Insolvency Law

The German Federal government is preparing measures to suspend the requirement for companies to file for insolvency in cases where companies are suffering financial losses due to the current COVID-19 crisis. This suspension may apply through 30 September 2020. The German government aims to avoid insolvencies that may occur simply because the state's financial help may not arrive in time.

Conditions for a suspension of the requirement to file for insolvency shall be: the reason for insolvency is based on the COVID-19 crisis, and because of applied for state aid and/or serious financial or restructuring negotiations, the company has a positive continuation forecast.

Suspending the requirement to file for insolvency in times of crises is nothing new in Germany: similar measures were taken during the heavy floodings back in 2002, 2013 and 2016.

The German announced an extensive liquidity assistance package for struggling businesses as an immediate response to the COVID-19 crisis which includes finance, tax and employment law measures.


The German government will protect businesses with new measures to provide liquidity, the volume of which is unlimited. Due to the high degree of uncertainty in the current situation, the government has very deliberately decided to not set any limits on the volume of these measures. This is a very significant decision which is supported by the entire federal government. In a first step, existing liquidity assistance programmes will be expanded to make it easier for companies to access cheap loans, e.g. via various programmes provided by the German state-owned development bank KfW. Also, KfW will establish new programmes for business who have temporarily come into financial difficulties due to the current crisis.

There will also be measures with respect to banks providing guarantees, but also with respect to so-called parallel guarantees provided by the Federal government or state governments, in order for more companies to have access to such guarantees than previously.

These measures are subject to existing state aid rules and are now being submitted to the European Commission for approval. The Commission President has already indicated that, in light of the coronavirus crisis, she will ensure that state aid rules are applied in a flexible way.

The Federal government will also monitor the situation closely to be able to provide further measures if necessary.


It will become easier to defer tax payments and reduce prepayments and enforcement measures and late payment penalties will be waived until 31 December 2020. According to the German Federal Ministry of Finance this will not only apply to federal taxes such as corporate income tax, insurance tax and value added tax, but also to taxes that are administered by the customs administration such as energy duty and aviation tax. The German government estimates that overall businesses will be able to defer billions of euros in tax payments. The Federal Ministry of Finance said that it has already initiated the necessary coordination process with the German federal state. This means that the publication of the relevant draft acts or draft guidance can be expected shortly.

The plans in more detail:

  • Make it easier to be granted tax deferrals. Tax offices can generally defer taxes if their collection would lead to significant hardship of the taxpayer. The German Ministry of Finance plans to instruct the tax offices to lower threshold for this condition to be met by taxpayers.
  • Make it easier to reduce tax prepayments. According the German Federal Ministry of Finance, tax prepayments will be reduced in a swift and straightforward manner as soon as it becomes apparent that a taxpayer’s income in the current year is expected to be lower than in the previous year.
  • Waive enforcement measures and late-payment penalties until 31 December 2020 if the debtor of a pending tax payment is directly affected by COVID-19.


The employment law related measures to ease the burden on companies in the crisis are as of now limited to a relaxation of the regulations on short-time work compensation. However, during the last financial crisis, the instrument of short-time work had already proven to be a suitable means of avoiding high unemployment rates in times of drastic reduction in the workload. The previous conditions for the granting of short-time work compensation will be relaxed as follows:

  • The threshold of employees affected by the loss of work has been lowered to 10%.
  • No negative time account balances must be built up
  • It is now clear that temporary workers are also entitled to short-time pay
  • The social security contributions are now fully covered by the Federal Labour Office