by Oliver SeilerCamilla Kehler-WeißDavid RathAlexandre MaturanaIsabel Willius

The German government has established a new ESF to counter liquidity shortages and strengthen the equity base of distressed companies.

A central part of the comprehensive support measures for the German economy to counter the effects of the COVID-19 pandemic is the Act on the Establishment of an Economic Stabilization Fund (Gesetz zur Errichtung eines Wirtschaftsstabilisierungsfonds, or WStFG) adopted by the Bundestag on March 25, 2020, and approved by the Bundesrat on March 27. The law extends the regulatory framework created during the 2008 financial crisis, which paved the way for federal investments in distressed banks. Going forward, the law will apply not only to the banking sector, but also to certain companies in the real economy. Article 1 WStFG amends the Financial Market Stabilization Fund Act and renames it the Stabilization Fund Act (Stabilisierungsfondsgesetz, or StFG). In addition to the Financial Market Stabilization Fund, which will continue to exist, a second economic stabilization fund (ESF) for companies in the real economy will be established. This ESF may provide guarantees for corporate liabilities (Sec. 21 StFG) and may also participate in the recapitalization of companies by, inter alia, acquiring debt instruments, entering into silent partnerships, and acquiring shares in companies (Sec. 22 StFG).