Exceptional measures have been taken at both federal and regional levels to limit the economic impact on companies of the health crisis linked to the Covid-19 epidemic.
In employment law: facilitated adoption of short-time working
The regulations on compensation for short-time working1, published in the official journal on 27 March 2020, considerably relax the conditions for obtaining short-time working compensation. These apply retroactively from 1 March 2020 and will remain in force until 31 December 2020.
The following measures have been taken:
- The proportion of employees that needs to be affected by employment interruption for the company to declare a shorttime working situation has been lowered to 10%;
- Greater flexibility is permitted to use shorttime working in the case of overtime hours not yet paid;
- The social security contributions payable by the employer in respect of shorttime working are now reimbursed by the Federal Employment Agency;
- Finally, shorttime working measures are extended to temporary workers.
In corporate law: measures to facilitate meetings of corporate bodies
General meetings of public limited companies
Measures to facilitate general meetings of public limited companies (AGs), partnerships limited by shares (KGaAs) and European companies (SEs), as well as meetings of their supervisory boards, were adopted in a law enacted on 27 March 20202. These measures are applicable to general meetings held in 2020, with a possible extension by decree until 31 December 2021.
Even when not provided for in the company's articles of association, the company’s management board may now decide, with approval from the supervisory board, that the shareholders can participate in the general meeting and vote at it electronically. Certain conditions must be met, however, particularly including video as well as audio transmission of the entire general meeting, the ability for shareholders to ask questions electronically and the possibility of appealing the resolutions adopted.
The deadlines have also been relaxed. The deadline for convening the general meeting may be reduced by the management board to 21 days before the date of the general meeting and the meeting may be held at any time during the financial year, rather than only during the first eight months.
However, the law does not allow any flexibility for election of the statutory auditor or, in the case of listed companies, for examination of the financial statements and publication of the interim management report.
Supervisory board meetings for GmbHs (with more than 500 employees)
However, no similar measures have been adopted in relation to meetings of GmbH supervisory boards. The possibility of holding such meetings by video-conference or conference call therefore depends on the provisions of the company’s articles of association and their provisions concerning formalities and quorum must be adhered to.
Prevailing doctrine generally equates video-conferencing with the holding of a physical meeting, since video-conferencing ensures direct and simultaneous communication between members of the supervisory board. Doctrine is more divided when it comes to accepting a meeting by telephone and this question continues to be the subject to debate.
Nevertheless, where the statutes of a GmbH require the “presence” of all or some of the members of the supervisory board, in principle their physical presence would be required for the decisions taken to be legally enforceable. However, a different approach to accepting attendance by video-conference would appear justifiable in the current circumstances, particularly due to the fact that the objective until now has clearly been to encourage members of the Supervisory Board to attend meetings in person. A simple conference call is still not acceptable however.
These questions are of major importance, since if resolutions by the supervisory board are adopted in violation of the procedure stipulated in the articles of association, they would be null and void.
In tax law: possibility of requesting suspension and deferral of payment, with reduced interest and late-payment penalties
Both the federal and regional tax authorities have published a series of measures intended to improve taxpayers’ short-term financial situation and liquidity.
Taxpayers who suffer direct and significant economic loss as a result of the pandemic have until 31 December 2020 to submit a request to defer payment of taxes due from 19 March 2020 or to pay them on 31 December 2020. This measure concerns income tax, corporation tax, professional tax, Church tax, the solidarity contribution and VAT, but excludes tax on salaries and withholding tax on income from capital. When granting the deferral, in principle the authorities should waive late-payment interest and not require any collateral.
Furthermore, until 31 December 2020 requests can be made to reduce the amount of interim payments on income tax, company tax, VAT and business tax, including, under certain conditions, for direct debits paid in the first quarter, which would then potentially result in a refund.
No written formalities have been issued, either for requests to defer payment or to reduce interim payments. To simplify the processing of requests, applicants are advised to use their personal online space or the form available on some regional authorities’ websites, including in Bavaria, North Rhine-Westphalia and Baden-Württemberg. However, since in principle professional tax falls within the jurisdiction of municipalities, it must be the subject of a separate request. In any case, it will be necessary to explain the direct link to the pandemic and the extent of the economic loss, possibly based on an estimate of losses suffered.
In relation to audits, no interruption is provided for. They will therefore continue, mainly by means of email and telephone exchanges or even video-conferencing. However, taxpayers may apply to interrupt and postpone audits, which will be assessed on a case-by-case basis.
Enforcement measures are in principle suspended until 31 December 2020 for the main taxes, with the exception of business tax.
Finally, the German Ministry of Finance has emphasised that no general extension is granted for filing declarations, regardless of the potential for deferred payment. However, it is unlikely that the authorities will apply penalties for late filing. Nevertheless, if taxpayers anticipate difficulties, they are strongly advised to send an individual request for a deadline extension, since any breach of filing obligations could be viewed as tax fraud, which is a criminal offence incurring the director’s personal liability. Although it is possible to imagine the authorities showing a certain lenience, careful consideration must be given to the reasons provided, as approval is entirely at their discretion.
Real-estate law and collective proceedings: a careful balance between protection of the tenant and the legal security of transactions
As rents represent a significant expense for companies, the law of 27 March 2020 mitigating the consequences of the Covid-19 pandemic in matters of civil law, insolvency and criminal proceedings3 amends the applicable provisions.
Landlords will therefore not be able to terminate leases for non-payment of rent from 1 April 2020 to 30 June 2020 due to the effects of the Covid-19 pandemic. The legislation therefore grants protection to tenants.
When the tenant makes a payment, however, the administrator's ability to challenge it are drastically reduced in the event of insolvency.
Until now, under certain conditions the administrator could challenge agreements or payments made in the four years preceding the filing of the insolvency application, resulting in reimbursement of the amount to the tenant and reinstatement of the receivable in the company’s liabilities. This was particularly the case if it could be proved, based on the tenant’s payment behaviour for example, that the landlord must have known of the tenant's imminent insolvency at the time of the payment.
The legal security of payments has now been reinforced, since the law of 27 March 2020 introduces protection against the cancellation of legal actions performed until 30 September 2020, particularly the payment of rent. This new provision is intended to help tenants and landlords to reach an amicable solution, such as an agreement to defer payment, a temporary reduction in rent or an agreement to assign government aid payments due in place of rental payments (with or without the possibility of recourse against the tenant).
By way of exception, it remains possible to challenge past actions and insolvency if the creditor knew that the restructuring and financing efforts adopted by the debtor were unsuitable for ending its existing insolvency. As this exception is applicable to relations with landlords, special caution should be shown in situations where tenants had already encountered payment difficulties before the pandemic.
Article written in close collaboration with our German specialists Annett Kenk, Gerd Leutner and Carsten Domke from CMS Hasche Sigle.
All of our Franco-German teams are available to advise affected companies on implementation of these measures.
1Kurzarbeitergeldverordnung – “KugV”.
2Law on measures designed to combat the effects of Covid-19 in the field of company law, cooperatives, associations, foundations and co-ownership (Gesetz über Maßnahmen im Gesellschafts-, Genossenschafts-, Vereins-, Stiftungs- und Wohnungseigentumsrecht zur Bekämpfung der Auswirkungen der COVID-19-Pandemie).
3Gesetz zur Abmilderung der Folgen der Covid-19-Pandemie im Zivil-, Insolvenz- und Strafverfahrensrecht - COVInsAG of 27 March 2020, BGBl 2020, I Nr. 14.
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