but also numerous sporting events, trade fairs and concerts have been postponed for a long time or have been cancelled without replacement. For this reason, but also because of the worldwide restrictions, many companies have to restrict or interrupt their production or services. This has serious consequences for countless German companies or foreign companies with branches in Germany.

On 1.4.2020, the hastily created law to mitigate the consequences of the Covid 19 pandemic of 27 March 2020 comes into force and brings with it numerous innovations for commercial transactions.

From 1 April 2020, the newly introduced Insolvency Suspension Act, InsAG, will also apply.

However, it is retroactive to 01.03.2020!

1. from 1.03.2020 -30.09.2020 the duty of the management to file for insolvency is suspended in principle. However, this does not apply

  • if the insolvency maturity is not due to the consequences of the spread of the corona virus

or

  • if there is no prospect of eliminating an existing insolvency.

It is legally presumed that the current potential insolvency maturity is based on the effects of the Corona pandemic and that there are prospects of eliminating an existing insolvency. If someone later wants to apply the opposite presumption, he must prove this.

2. already ailing companies should not be protected, however. If the debtor was already insolvent on 30.12.2019 or before, there is no legal presumption that the insolvency maturity is based on the effects of the Corona pandemic and that there are prospects of eliminating an existing insolvency. However, if a debtor wishes to claim that his insolvency maturity is due to the Corona Pandemic and that he has prospects of eliminating his existing insolvency, despite his insolvency prior to 31.12.2019, he must prove this himself independently. He then bears the burden of proof. We therefore see an increased obligation for these companies to document current events that may establish the causality of the corona pandemic for economic difficulties.

3. if the debtor was not yet insolvent on 31.12.2019, but from 01.01.2020 and thereafter, it is legally assumed that the insolvency maturity is based on the effects of the corona pandemic and that there are prospects of eliminating an existing inability to pay.

4. if the company was already over-indebted before 31.12.2019, but not yet insolvent, but became insolvent only after 01.01.2020, the legal presumption also applies and there is no obligation to file for insolvency. This will have the effect of exempting many managing directors who have failed to file for insolvency since 01.01.2020 due to over-indebtedness, as the legal presumption that the financial crisis was caused by the Corona pandemic speaks in their favour. According to the explanatory memorandum to the law, strictest conditions are to be attached to the proof of the contrary.

The following table provides an overview:

 

  Insolvency   Over-indebtedness   corona-caused   New evidence facilitation through
legal presumption
 

until
31.12.2019

Yes Yes Yes No -> Insolvency application Evidence to the contrary possible, but difficult
until
31.12.2019
Yes No Yes No -> Insolvency application Evidence to the contrary possible, but difficult
until
31.12.2019
No Yes Yes Yes -> No insolvency application But refutable
until
31.12.2019
No No Yes Yes -> No insolvency application But refutable
from 01.01.2020
and after that
Yes Yes Yes Yes -> No insolvency application But refutable
from 01.01.2020
and after that
Yes No Yes Yes -> No insolvency application But refutable

 

 

 

 

 

 

 

 

 

 

 

 

 

 


5. it is also new that payments after 31.12.2019 and after insolvency maturity, insofar as

  • take place in the ordinary course of business, i.e. no unusual payments that are detrimental to the company

in particular

  • he maintenance or resumption of business operations, payment of wages, social security contributions, taxes, suppliers, rents, interest and repayment of principal or the implementation of a restructuring plan are subject to

as compatible with the diligence of a prudent and conscientious manager. (No liability) However, liability claims and threats of criminal prosecution against the management remain if orders or assignments are placed without prospect of payment in the event of existing or impending illiquidity of the company.

6. loans which were granted by third parties or shareholders after 31.12.2019 and after insolvency proceedings have been initiated can be repaid by 30.09.2023. Repayment is not disadvantageous to creditors and therefore cannot be contested in insolvency proceedings at a later date. This facilitates the current financing by third parties or shareholders.

7. granting and collateralisation of loans are not immoral if they were granted from 01.01.2020 onwards and insolvency maturity occurred after 31.12.2019.

8. payments which creditors of companies in financial difficulty receive from 01.03.2020- 30.09.2020, provided they are congruent under insolvency law, i.e. which are paid in the agreed manner and amount (in the suspension period), are not contestable, unless the payee was aware that the company's restructuring or financing efforts were unsuitable. Certain payment circumstances are also excluded from challenge, in particular those arising from granted deferrals and instalment payment agreements.

9. All this also applies to individuals in insolvency and debtors who are in insolvency proceedings due to the threat of insolvency.

10. Applies in full also to KfW and public loans in connection with the Corona Pandemic, even if granted after the suspension period, and for an unlimited period of time for their repayment.

Discuss with the experts at SNP Schlawien what exactly management must now take into account and what options you have for action.

 

Obligation to file for insolvency under existing law

In the event of insolvency or overindebtedness, managers must file for insolvency within a maximum period of three weeks. According to the current legal situation, every manager has only a maximum of 21 days (!) time to close the liquidity gap, e.g. through loans or deferrals. However, this maximum period may only be used for serious restructuring efforts that are not completely hopeless from the outset. Otherwise there is the threat of criminal liability for delay in filing for insolvency (section 15a InsO) and personal liability.

Anyone who, as a manager or director, still makes payments after insolvency maturity is personally liable for them.

In order to avoid this typical personal liability, only very specific payments can be made to business partners in this time of crisis. Most payments lead to personal liability. So far, the courts have generally applied a strict standard here. Behind this is the idea that the insolvent company should secure the existing assets and not continue to participate in business transactions.

In addition, the management body may have to prove compliance with the strict criteria for specific payments. There is therefore an increased duty of care when documenting these transactions. Just how difficult the concrete assessment of individual cases has been up to now can be seen from the examples in connection with employees:

  • As a rule, the payment of wages itself is not permitted (see BGH, ruling of 04.07.2017 - II ZR 319/15).
  • In the case of social security contributions due, the employee shares of compulsorily insured employees may be paid, as there is a threat of punishment in this case (see BGH, judgment of 25 January 2011, II ZR 196/09).
  • In contrast, payment on the employer's contributions leads to liability, since non-payment is not threatened with punishment (see BGH, judgment of 8 June 2009 - II ZR 147/08).

A continuation of the company without liability in this phase is difficult and only realistic if the management bodies seek advice from specialists for crisis situations. A longer lasting continuation of the company in such a state is not desired by the legal system.

This continues to apply, despite the pending change in the law, to companies in which insolvency maturity is not based on the effects of the coronavirus.

In principle, companies that are ready for insolvency should be kept away from the market, to which the obligation to file for insolvency under § 15a InsO and the requirement of mass protection (in particular § 64 GmbHG) contribute.

The current crisis is characterised by the fact that many companies are in financial difficulties through no fault of their own. Turnovers break down overnight to a large extent or completely without the affected companies being exposed to the legal market adjustment. Although the business models are suitable, the insolvency maturity is caused by the unforeseeable, extreme external conditions.

In such a situation, it is right to suspend the obligation to file for insolvency in order to grant the companies a grace period. Restructuring can then take place on secure ground. No consultant is currently able to make a serious continuation prognosis (based on a meaningful restructuring concept) because the further consequences of the Corona crisis cannot be estimated by anyone.

In case of doubt, any insolvency occurring in the coming weeks and months will be based at least indirectly on the serious economic effects of the measures ordered by the government. The honest managers who were taken by surprise by the Corona crisis must now be relieved of the pressure of criminal and liability law so that they can concentrate fully on the economic recovery of their companies.

For further, individual advice, please contact our Reorganisation, Restructuring, Insolvency team.


VIII. Insurance Law

As a result of the spread of the corona virus (SARS-CoV-2), numerous companies and shops in Germany have had to close down by order of the authorities. Whether insurance cover will be provided for the resulting loss of earnings depends on the insurance contracts that have been concluded and their specific form.

1. business interruption insurance

The typical business interruption insurance policies, which are concluded on the basis of the model terms and conditions of the German Insurance Association (GDV), offer insurance cover only in the event of business interruption due to property damage, such as fire or water damage. Loss of earnings due to official closure orders or other effects of the current corona pandemic are not associated with property damage and are therefore not covered by such "classic" business interruption insurance policies.

However, modern insurance products are also offered on the market which considerably extend the insurance cover so that not only business interruption due to property damage is insured (e.g. so-called all-risk business interruption insurance). Whether insurance protection for business closures due to the current corona pandemic will be provided on the basis of such policies depends on the specific terms and conditions of the insurance contract.

2. business closure insurance

A special type of business interruption insurance is the so-called business closure insurance. This insurance covers the respective business against the effects of notifiable diseases or pathogens in accordance with the German Protection against Infection Act (IfSG) and is common in hotels, restaurants and other catering businesses.

Whether insurance cover is provided due to the closures of establishments currently ordered in Germany, which affect the catering and hotel trade in particular, depends in turn on the conditions of the insurance contract concluded in each case.

At present, it is already becoming apparent that some insurers are refusing to accept their obligation to cover. On the one hand, it is objected that the insurance cover only applies to closures of businesses which are ordered by official closure orders issued by the respective individual business, but not in the case of the current nationwide closure orders in the form of so-called general orders. In our opinion, however, this objection should not be allowed to take effect. For from the point of view of an average policyholder, which is decisive for the interpretation of the insurance conditions, it cannot make any difference whether the closure of the business is ordered by an individual order of the health authority or by way of a general order by the state government or by the subordinate state authorities. The decisive factor is probably that it is a sovereign measure ordered on the basis of the IfSG.

Furthermore, some insurers argue that the insurance cover does not apply because the new corona virus (Covid-19/SARS-CoV-2) is not listed by name in the insurance conditions. In this respect, too, the wording of the specifically agreed clauses and the understanding of an average policyholder are important. The insurance conditions regularly refer to the occurrence of notifiable diseases or pathogens within the meaning of §§ 6 and 7 IfSG. Often, the conditions also contain a list of individual notifiable diseases or pathogens by name, which generally reflects the corresponding list from the IfSG at the time of conclusion of the insurance contract, so that the new corona virus is not listed.

However, with effect from 01.02.2020, the Federal Ministry of Health has extended the list in the IfSG by ordinance (Corona Virus Notification Ordinance) on the basis of the IfSG, so that the corona virus is now listed by name as a notifiable pathogen. We therefore assume that insurance cover will only not be provided if it is clearly and unambiguously evident to the policyholder from the insurance conditions that insurance cover applies exclusively to the diseases and pathogens expressly listed in the insurance conditions. However, this is unlikely to apply to a large number of insurance contracts, but rather a so-called dynamic reference to the IfSG, with the consequence that even pathogens such as the novel Covid 19 virus, which have only been standardised as notifiable after conclusion of the insurance, are covered.

For the final assessment, a careful examination of the agreed insurance conditions is necessary in each case. Please contact our insurance law team for further individual advice.


 

IX. Public law: Current operating restrictions: Are they lawful and without compensation?

Currently, business closures or restrictions are in force in the retail, hotel and catering and services sectors.

There are no special compensation regulations for business restrictions based on § 28 lfSG or on legal ordinances of the federal states that are issued on the basis of the federal legal authorisation of § 32 lfSG.

In the legal literature, initial considerations are made about compensation claims in the case of lawful official actions, which are ultimately difficult to substantiate. But are all injunctions lawful?

1. Operating restrictions in individual federal states

The very fact that in the federal states partly deviating procedures are shown - with the same goal of infection protection - raises doubts about a consistently legal procedure.

Differences can be found in the way DIY stores, flower shops, hairdressers, wine shops and department stores with mixed offers are handled.

If one takes a look at Bavaria, Baden-Württemberg and Hesse as neighbouring federal states, one is struck:

In Hessen, DIY stores, flower shops and hairdressers are allowed to be open.

In Bavaria, strict company closures apply to the above-mentioned businesses, with an exception for craftsmen and tradesmen with regard to the opening of DIY stores according to a published positive list. This positive list is not legally binding. It serves only to interpret and interpret the statutory order. The Bavarian Ordinance on Infection Prevention Measures explicitly names only the commercial enterprises and facilities to be closed and does not positively designate those that may remain open.

Furthermore, wine shops in Baden-Württemberg are to be closed, whereas they may remain open in Bavaria.

With regard to the classification of department stores with mixed offers, the regulation in Baden-Württemberg makes an explicit provision: parts of the assortment may be sold, the sale of which is otherwise not permitted if the permitted part of the assortment predominates; if the prohibited part predominates, only the permitted part may be sold if there is a spatial separation.

The same principles apply in Bavaria, but these are not regulated in the BayIfSMV, but only result from the positive list of shops which may remain open.


2. First decisions of the administrative courts on the legality of operating restrictions

Since mid-March, a number of urgent administrative court proceedings have been conducted which directly challenged a general order/legal regulation.

Most of the applications with a commercial connection have been decided in the negative for the applicants.

The VG Aachen rejected two urgent applications from operators of a lottery retailer and a chocolate specialty shop who had opposed the closure of their operations. The Münster Higher Administrative Court (OVG Münster) made a similar decision on the application of a limited liability company which sells household goods and gift articles:

These businesses did not serve the basic needs of the population and the measures taken were necessary to minimise the risk of infecting a larger number of people.

However, this does not give carte blanche for restrictions of any kind, as further decisions show, which may give rise to doubts about the legality of some of the orders:

For example, an urgent application by a wine merchant before the VG Aachen (decision of 03.04.2020 - 7 L 259/20) was successful: The court ruled that food that is a luxury food may also be sold despite the Corona pandemic. The term "food" was to be understood in a broad sense and was not to be limited to the food and drinks required for basic provision. The court found that the principle of proportionality had been violated, as the aim of the regulation, the containment of the virus, could be achieved equally in all food stores by adhering to strict hygiene requirements - as a milder remedy.

The Weimar Higher Administrative Court (OVG Weimar) (decision of 7 April 2020 - 3 EO 236/20) also confirmed the unlawfulness of the closure of a shop offering alcoholic beverages, chocolate, tea, coffee and delicatessen products, since during the Corona pandemic not only food trade for basic supply was permitted.

The reasons given for the decision raise the question as to why the legality of an order should be assessed on the basis of a differentiation according to the sale of foodstuffs and semiluxury items. This results in a state needs assessment which is not the aim of the orders. Operating restrictions are intended to prevent the spread of the corona virus. Accordingly, the focus should be on whether the respective operating ban is necessary to achieve this objective or whether this could not be achieved by adherence to strict hygiene regulations, minimum distances and maximum customer numbers, so that a delimitation should be made with regard to the purpose of the measure and its actual feasibility.

Furthermore, the measure would have to be appropriate, the mildest form of intervention and proportionate to the objective, so that it is questionable whether comprehensive operating restrictions in many sectors are proportionate. Permanent restrictions, if the objective could be achieved by less restrictive measures, would be unlawful. Therefore, existing orders should be kept under constant review as to their necessity. Derogations should also be provided for.

It is noticeable that hardly any administrative court assumes that the orders are lawful, but that the consequences were weighed up in the course of the summary examination.

The Mannheim Higher Administrative Court (OVG Mannheim) emphasises (decision of 9 April 2020 - 1 S 925/20, concerning the operation of a fitness studio) that the closure of a large number of sales outlets is of a very considerable depth of intervention and that the intensity of this interference with the freedom of occupation is extremely high for each individual business. For the intervention leads for several weeks to the extensive or complete loss of all turnover. It described the prospects as "open" in the main.


3. Recommendation to interested parties on legal compliance

Behaviour according to the motto "tolerate and liquidate" regularly does not lead to compensation: First primary legal protection must be taken; then compensation claims can arise. Any compensation would be denied if the restrictions were merely tolerated.

The affected company, which wrongly feels restricted in its business, should submit an application for an exemption permit, in which it should describe the consequences that have already occurred and are to be expected in the event of the continuation of the interruption of operations, and also the protective measures it has planned to take in order to exclude infections of employees and customers. This must be followed by a well-founded official decision which, if the application is denied, opens up administrative legal recourse. The matter must at least be kept open by means of an action until further legal developments permit a retrospective assessment of the legality of current restrictions on operations and the justification of claims for compensation.

For further individual advice, please contact the authors Dr. Stefan Dietlmeier and Diana Felsenstein.