Temporary Changes to German Insolvency Code Due to the Energy Crisis

Germany is experiencing a severe energy crisis due to the Ukraine conflict and its effect on the supply of natural gas. Energy intensive companies have seen a dramatic increase in energy costs, irrecoverable from consumers, causing grave financial distress in various German industries. As a result, the German government plans to modify the German Insolvency Code (InsO) on a temporary basis.

Background

The German legislator is planning to rename the “Corona Pandemic Mitigation Act” (COVInsAG), introduced during the COVID-19 pandemic, the “Act on the Temporary Adjustment of Restructuring and Insolvency Law Provisions to Mitigate the Consequences of the Crisis” (SanInsKG).

The COVInsAG modified the duty to file for insolvency for both mandatory causes, namely illiquidity and overindebtedness, the SanInsKG will only modify the duty in relation to overindebtedess. German management will need to continue to monitor liquidity closely.

Temporary changes

• InsO stipulates that a company is overindebted if there is no positive going concern forecast for the coming 12 months, this forecast period is now shortened to 4 months.
• This change will also apply to those companies that are overindebted before the SanInsKG becomes effective and will be in force until 31 December 2023.
• Once overindebtedness is established, the deadline for filing for insolvency is extended from 6 to 8 weeks.
  

What lies ahead?

This modification is to relieve management of the requirement to forecast liquidity far into the future, at a time when the economic and political environment have become increasingly unstable. To what extent the SanInsKG will be able to stabilise the German economy and aid the management of companies in distress remains to be seen.

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring & Insolvency team.