Corona-Info: The legislator acts - we summarize for you!

current status: March 30, 2020

The legislator acts - Special regulations on, among other things, deferral of claims, insolvency law, tenancy law and loan agreements in Germany to come.

At the end of March, the German legislator adopted special regulations in response to the COVID 19 pandemic in fast-track proceedings. The law was passed by the German parliament (Bundestag) on Wednesday, March 25, 2020, and, in a special session, also by the German Federal Council (Bundesrat) on Friday, 27 March, 2020.

The "Law on Mitigation of the Consequences of the COVID-19 Pandemic in Civil, Insolvency and Criminal Procedure Law" (Bundestag-Drs. 19/18110) will come into force at the end of March/beginning of April and essentially contains the following regulations:

1. Deferral of almost all older claims possible

In general civil law, the draft provides for a moratorium (i.e. the right to refuse performance, in particular payment) to protect consumers and small companies from financial hardship resulting from the measures taken to prevent the spread of infections. Small companies are those with less than ten employees and less than EUR 2 million annual turnover.

These measures generally require that:

• it concerns claims from a continuing obligation established before March 8, 2020, and
• which the debtor is not able to fulfill due to the COVID 19 pandemic, or 
• due to the COVID 19 pandemic, the fulfillment of such claims would endanger his livelihood or the economic basis of his business.

In the case of small companies, long-term obligations that are essential to their business activity must also be concerned.

At the same time, the creditor must not be unreasonably impaired as a consequence. In particular, the provisions do not apply to employment contracts, tenancy agreements and loan agreements.

2. Tenancy agreements cannot be terminated due to default

In contrast to general civil law, tenancy agreements are not subject to a general moratorium, but to the following exclusion of termination:

• Exclusion of terminations in the event of late payment of rent for the period from April 1, 2020 to June 30, 2020, if the non-payment is due to the effects of the COVID 19 pandemic.
• The correlation between the non-payment and the COVID 19 pandemic is not assumed, but needs to be substantiated by the tenant.
• The period from April 1 to June 30, 2020 can be extended by decree until September 30, 2020, i.e. to a total of six months. Any extension beyond this requires the consent of the German Bundestag.
• The exclusion of termination ends on June 30, 2022, i.e. by this date the rent in arrears (including default interest) must be paid to avoid a termination.
• Other termination rights remain unaffected, i.e. the ordinary termination right for unlimited rental contracts as well as the extraordinary termination.

Only extraordinary termination is excluded. However, the rent is not deferred, but is due at the agreed dates. In the event of non-payment, the landlord can therefore enforce the rent security deposit and assert the rent, interest on arrears and any further damage in court.

The question is left to judicial clarification whether the tenant can demand a rent reduction or adjustment of the rent with reference to a defect (e.g. refusal to allow use of the rental property in the event of closure by the authorities), the existence of force majeure or due to disruption of the business basis.

3. Loan agreements are deferred

For consumer loan agreements concluded before March 15, 2020, claims of the lender for interest or the repayment of instalments due between April and June 2020 are deferred for a period of three months from the due date, if the borrower suffers a loss of income due to extraordinary circumstances caused by the spread of the COVID 19 pandemic, which make it inappropriate for the borrower to fulfill his obligations. After expiry of this moratorium, the payment obligation will resume, whereby the individual payment dates as well as the end of the term of the loan will be postponed by three months in each case, unless the parties agree otherwise. The regulations are to apply to consumer loan agreements only. However, there is the possibility of extending the scope of application of the law by means of a statutory instrument to small companies as well.

4. Compulsory filing for insolvency is suspended

The obligation to file an insolvency petition pursuant to § 15a of the German Insolvency Code and § 42 para. 2 of the German Civil Code (BGB) will be suspended until September 30, 2020 when the new law enters into force. However, this does not apply if the insolvency is not a consequence of the COVID 19 pandemic or if there are no prospects of remedying an existing inability to pay. If debtors were not insolvent on December 31, 2019, it is legally assumed that insolvency is based on the consequences of the COVID 19 pandemic and that there are prospects of eliminating an existing insolvency. Debtors' own applications for the opening of insolvency proceedings and applications by creditors (third-party applications) nevertheless remain possible. In the case of third-party applications, however, the opening of insolvency proceedings requires that the reason for insolvency already existed on March 1, 2020. The suspension of the obligation to file for insolvency can be extended by decree up to a maximum of March 31, 2021.

5. Online Annual General Meetings introduced

The draft law provides that Annual General Meetings can be held electronically in 2020. There are two options for this: Either a classic meeting can be held in person with the option of shareholders attending electronically and casting their votes electronically or by letter. Alternatively, a completely virtual AGM can be convened without any shareholders being present. At the same time, the notice period is shortened to 21 days and the period for holding Annual General Meetings is extended from 8 to 12 months after the end of the financial year. The latter does not apply to the European Public Limited Company (SE). Similar arrangements are envisaged for cooperatives and associations. Finally, public limited liability companies will be able to pay advance dividends before the AGM, even without an explicit provision in their articles of association.

6. Criminal procedural law

The COVID 19 pandemic could lead to the cancellation of many ongoing trials in criminal courts because they are interrupted for too long. The draft provides for an extension of the existing possibilities of interruption by a new version of § 10 EG-StPO. Accordingly, the course of the interruption periods mentioned in the criminal procedural code is also suspended "as long as the main hearing cannot be held due to protective measures to prevent the spread of infections of the SARS-CoV-2 virus (COVID 19 pandemic)". The suspension shall be possible for a maximum of two months, and the interruption period shall end at the earliest ten days after the expiry of the suspension.

In principle, main hearings may only be interrupted for up to three weeks, in exceptional cases for up to one month. Under current law, these interruption periods can only be suspended if a party to the proceedings is ill or on maternity or parental leave. This suspension is to be supplemented by the above-mentioned regulation. Protective measures in connection with COVID 19 can therefore lead to an interruption of the main hearing of up to three months and ten days.

Further information

The regulations will have practical relevance for almost all companies, public sectors and private individuals. On our Corona website, we will be highlighting further details of the practical implications over the next days. Comprehensive information on many relevant legal issues caused by the pandemic can already be found there and the website will be continuously updated.

Please note that the update does not provide legal advice. The information contained herein has been diligently researched, but only provides a limited overview of case law and legal developments and cannot replace an individual advice that takes into account the specifics of each case.