Europe: EU / UK regulatory roundup
A round up of recent regulatory developments in the EU and UK.
German companies of different sizes and industry sectors may face considerable liquidity problems due to the impact of COVID-19 (coronavirus) in a market where insolvency rules are very strict. This has prompted the German government to announce unprecedented steps to mitigate against the economic impact of COVID-19, namely:
Under German insolvency law (Section 15a of the German Insolvency Code (InsO)), the management of a company has a statutory obligation to file for insolvency with the competent insolvency court within three weeks of incurring a situation of illiquidity and/or over-indebtedness. Illiquidity is defined by the debtor’s inability to settle its debts as they fall due. Over-indebtedness exists if the company’s total liabilities (including accruals) exceed its total assets (including hidden reserves), unless there is a predominant likelihood of a positive going concern prognosis. Such a prognosis is impossible to make in light of the current global market disruption, and of the unprecedented measures being taken to avoid the virus spreading further.
The German Ministry of Justice and Consumer Protection announced on March 16, 2020 a temporary suspension of the mandatory insolvency filing until September 30, 2020, provided that certain additional requirements are met. In particular, the suspension only applies if the insolvency is a direct result of the COVID-19 pandemic, and if there is a reasonable prospect of restructuring the company through government assistance as described below, or due to serious financing or restructuring negotiations. The final wording of the legislative measure is as yet unclear, but there will probably be room for interpretation of these criteria, in particular for determining whether the insolvency event was triggered by the effects of COVID-19. In any event, this legislative measure could help to relieve companies’ management of a significant burden in these tumultuous times.
In addition, on March 13, 2020, the German government announced a protective shield for employees and companies affected by the impact of COVID-19. The measures include:
For further details, please refer to the statements from the German Ministry of Economic Affairs and Energy and the German Ministry of Finance.
With regard to liquidity assistance, the following loan programmes have been identified to provide liquidity to companies:
Most of these loan programmes exclude loans for certain purposes (in particular debt restructuring). As is the case with most programmes provided by guarantee banks, the KfW loan programmes do not provide for direct loans from the state, but rather provide refinancing to the relationship bank (Hausbank) of the respective applicant. Therefore, in order to apply for such a loan, the application needs to be made through the relationship bank. Further, the actual loans or loan facilities provided under these loan programmes need to be tied to a company’s existing financing. This usually requires certain amendments to existing documentation, in particular with a view to financial covenants (in particular financial covenants which reference financial indebtedness, such as leverage tests) and undertakings (in particular restrictions on incurring additional financial indebtedness).
Companies looking at applying for liquidity assistance may wish to consider:
We can assist your business to navigate the risks and advise on legal consequences in the context of the COVID-19 pandemic on a cross-border basis. Further, we have extensive experience with KfW-backed financing structures and have advised on all relevant liquidity programmes in the past.
On July 16, 2020, the Court of Justice of the European Union (CJEU) published its decision in the landmark case Data Protection Commissioner v Facebook Ireland Ltd, Maximilian Schrems and intervening parties, Case C-311/18 (known as the Schrems II case).
On July 7, 2020, the Commission de Surveillance du Secteur Financier (CSSF) issued an FAQ document on Circular 02/77 concerning the protection of investors in case of NAV calculation errors and the correction of the consequences resulting from non-compliance with the investment rules applicable to undertakings for collective investment (the FAQ).