Corona is hitting the economy hard and presenting unprecedented challenges to us all. Recurring closures and lockdown extensions are eroding the sales and reserves of many businesses. The federal government is trying to keep the wave of insolvencies down through a series of measures. Whether the measures will actually bear fruit, the companies affected and we will only be able to see at the beginning of next year.
OVER-INDEBTED OR INSOLVENT?
After the already suspended obligation to file for insolvency in case of over-indebtedness was extended until the end of December this year in a second round of negotiations in autumn, the law to mitigate the consequences of the Corona pandemic in insolvency law was adjusted again: The new date for affected companies is now January, 31st, 2021.
However, the government explicitly distinguishes between over-indebted and insolvent companies:
Insolvency is when a company can no longer service its current liabilities such as wages, rents, supplier receivables, etc. Over-indebtedness, on the other hand, is when the sum of the company’s liabilities exceeds the funds available on the credit side. The recent extension of the obligation to file for insolvency only benefits over-indebted companies. But: The actual insolvency driver is the insolvency of companies and not their over-indebtedness.
The reason for the extension of the obligation to file for insolvency until 31 January 2021 is said to be the delayed payment of state aid in November and December due to the late completion of the software tool for processing applications. The renewed suspension of the obligation to file for insolvency is intended to prevent companies from having to file for insolvency simply because the state aid has not yet been paid out.
The extension of the obligation to file for insolvency is limited to the case of over-indebtedness, as it is believed that the chance of survival after the Corona crisis is significantly higher for over-indebted companies than for insolvent companies. The current regime should not be used to artificially keep structurally weak companies alive.
Understandably, the concern about bad debts and liquidity bottlenecks is greater than ever before among financial managers in this situation.
TIPS FROM OUR CREDIT EXPERTS ON PREVENTING PAYMENT DEFAULTS AND LIQUIDITY BOTTLENECKS
What do we advisory insurance brokers have in our quiver for you in this situation? We recommend checking your insurance portfolio for credit insurance: Credit insurance can compensate for the worst consequences of payment defaults. Our experts have the following recommendations:
Companies that do not yet have credit insurance should look into the topic as soon as possible and get an overview of the market. Due to the crisis, we expect credit insurance to become more expensive in the future. But contract renewals will also become more expensive, even for loss-free contracts. In the case of loss-ridden policies, there could even be a significantly higher premium. A market comparison is worthwhile here, too.
The regulations of credit insurers are subject to constant change and can hardly be adequately assessed by companies. Especially against the backdrop of the current situation, it is also important for companies to check: Is the cover still adequate? Is the contractual maximum indemnity high enough? Is your company sufficiently protected against possible risks of contestation in insolvency? Do you need to close any gaps in your limit requirements? In order to navigate the crisis well, it is more important than ever to have the most comprehensive cover possible.
EUROASSEKURANZ experts Petra Fuchs and Dominik Schamberger specialise in credit insurance. Both are available to answer your questions.