The new “SanInsKG” - recent changes in German law
October 2022 the German parliament adopted important changes to the German restructuring and insolvency law. Find out what it is about.
On 20 October 2022 the German parliament adopted important changes to the German restructuring and insolvency law. The new law - abbreviated “SanInsKG” – is a direct response to the repercussions of the Russian war against Ukraine on the German economy, in particular the energy and supply chain crisis the German economy is currently struggling with (further information in our Race to recovery podcast series).
Promulgation is yet to be expected, and the law will enter into force immediately thereafter. It is time-limited until 31 December 2023. The SanInsKG amends existing COVID-legislation (as set out in the “CovInsAG”) and lays the focus on three major points:
Relaxed conditions for going-concern prognosis: Reduction of forecast period from twelve months to four months in relation to over-indebtedness
Relaxed filing-duties: Extension of timeframe for a company’s management to file for insolvency proceedings due to over-indebtedness from six weeks to eight weeks
Lower entry barriers for restructuring: Reduction of cash-flow planning period for self-administration or StaRUG-Scheme from six to four months
Relaxed conditions for going-concern-prognosis
Over-indebtedness is a mandatory filing duty for companies’ management in Germany. The most prominent feature of over-indebtedness is the management’s determination of a going-concern prognosis, i.e. whether the company will be able to make all due payments within a twelve month forecast period. Pursuant to the new SanInsKG the forecast period will be shortened from twelve months to four months to rule out an over-indebtedness due to events occurring after the four month period. This change helps simplifying management’s liquidity planning and may reduce planning costs, in particular where forecasts are hampered significantly by the obscurity of energy price inflation in the near future. However, it remains doubtful if it will actually help companies which are already in acute financial distress.
Relaxed filing duties
In case of over-indebtedness a company’s management must file for insolvency without undue delay, in any event within six weeks. Pursuant to the new SanInsKG the timing will be extended to eight weeks. This will give management more time to discuss and negotiate curing measures such as parental letters of comfort, extension of credit lines or the subordination of intercompany debts. However, the timing for filing due to illiquidity remains as is, ie there will still be a strict three week period in place, should the management detect an illiquidity of the company. In other words, management remains liable to secure short term liquidity to make all payments when due and is best advised to always monitor liquidity on a 13 week rolling cash flow basis.
Lower entry barriers for restructuring
Rescue orientated proceedings such as self-administration or the German StaRUG-Scheme (general overview) require the debtor to provide the court with a detailed liquidity planning for a period of six months. The planning must show that the payables by the debtor and the costs associated with the proceeding are fully covered within the forecast period. Under the new SanInsKG the planning period has been shortened, namely from six to four months. The intention is to lower the barriers of use of rescue orientated procedures and simplify the management’s liquidity planning due to the unpredictable development of energy cost inflation.
