Contact 
LEXIKON
Extension of the deadline for filing for insolvency – help and/or liability trap?
In addition to numerous other measures, the Second COVID-19 Act (Federal Law Gazette I 16/2020; www.ris.bka.gv.at/bgbl) extended the deadline for filing for insolvency proceedings under certain conditions. This article aims to show what this change means (and does not mean) for the managing director of a limited liability company (GmbH).
Insolvency filing obligation
In a crisis situation, managing directors have special duties to act. If the material requirements for opening insolvency proceedings (insolvency and/or over-indebtedness) are met, the managing director is obliged under Section 69 (2) of the Insolvency Code (IO) to immediately file an application with the competent court for the opening of insolvency proceedings.
The 4th Covid-19 Act has now standardized that the debtor’s obligation to file for insolvency in the event of over-indebtedness does not apply in exceptional cases where the over-indebtedness occurred between March 1, 2020, and June 30, 2020.
The 4th COVID-19 Act has now standardized that the debtor’s obligation to file for insolvency in the event of over-indebtedness does not apply in exceptional cases where the over-indebtedness occurred between March 1, 2020, and June 30, 2020.
If over-indebtedness exists at the end of this period, an insolvency application must be filed within 60 days of June 30, 2020, or within 120 days of the occurrence of over-indebtedness, whichever period ends later.
However, the obligation to file for insolvency in the event of insolvency remains unchanged.
The Insolvency Code gives the managing director the opportunity to restructure the company within a maximum period of 60 days, i.e., to remedy the respective insolvency situation without violating the obligation to file for insolvency.
Practice shows that this deadline is often misunderstood. Many managing directors assume that they have 60 days in any case to file for insolvency with the competent court.
In fact, however, this period must be used for serious restructuring efforts and is only granted for as long as the restructuring efforts actually have a chance of success. Simply “hoping for improvement” is not permissible. In addition, the period can also be used (to the extent actually necessary) to prepare an insolvency application.
If the managing director violates the obligation to file for insolvency, for example by not filing an application immediately as soon as it becomes clear that any restructuring efforts are futile, or because more than 60 days have passed since the onset of material insolvency despite initially promising measures, this can lead to personal liability on the part of the managing director.
Extension of the obligation to file for insolvency
Section 69 (2a) IO already provided for an extension of the obligation to file for insolvency from 60 to 120 days if the material insolvency was caused by a natural disaster (flood, avalanche, snow pressure, landslide, rockslide, hurricane, earthquake, or similar disasters of comparable magnitude).
The demonstrative list of natural disasters that could lead to an extension of the deadline was expanded with the 2nd COVID-19 Act to include the terms “epidemic” and “pandemic.” The legislature has thus expressly clarified that the application deadline is also extended to 120 days in the event of “pandemic-related” insolvency.
“Pandemic-related” insolvency?
The extended deadline only applies to “pandemic-related” insolvencies.
For the obligation to file for insolvency to be extended, the pandemic must not be the sole cause of insolvency, but it must be a significant and indispensable factor. Put simply, the 60-day period remains in place if the company would have become insolvent even without the pandemic. In case of doubt, the managing director is advised to assume a 60-day period as a precautionary measure to avoid liability and to reanalyze the situation on a daily basis during the ongoing restructuring efforts.
Caution
Extending the application period to 120 days for pandemic-related insolvencies is a sensible measure and generally welcome. However, it also carries a potential liability for managing directors that should not be underestimated.
On the one hand, managing directors could be tempted to assume that the pandemic is the cause of insolvency, regardless of the actual circumstances, in order to supposedly give the company more time.
The widespread misconception that the deadline for filing for insolvency can always be used until the last day has already led to many insolvency applications being filed late. In combination with the extension, this misconception could lead to insolvency proceedings being filed up to twice as late as before. Since each day of delay usually leads to an increase in liabilities, the liability volume for the managing director concerned naturally increases to the same extent.