Update: the Government's emergency relief for businesses

As a guidance for quick action, we have provided an overview of the decisions on emergency relief and other measures for businesses suffering financial straits due to the COVID-19 crisis and show how you can profit from it at federal and state level:

Outline of the emergency relief and other measures at federal and state level

So as to mitigate the negative consequences of the spreading coronavirus, the German Federal Ministry of Finance and the German Federal Ministry for Economic Affairs and Energy decided to grant billions worth of relief. In addition to the Federal Government, the states also announced emergency relief programmes for businesses distressed by COVID-19.

I) At federal level

1) More flexibility for short-time working benefit

In a "fast-track procedure", the federal government decided to make access to short-time working benefit easier due to the current COVID-19 crisis. Press release.

The most significant new regulations are:

• Reduction of the minimum ratio of the employees in a company affected by shorter working hours to 10%
• Partial or complete waiver of the need to build up a negative balance in working hours
• Short-time working benefit will also be available to temporary/agency workers
• Complete reimbursement of social security contributions by the Federal Employment Agency [Bundesagentur für Arbeit]

The related "German Act on the Temporary Crisis-Related Improvement of the Regulations for Short-Time Working Allowance" [„Gesetz zur befristeten krisenbedingten Verbesserung der Regelungen für das Kurzarbeitergeld“] entered into force on 15 March 2020 and provides the legal basis for a Regulation of the German Federal Government. The Regulation was enacted on 23 March 2020 and makes full use of the granted authorisations. The relief package enters retroactively into force on 1 March and moneys will be paid with retroactive effect. For this purpose, the local Employment Agency [Agentur für Arbeit] is to be contacted.

In addition to the above legislative amendments, more action is planned. On 18 March 2020, the German Federal Minister of Labour and Social Affairs, Hubertus Heil (SPD), said in a summit meeting with employers and trade unions in Berlin that the government and social partners intend to jointly absorb any wage gaps for short-time working benefit. Furthermore, "disproportionate wage cuts" shall be avoided for employees who cannot go to work because the childcare facilities are closed. According to Mr Heil, employers can continue to pay salary in such cases and subsequently recover these amounts from the government. The Federal Minister of Labour, Mr Heil, said "We will make new laws in response to these needs". He announced that this will be discussed by Federal Government and in the German Bundestag (lower house of German parliament). More details are currently not available; however, we will keep a close watch on the further development.

Practical tip: Before you resort to short-time work and apply for short-time working benefit, a decision should have been made within the business that short-time work is the right option for your business in order to survive this severe crisis. If you have doubts or if you rather assume that you will not need the full labour force even after a reasonable hold-up time, compulsory redundancy should be taken into consideration. However, please note that such a scenario requires careful consideration and preparation in particular in a situation like this, in which business interruptions are generally referred to as being only temporary.  

2) Deferred payment of social security contributions

For more details on options for deferred payment of social security contributions, please follow this link.

3) Suspension of the legal obligation to file for insolvency

Pursuant to Section 15 (1) InsO, where a business becomes illiquid or overindebted, its directors are currently required to file a request for the opening of proceedings at the latest three weeks after the commencement of insolvency or overindebtedness. If the management does not comply with this obligation, it faces a substantial civil and criminal liability regime.

In order to mitigate the negative consequences of the COVID-19 pandemic also in terms of insolvency law, the German Federal Ministry of Justice and Consumer Protection [Bundesministerium für Justiz und Verbraucherschutz - BMJV] announced that the COVID-19 relief package will be supported by the suspension of the legal obligation to file for insolvency. Press release

On 25 March 2020, the German Bundestag adopted the "Act on Mitigating the Consequences of the COVID-19 Pandemic in civil law, insolvency law and criminal procedure law" ["Gesetz zur Abmilderung der Folgen der COVID-19-Pandemie im Zivil-, Insolvenz- und Strafverfahrensrecht"], which will enter retroactively into force on 1 March 2020 and which is expected to be approved on 27 March 2020. A condition for suspension is that the insolvency was caused by the effects of the COVID-19 pandemic and that there are reasonable prospects of resolving financial problems by applying for public grants or by serious financing and reorganisation negotiations of the business under duty to file for insolvency.

Practical tip: The suspension of the legal obligation to file for insolvency is a reasonable and necessary complement to the announced relief measures for the German economy. However, it will be crucial for the management of affected companies to analyse in detail whether the requirements of the planned amendment are fulfilled. We will be pleased to check for you whether the legal obligation to file for insolvency may be suspended in your individual case in order to prevent liability claims due to a delay in filing a request for insolvency proceedings.

German legislature furthermore recognised that directors of distressed businesses have to face difficult management decisions. In order to protect them against threatening liability claims, the prohibition of payments associated with insolvency pursuant to Section 64 sentence 1 Limited Liability Companies Act [GmbH-Gesetz - GmbHG], Section 92 (2) sentence 1 Stock Corporations Act [Aktiengesetz - AktG], Section 130a (1) sentence 1, also in conjunction with Section 177a sentence 1 Commercial Code [Handelsgesetzbuch – HGB] and Section 99 sentence 1 Cooperative Act [Genossenschaftsgesetz - GenG] is suspended for the period of the suspension of the legal obligation to file for insolvency. However, this is valid only insofar as those payments are made in connection with management measures within the normal course of business, including measures for maintaining or resuming the business activities as well as reorganisation of the business itself or the business model. We therefore also assist you with the necessary question as to what specific action directors can or must take to avoid recourse under personal liability.

In the course of our normal work for business reorganisation clients we have frequently dealt with these questions and will be pleased to provide quick assistance to your business or to you as a management body to respond to this difficult situation.

4) Tax-related liquidity assistance for businesses

In order to improve the companies’ liquidity situation, tax payments may be deferred and due tax prepayments may be reduced to zero euro. In detail:

• It will be easier to grant deferrals for due tax payments
• It will be easier to adapt tax prepayments
• Enforcement measures and late-payment penalties will be waived until 31 December 2020 if the debtor of a pending tax payment is directly affected by the coronavirus.
• Late payment penalties will be waived

For more information please follow this link.

Practical tip: We recommend affected businesses contacting their local tax office as early as possible. If extensions of deadlines and reductions of prepayments are applied for in a timely manner, liquidity shortages due to pending tax payments can be avoided or delayed.

For more details, please see our article on tax-related liquidity assistance.

5) Financial support measures for businesses and self-employed persons

 On 25 March 2020, the German Bundestag adopted a comprehensive relief package to mitigate the economic consequences of the COVID-19 pandemic. In essence, businesses and self-employed persons will be supported as follows:

• Establishing an economic stabilisation fund (ESF)

The Federal Government agreed on establishing an economic stabilisation fund with the aim to guarantee the liquidity and solvency of businesses which were economically sound and competitive before the COVID-19 pandemic.

The ESF of the Federal Government comprises the following instruments:

• Authorisation to assume guarantees of up to 400 billion euro for refinancing businesses in the capital market (bridging liquidity shortages)
• Authorisation to take out loans of up to 100 billion euro for strengthening the capital of businesses (recapitalisation)
• Further authorisation to take out 100 billion euro to refinance the loans granted by the Kreditanstalt für Wiederaufbau (KfW).

The ESF complements the announced special programmes of the Kreditanstalt für Wiederaufbau (KfW).

For more details on the programmes offered by KfW, please follow this link.

• 50 billion euro worth of emergency relief for micro-entities and own-account workers
• Businesses with up to five employees (full-time equivalents) receive a one-time grant of up to € 9,000 for three months
• Businesses with up to ten employees (full-time equivalents) receive a one-time grant of up to € 15,000 for three months
• If the landlord reduces the rent by more than 20 %, the non-used amounts of the maximum grant referred to above may also be applied to the following two months.

The described emergency relief relates to government grants which are not to be considered as loans and which need not be repaid.

Practical tip: We recommend businesses affected by the COVID-19 crisis, which are considering the use of one these financial relief measures, dealing with the various funding programmes so as to be able to respond quickly where timely action is required.

II) On state level

In addition to the relief programme adopted at federal level, also the states offer relief packages which currently vary from state to state and are subject to constant updates.

Please contact us if you need help here. Our experts of the Warth & Klein Grant Thornton Corona Task Force are here for you and can provide information on the specific relief packages in your state.

Example Bavaria

As an example, we will explain the relief available in Bavaria which is working at a very fast pace:

The Bavarian government announced 10 billion euro worth of financial support for affected businesses. The money will be distributed on the basis of quick applications with as little bureaucracy as possible. In addition to the federal programmes shown above, the following options are available:

• Loans and guarantees from LfA Förderbank Bayern

LfA Förderbank Bayern expands its guarantee ceiling 500 billion euro. Businesses with annual revenues of 500 billion euro and self-employed professionals may apply for a loan. These loans may be used for operating resources and temporary debt rescheduling. The maximum principal amount which can be applied for is 10 million euro.

LfA grants deficiency guarantees covering loans to SMEs and freelancers. The guarantees relate to investment loans, operating loans and guarantee credits which normally would not be granted due to the lack of bank securities. The amount under such guarantees may be up to 5 million euro. Additionally, state guarantees may be granted. The guarantees offered by Bürgschaftsbank Bayern GmbH (see below) are available to crafts, retail trade, hotel and catering as well as gardening and/or landscaping.

• Guarantees granted by Bürgschaftsbank Bayern

Bürgschaftsbank Bayern is also strengthened. The guarantee ratio for operating loans and the indemnity in universal loans will be increased generously to 80 % and the application procedure was simplified considerably.

Bürgschaftsbank Bayern grants guarantees for loans of small and medium-sized businesses in Bavaria in the crafts, retail trade, hotel and catering as well as gardening and/or landscaping industry. The amount under such guarantees may be up to 2.5 million euro.

• Emergency relief for businesses

Businesses distressed directly by the COVID-19 crisis may apply for emergency relief. Emergency relief is not a credit or loan. These are grants which need not be repaid. The target group for such emergency relief are self-employed persons, freelancers and small businesses with up to 250 employees (also catering, tourism, retail trade, culture etc.). Amounts between 5,000 and 30,000 euro may be applied for without much bureaucracy. The permanent establishment or workplace needs to be in Bavaria.

• Bayernfonds

For companies on the verge of insolvency: In cases of utmost urgency the Free State of Bavaria may participate in businesses to keep them going.

• Flexible working hours rules

 In order to manage temporary shortages of staff and production bottlenecks, working hours rules in certain areas relevant for basic supply are made even more flexible for the time being. Exceptions are intended – in agreement with the employees – to allow longer working time on working days, employment on Sundays and public holidays and a temporary reduction of rest periods and breaks. However, rights of co-determination of works and staff councils must still be observed.

More tips from our experts

Indispensable emergency planning

Despite all the relief programmes, please do not forget emergency planning at a personal level to ensure that you can guide your business through the crisis safely. Nobody can be sure not to fall ill with COVID-19 and to be temporarily  incapable of acting and contracting. Businesses must always be able to act and often make decisions quickly and without bureaucracy. For this purpose, all shareholders (and/or directors) must be capable of contracting and contactable. Even if only one shareholder (and/or director) is absent, an entire business may be paralysed for a certain time and not only entrepreneur himself may be affected but also the other shareholders, employees, customers and suppliers. Nobody should rely on the appointment of an emergency management or of a guardian. This would mean that third parties will be involved in your business and prevent quick decisions. Without an appropriate power of attorney neither your spouse nor other family members would have power of representation also in your personal sphere. They would not be appointed as guardians automatically. Consequently, personal provision by lasting powers of attorney and the like is inevitable not only in times of COVID -19.

Contact us

Do you have any questions regarding emergency relief at federal or state level? Do you need legal advice on the choice or preparation or use of the emergency relief programmes referred to above? Contact us. Our expert team of the Warth & Klein Grant Thornton Corona Task Force is looking forward to your questions around emergency relief in the COVID-19 crisis.

A summarised first glance on relevant regulations of the current COVID-19 legislation is available for download here.