Act to Mitigate the Consequences of the COVID-19 Pandemic

On March 27, 2020, the German Bundestag unanimously adopted an act to mitigate the consequences of the Covid-19 pandemic under civil, insolvency and criminal procedural law. The act contains comprehensive regulations designed to meet the new challenges in the era of the COVID-19 pandemic. The bans on assembly and contact imposed because of the Corona crisis will lead to considerable loss of income for both large and small businesses as well as employees. If they lack sufficient financial reserves, it may become very difficult to continue to pay current liabilities such as rent or lease payments. In order to avoid company insolvencies but also financial difficulties of self-employed persons and employees, there are various economic support measures in place. These are to be supported by the new regulations.

In detail, the act provides for the following measures:

Temporary right to refuse performance for microenterprises and consumers

As of April 1, 2020, microenterprises (i.e. companies with up to 9 employees and an annual turnover of up to EUR 2 million) may refuse or discontinue performance, e.g. with regard to their payment obligations, if the performance would endanger the economic foundation of their business undertaking. This so-called moratorium only applies to essential continuous obligations, i.e. those which are necessary to ensure a supply of services for the appropriate continuation of the business undertaking and which were entered into before March 8, 2020. A refusal to perform is not allowed if this would endanger the economic foundation of the contractual partner's business operations. In this case, the right to refuse performance shall be converted into a termination right.

Consumers have the same right, which is intended to ensure that they do not lose the basic supply of gas, electricity, telecommunications and water.

Further information on the effects of the Corona crisis on trading and sales can be obtained from our experts Jan Henning Martens and Johanna Hennighausen.

Restricted right of termination of leases and usufructuary leases

In order to prevent private individuals from losing their homes and businesses from losing their rented premises, the landlords' right of termination for rent debts is significantly restricted since April 1, 2020. If the tenant does not pay the rent due between April 1, 2020 and June 30, 2020 or does not pay it in full, the landlord may not terminate the lease merely for this reason – as otherwise would be the case under German law - until June 30, 2022. A prerequisite for the termination restriction is that the rent arrears are due to the effects of the COVID-19 pandemic. The tenant must demonstrate this link between the COVID-19 pandemic and the non-payment, e.g. by official orders to close down the business or applications or approvals of social benefits.

However, the new regulation does not release tenants from the obligation to pay rent on time. Late payment will still incur interest on arrears and termination on all other legal grounds (e.g. personal use or misconduct of the tenant) is still possible.

Further information on this new regulation can obtained from our experts Till Böttcher and Friederike Schäffler.

Legal deferral of payment for consumer loans

Repayments, interest or principal payments on consumer loans contracted before March 15, 2020 are deferred by law for three months from April 1, 2020. This includes all payments due between April 1, 2020 and June 30, 2020. Again, the prerequisite is that the payment obligation is unreasonable for the consumer due to the spread of the COVID-19 pandemic. This should be the case in particular if his or her decent livelihood is at risk. In addition, termination of the contract by the lender is also excluded. Despite the new regulation, however, the parties are free to agree on other conditions and the consumers may continue to meet their payment obligations in due time.

Further information on financial support options for companies can be obtained from our experts Frank Büchler and Raphael Klesen.

Special regulations in insolvency law

In order to avoid a possible wave of insolvencies caused by the COVID-19 pandemic, the legislator has adapted the insolvency law in times of Corona temporarily and retroactively as of March 1, 2020. In particular, the obligation of companies to file a request for insolvency is to be suspended between March 1, 2020 and September 30, 2020.

This suspension is subject to the condition that the insolvency or over-indebtedness is due to the consequences of the COVID-19 pandemic and that there are prospects of remedying the insolvency. If a company was solvent until December 31, 2019, it is even legally assumed that the insolvency now is a consequence of the COVID-19 pandemic.

You can obtain further information on the new regulations under insolvency law and their effects from our experts Stefan Lammel, Frank Büchler and Julia Schwab.

Changes in company law

Due to the existing prohibitions of meetings and contact, it is difficult for stock corporations ("AG"), limited liability companies ("GmbH") and European companies ("SE") to hold general meetings and to pass the necessary resolutions. Therefore, the legislator has adapted measures to enable general meetings and the resolutions to be adopted therein. Virtual general meetings are now possible through electronic participation of the shareholders even without prior authorization in the articles of association. The otherwise applicable notification period of 30 days for convening a general meeting is reduced to 21 days and, in the case of an AG, the general meeting no longer has to be held within the otherwise applicable eight-month period, but can take place within the entire financial year.

Further information on the effects of the COVID-19 pandemic on the holding of general meetings can be obtained from our experts Barbara Mayer and Moritz Jenne.

Criminal Procedural Law

In criminal procedural law, there are strict time regulations which serve to speed up proceedings and protect the accused. If they are not observed, the proceedings have to be started all over again.

Up to now, criminal court main hearings were allowed to be interrupted for up to three weeks or even up to one month if they had lasted longer than ten days before the interruption. So far, it has only been possible to suspend these interruption periods if a party to the proceedings is ill or on maternity or parental leave. The new regulation creates a new circumstance of suspension in the event that the main hearing cannot be held on account of interventions to prevent the multiplication of infections caused by the SARS-CoV-2 virus. Under the new rules, the main hearing can be interrupted for a maximum of three months and ten days. With the new possibility of suspension, the main hearing can also be interrupted if there is no infection with SARS-CoV-2, but a party to the proceedings must remain in quarantine, e.g. because of suspected infection.

Conclusion

With the act to mitigate the consequences of the COVID-19 pandemic under civil, insolvency and criminal procedural law, the legislator has created a comprehensive package of measures to protect all economic actors from the consequences of the COVID-19 pandemic and to enable a ("business") afterlife.