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Temporary relaxation of going-concern forecast requirements coming to an end

News  >  Temporary relaxation of going-concern forecast requirements coming to an end

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The recent amendments to German insolvency law, which saw the forecast period for projecting whether a company is likely to survive as a going concern cut from twelve to four months, are set to expire by no later than the end of this year.

The response of the German government to the spike in energy prices in the wake of the war in Ukraine has been to adopt various measures aimed at making it easier for businesses and consumers to weather the crisis e.g., the cap on gas prices. One of the measures designed to support struggling businesses has been the reduction from twelve to four months in the period under insolvency law for forecasting whether a company can continue to operate as a going concern. The idea behind this is to prevent companies from having to file for bankruptcy, notes managing partner and point of contact for insolvency law and company law at MTR Legal Rechtanswälte, Michael Rainer.

This package of measures was introduced as part of the German Restructuring and Insolvency Law Crisis Mitigation Act – “SanInsKG” for short – that came into force in November of 2022. However, the arrangements, which were subject to a time limit from the get-go, are expected to expire by December 31, 2023, at the latest, though the original twelve-month forecast period may, under certain circumstances, become relevant again from as early as September 1 of this year. This is the case if it becomes evident from this date that the company in question will be over-indebted based on the standard twelve-month going-concern forecast period set to be reinstated again from January 1, 2024.

This is something that the managing directors should already be monitoring now in the context of liquidity planning. Failure to file for bankruptcy on time means facing up to a greater liability risk.

A bankruptcy petition needs to be submitted if the company becomes illiquid or over-indebted, with the latter describing a situation in which the company’s assets no longer cover its liabilities. Insolvency proceedings can still be averted if the company is able to present a positive cash flow-based prognosis of the company being able to cover its liabilities. The reference period was temporarily cut from twelve to four months and is expected to return to twelve months by no later than January 1, 2024.

The managing directors are required to draw up a financing plan. If they identify a liquidity gap that cannot be closed during the relevant timeframe, then they are obliged to file for bankruptcy on behalf of the company. The deadline for lodging a bankruptcy petition on account of over-indebtedness is currently eight weeks, though this will revert to the normal six-week deadline from January 1, 2024.

If a delay in filing for bankruptcy is to be avoided, the managing directors ought to be checking early on whether the company is on the brink of bankruptcy.

MTR Legal Rechtsanwälte advises on all matters related to insolvency law, including what restructuring options are available.

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