Looking back at the last few months, the COVID-19 pandemic has hit many companies hard and amplified disruptive trends in various sectors. In addition to other measures to address COVID-19 impact on businesses, Germany has made significant progress toward international best practices for restructuring: StaRUG — known as the German scheme — came into effect on 1 January 2021, as one of the most modern restructuring laws in the world. But how will StaRUG help German companies survive the crisis and what if insolvency is unavoidable?
The Federal Ministry of Justice and Consumer Protection (BMJV) is currently finalizing the law to mitigate the consequences of the COVID-19 pandemic in civil, insolvency, and criminal proceedings with extraordinary commitment. It shall be adopted less than two weeks after the beginning of the extensive restrictions on public life and the economy in Germany due to the COVID-19 pandemic.
A central element of the law is to facilitate the raising of debt capital in order to support companies in the current situation. For this purpose:
- liability risks in connection with the granting of loans are reduced,
- contestation events under insolvency law are temporarily alleviated with regard to collateralization and redemptions of new financing, and
- subordination of new shareholder loans is temporarily suspended.
Due to the already existing and upcoming multiple business challenges caused by COVID-19, there will be a strong demand for additional financing throughout the German and European economy. The German government announced on 13 March 2020 that “unlimited funds” will be provided and “all weapons” will be put on the table to support and stabilize the economy. A key measure of the announced government program is an expansion of the already existing KfW financing program. However, there are still substantial challenges to obtain respective state aid financing.
German government introduces a series of measures to mitigate fallout for companies and their employees.
The German Federal Ministry of Finance and the German Federal Ministry for Economic Affairs and Energy have announced a protective shield for employees and companies in Germany in light of COVID-19 implications. The protective shield is based on four pillars, each of which target a: