Federal Government Legislative Package to Mitigate the Effects of the COVID 19 Pandemic

The German federal government today presented the "Draft of a law to mitigate the effects of the COVID 19 pandemic". The legislative draft can be retrieved here.

The legislative draft contains far-reaching regulations in various fields of law:

• Civil law: Moratorium for consumers and micro entrepreneurs in respect of contractual claims arising from continuing obligations;
• Insolvency law: Temporary suspension of the obligation to file for insolvency and of payment prohibitions;
• Corporate law: Temporary facilitation of shareholder and general meetings without physical presence;
• Criminal procedural law: Temporary suspension of the interruption period of a criminal trial.

The proposed legislative package comes on top of the federal government's package of measures adopted last week to cushion the effects of the coronavirus. In particular, it addresses a number of central legal issues that arise for board members and managing directors with regard to the fulfilment of their legal obligations in times of the corona crisis (cf. the blog post https://www.beiten-burkhardt.com/index.php/de/blogs/die-relevanz-von-sars-cov-2-coronavirus-fuer-das-pflichtenheft-der-geschaeftsleitung).

The hastily prepared 52-page draft law in the form of a "Formulation Aid of the Federal Government" will first have to be analysed in detail with regard to the individual regulatory proposals and the respective substantiation given. It is also quite conceivable that there will be individual changes in the further, probably ever-record short legislative process. What must be pointed out, however, are the following new regulations which are potentially relevant for board members and managing directors of all companies and which became apparent already last week:

Temporary facilitation of the virtual shareholders' meeting

The ordinary general meeting (in the case of the stock corporation (AG)) or the shareholders' meeting (in the case of the limited liability company (GmbH)) must take place within the first eight months of the financial year, section 175 (1) German Stock Corporation Act (AktG) or section 42a (2) German Limited Liability Companies Act (GmbHG). For the duration of the current official prohibitions of meetings, general meetings/shareholders' meetings may also not be conducted as attended events. The legislative draft thus provides for:

• In 2020, the executive board of a stock corporation, KGaA or SE may, with the approval of the supervisory board, enable shareholders to participate in the general meeting and to vote by means of electronic communication even without the corresponding authorisation in the articles of association, hold a virtual general meeting without physical presence, reduce the period for convening the general meeting to 21 (instead of 28) days, hold the general meeting even after the first eight months have elapsed in the course of the remainder of the financial year and make advance payments on the balance sheet profit before the general meeting. The right of rescission is restricted accordingly (with the exception of intentional violations).
• In 2020, shareholders' meetings of limited liabilities companies can also be held in text form or by written vote without the consent of all shareholders.
• In the case of cooperatives, in 2020, resolutions of members or representatives at general meetings or meetings of representatives may also be passed in writing or electronically without the corresponding authorisation in the articles of association, the annual financial statements may be adopted by the supervisory board and (with the consent of the supervisory board) advance payments on expected dividend payments may be made. In addition, members of the management board and the supervisory board of a cooperative remain in office after expiry of their term of office until a successor is appointed. Meetings of the executive board and the supervisory board can also be held without being based on the articles of association or the rules of procedure by way of circulation in text form or by telephone or video conference.
• Members of the executive boards of associations and foundations will also remain in office in 2020 even after their term of office has expired, until their dismissal or until their successor is appointed. Members of associations can participate in the general meeting even without physical presence and can cast their vote by means of electronic communication or in writing in advance.

Temporary suspension of the obligation to file for insolvency and of payment prohibitions

In the event of insolvency (i.e. if the company is unable to meet the due liabilities) or overindebtedness (i.e. if the assets no longer cover the existing liabilities and there is no forecast of continuation), the management must file for insolvency within three weeks, sections 15a, 17, 19 German Insolvency Code (InsO). If it still generates payments after commencement of insolvency or after overindebtedness has been established, the executive board or the managing director is personally liable for this, if necessary, pursuant to section 92 (2) AktG or section 64 GmbHG. All these obligations are temporarily suspended:

• The obligation to file for insolvency pursuant to section 15a InsO (whether due to overindebtedness or insolvency) is suspended until 30 September 2020. This does, however, not apply if the factual insolvency is not due to the consequences of the spread of the SARS-CoV-2 virus, or if there is no prospect of eliminating an existing insolvency. It is, of course, assumed by law that the factual insolvency is due to the effects of the COVID 19 pandemic and that there are prospects of eliminating an existing insolvency if the company was not insolvent on 31 December 2019.
• Insofar as the obligation to file an insolvency petition is suspended thereafter, payments made in the ordinary course of business (including measures to maintain or resume business operations or to implement a restructuring concept) shall be deemed to be in compliance with the company's duty. In addition, new loans are privileged in terms of legal contestation and liability in order to create an incentive for the granting of such loans.

Dr Daniel Walden