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No further delay in the case of over-indebtedness

The board of directors of a stock corporation is obliged to notify the court of over-indebtedness (colloquially: "to deposit the balance sheet") if the over-indebtedness cannot be eliminated by subordination declarations. The court then opens the company for bankruptcy. As an alternative to reporting overindebtedness, there is the initiation of debt restructuring proceedings.

On April 20, 2020, the Federal Council temporarily suspended this notification requirement. The court could not be notified if the company was not over-indebted on December 31, 2019 and there was a prospect that the over-indebtedness would be resolved on December 31, 2020. This emergency provision will now be lifted on Tuesday, October 20, 2020.

This means that the obligation to notify is revived if there is overindebtedness on Tuesday, October 20, 2020. Boards of directors of companies that have found themselves in ongoing over-indebtedness during the Corona crisis must act immediately: They should either report the over-indebtedness (and thus accept the bankruptcy of the company) or - if there are prospects of reorganization - request one from the probate court request a provisional debt restructuring moratorium.

The maximum duration of the provisional debt restructuring moratorium lasts up to eight months from October 20, 2020 (instead of four months under applicable law). The initiation of debt restructuring proceedings requires a justified request (including a provisional restructuring plan) and must therefore be carefully prepared. The simpler (so-called "unbureaucratic") COVID-19 deferral will no longer apply from October 20, 2020.

Failure to report overindebtedness (or a request for a debt restructuring moratorium) can result in liability consequences both vis-à-vis the creditors (liability under stock corporation law for the so-called bankruptcy delay) and vis-à-vis the social insurance companies (liability for social security contributions not paid).