Article

Legal issues around the COVID-19 Pandemic | Draft Bill

COVID-19 Pandemic Bill  

On March 23, 2020, the Federal Cabinet passed resolutions to further complete the announced packages of measures.

The main building blocks are primarily an emergency aid program for smaller companies, freelancers and the self-employed with a volume of up to Euro 50,000,000,000 and the establishment of an economic stabilization fund with a volume of up to Euro 600,000,000,000.

Another important building block from a legal point of view is the draft of a law to mitigate the consequences of the COVID-19 pandemic in civil, insolvency and criminal procedure law" (hereinafter also referred to as the "COVID-19 Pandemic Law"). It is an article law, of which several preliminary drafts had been "leaked" and made public.

The draft law now approved by the Federal Cabinet, which is to be passed in the Bundestag on Wednesday, 25 March 2020, and for which the approval of the Bundesrat is to be obtained for Friday, 27 March 2020, concerns matters of civil law, insolvency law, company law and criminal procedure law.

Although the approval of the Bundestag and Bundesrat is still pending, it is to be expected that the law will be passed essentially in the version of the drafting aid submitted by the Federal Government. Nevertheless, it should be expressly noted that amendments may still be made.

The main provisions provided for in the draft bill can be summarized as follows - in the order provided for by the draft bill:

 

Article 1 of the COVID 19 Pandemic Act

Article 1 of the COVID 19 Pandemic Act contains the Act on the temporary suspension of the obligation to file for insolvency and on the limitation of the liability of organs in the event of insolvency caused by the COVID 19 pandemic (COVID 19 Insolvency Suspension Act - COVInsAG).

Main contents: 

  • Suspension of the obligation to file for insolvency: The obligation to file for insolvency is suspended until 30 September 2020. This does not apply if the ground for insolvency are not due to the consequences of the spread of the SARS-CoV-2 virus (COVID-19 pandemic) or if there is no prospect of eliminating an existing insolvency. If the debtor was not insolvent on 31 December 2019, it is assumed that the ground for insolvency have been induced by the effects of the COVID 19 pandemic and there are prospects of eliminating an existing insolvency.
  • Consequences: The provisions on the suspension of the obligation to file for insolvency correspond to corresponding consequential changes. The regulations on the (in)-permissibility of payments in §§ 64 GmbHG, 92 II AktG and comparable provisions of the HGG and GenG are modified, the same applies to the return of loans granted and collateral provided during the suspension period - these are no longer per se subordinate and are not to be considered immoral - and legal acts which have granted or enabled the other party to grant security or satisfaction - these are privileged and are withdrawn from avoidance (actio pauliana). 
  • Creditors' motions: In the case of creditors' insolvency petitions filed within 3 months of the date of the Law's entry into force, the opening of insolvency proceedings requires that the reason for opening the proceedings already existed on 1 March 2020. As things stand at present, this applies regardless of whether the reason for opening the insolvency proceedings is due to the COVID 19 pandemic.
  • Temporal scope of application: The suspension of the obligation to file for insolvency is initially limited until 30 September 2020. However, the Federal Ministry of Justice is authorised to extend the period of applicability until 31 March 2021. The privileged treatment of the repayment of loans and collateral - including privileges under insolvency avoidance law - covers measures taken up to September 30, 2023; special privileges are granted for financing and collateralization within the framework of government aid programs.

 

Art. 2 of the COVID 19 Pandemic Law

Art. 2 of the COVID 19 Pandemic Law contains the Law on Measures in Company, Cooperative, Association, Foundation and Home Ownership Law to Combat the Effects of the COVID 19 Pandemic

Essential contents:

  • Facilitation of the conduct of general meetings using electronic means of distance communication: Section 1 temporarily introduces various facilitations for the conduct of general meetings using electronic means of distance communication for public limited companies, limited partnerships limited by shares, European Companies (SE) and mutual insurance companies. The provisions apply to all general meetings, i.e. both the ordinary annual general meeting and any extraordinary general meetings. This concerns, among other things, the decision on the admission of postal voting, the participation of members of the Supervisory Board by means of video and audio transmission, the decision on the admission of electronic participation of shareholders, the right of information and video and audio transmissions.
  • Annual General Meetings without physical presence: The holding of Annual General Meetings without the physical presence of shareholders is facilitated. Attendance is then only possible by electronic connection. The possibilities of rescission associated with this will be limited.
  • Deadline for holding the Annual General Meeting: The deadline for holding the Annual General Meeting is extended from eight to twelve months.
  • Shortening of notice periods: Annual General Meetings can be convened with a shortened notice period of 21 days; the notification regulations will be adjusted accordingly. 
  • Limitation of the right to ask questions: The Management Board is given the option of limiting the shareholders' right to ask questions to those questions that have been submitted electronically two days before the Annual General Meeting.
  • Advance dividends: Companies are enabled to pay a discount on the balance sheet profit to the shareholders even without an authorization in the Articles of Association in accordance with § 59 (1) AktG, while maintaining the other requirements of § 59 AktG. 
  • GmbHs: Shareholders' resolutions may also be passed in writing or in text form if not all shareholders agree to this procedure.
  • Other legal form: Comparable facilitations will also be introduced for cooperatives, associations and foundations - these differentiate according to the particularities of the relevant legal form.
  • Continued appointment: In addition, members of the board of directors of an association or foundation as well as administrators within the meaning of the German Condominium Act (Wohnungseigentumsgesetz) will remain in office until they are dismissed or a successor is appointed.
  • Reorganization Act: In the conversion right, the period up to which a merger or demerger can be carried out on the basis of the annual financial statements of the previous year is extended. In the future, the closing date of the closing balance sheet to be filed may be up to twelve (instead of the previous eight) months back - calculated back from the date of filing.
  • Temporal scope of application: The provisions of company law initially only apply in 2020. The Federal Ministry of Justice and Consumer Protection may extend the validity until the end of 2021 by means of a statutory order.

 

Art. 3 and Art. 4 of the COVID 19 Pandemic Law

Art. 3 and Art. 4 of the COVID 19 Pandemic Law concerning amendments to the Introductory Act to the Code of Criminal Procedure. We have refrained from a presentation.

 

Article 5 of the COVID-19 Pandemic Act

Article 5 of the COVID-19 Pandemic Act concerns amendments to the Introductory Act to the Civil Code and matters of contract and civil law that are essential to it.

Essential contents:

Moratorium

  • Moratorium: Consumers may refuse benefits (usually payments) under consumer contracts concluded before 8 March 2020 until 30 June 2020 if their livelihood or that of their dependants would otherwise be threatened by the corona pandemic. The same applies to so-called micro-enterprises, i.e. companies with fewer than 10 employees and an annual turnover or balance sheet total of < Euro 2,000,000, if they are unable to provide the service due to the corona pandemic or if the economic basis of their business operations would otherwise be endangered.
  • Requirements/restrictions: Contrary to the preliminary drafts, the moratorium will in any case initially only apply to consumers and micro-entrepreneurs. The moratorium only applies to continuous obligations. In addition, these must also relate to "essential services", i.e. those which are necessary for the provision of adequate services of general interest or for the appropriate continuation of commercial operations. Due to an express legal order, employment contracts, rental contracts and loan agreements, for which special regulations are introduced in each case, are excluded from application.
  • Counter-exception: The newly created rights to refuse performance do not exist if their exercise would be unreasonable for the contractual partner because it would endanger the economic basis or the livelihood of the other contractual partner. In this case, however, the consumer or the microenterprise may terminate the contract.
  • Mandatory law: The relief cannot be derogated from to the detriment of the debtor.
  • Temporal scope of application: The Federal Government is authorised to extend the moratorium by statutory order until 30 September 2020 if social life, economic activity and gainful employment continue to be significantly affected by the COVID 19 pandemic.

Rental and lease agreements - Temporary exclusion of termination in the event of late payment

  • Limitation of the right of termination due to late payment: The landlord or lessor is not entitled to terminate the lease solely due to late payment by the tenant or tenant in the period from 1 April to 30 June 2020, if the tenant can credibly demonstrate that the delay is due to the effects of the Corona pandemic. Termination for other reasons remains possible.
  • Time component: The exclusion of termination is valid until June 30, 2022. According to a preliminary assessment, this is to be interpreted as meaning that if rent arrears from the period April 1 to June 30, 2020 have not been settled by then, termination may be effected again as of July 2022 due to these arrears.
  • Ordinance authorisation and Ttemporal scope of application: The Federal Government is authorised to extend the regulations by statutory order to rent arrears for the period from 1 July 2020 to 30 September 2020 if social life, economic activity and employment continue to be significantly impaired by the COVID 19 pandemic.

Consumer loan agreements

  • Temporary respite: For consumer loan agreements concluded before 15 March 2020, interest and repayment of principal are not due during the period from 1 April to 30 June 2020, but are deferred for three months from the due date if performance of the agreement would be unreasonable for the consumer due to loss of income as a result of the effects of the Corona pandemic. Similar principles to those for the general moratorium apply to what is reasonable.
  • Consequences: During the deferment period, notices of termination due to default in payment as well as due to a significant deterioration in the financial circumstances of the consumer or the value of a security are excluded.
  • Automatic extension: Unless lender and consumer agree otherwise by 30 June 2020, the term of the loan is extended by three months and due dates under the loan agreement are postponed accordingly.
  • Counter-exception: The regulations in favour of the consumer do not apply if they would be unreasonable for the lender in the individual case.
  • Extension to joint and several debtors: Regulations apply accordingly to the equalisation and recourse between joint and several debtors according to § 426 of the German Civil Code
  • Mandatory law: it is not possible to derogate from the facilitations to the detriment of the consumer.
  • Temporal scope of application: The Federal Government is authorised to extend the personal scope of application of the regulations by statutory order, in particular to micro-enterprises and SMEs, as well as to extend the deferral of claims under consumer loan agreements until 30 September 2020 and the term of the agreement up to 12 months if social life, economic activity and employment continue to be significantly impaired by the COVID 19 pandemic.

 

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