Going Concern Forecast Period under Insolvency Law Back to Twelve Months as from 1 September 2023
When examining whether a company is overindebted and consequently has to file for insolvency, the forecast period for which the company must prepare a liquidity plan plays an essential role. As from 1 September, directors who prepare such a liquidity plan (or have such a plan prepared) should – as a precaution – once again use a forecast period of twelve months to protect themselves from liability risks. A number of other deadlines will also be changing, as the exemptions added to the Insolvency Code (Insolvenzordnung, “InsO”) and the Corporate Stabilisation and Restructuring Framework Act (Gesetz über die Stabilisierung und Restrukturierungsrahmen für Unternehmen, “StaRUG”) by the Act on the Temporary Adjustment of Restructuring and Insolvency Law Provisions to Mitigate the Consequences of Crisis (Sanierungs- und insolvenzrechtliches Krisenfolgenabmilderungsgesetz, “SanInsKG”) expire on 31 December 2023. This already affects going concern forecasts that extend beyond 2023.
1. Current exemptions and transitional provisions relating to the going concern forecast expire on 31 December 2023
The legislator responded to the even greater economic challenges faced by many businesses in 2022 as a result of disrupted supply chains and (greatly) increased prices due to the Ukraine conflict by amending the SanInsKG (formerly the COVID-19 Insolvency Suspension Act (COVID-19-Insolvenzaussetzungsgesetz, “COVInsAG”)). These amendments included:
shortening the going concern forecast period pursuant to section 19(2), sentence 1 InsO from twelve to four months and
shortening the period required for self-administration and restructuring plans from six to four months in each case.
According to section 4(2) SanInsKG, these transitional provisions apply from 9 November 2022 to 31 December 2023. Although neither the wording of the provisions nor the explanatory memorandum clearly indicates whether the provisions also apply to forecast or planning periods that commence before 31 December 2023 but extend beyond the end of the year, the explanatory memorandum does assume that the expiry of the transitional provisions will have “a certain advance effect”. However, whether this is correct and what this will actually involve is hotly debated in the legal literature.
2. Advance effect of termination of transitional provisions should be taken into account as a precaution
Given that the legal situation is anything but clear-cut, it makes sense to go back to using a period of at least twelve months as a basis for the going concern forecast from as early as 1 September 2023. The length of the forecast period can make a difference when determining whether a company is overindebted and therefore insolvent. If this is the case, the directors of the company concerned must file for insolvency without undue delay. If they fail to do so or delay filing the petition, they expose themselves to claims for damages and possibly even the risk of criminal liability. The risk of using too short a forecast period of four months when assessing whether a company is overindebted – and of liability claims being asserted against the directors because of this – should be avoided at all costs.
Ultimately, the same must – as a precaution – also apply to financial plans drawn up as part of an application for self-administration or a stabilisation order under the StaRUG. Although it is true that different risks are associated with planning periods that may be too short and that, according to the explanatory memorandum, any advance effect relates exclusively to the going concern forecast under section 19(2), sentence 1 InsO, it is only prudent to start using the original planning period (of six months) again from 1 September 2023 onwards.
3. Eight-week maximum period for filing for insolvency to remain in place for now
There is also the question of when the current eight-week maximum period for filing an insolvency petition will cease to apply, i.e. when will directors have to observe a six-week period again. Since the obligation to act only arises at the end of the period, there are good arguments for assuming that such an advance effect cannot arise before midnight on 31 December 2023. But there are already legal commentators who argue that the six-week period should be applied before the end of the year to all cases where an eight-week period would expire after 31 December 2023. This would mean that an insolvency petition due to overindebtedness would already have to be filed within six weeks in all cases where the filing period would start running from 6 November 2023 onwards (e.g. on 18 November 2023). While it would be helpful if the legislator could clarify this point, this will in many cases be irrelevant, since directors generally do not wait until the end of the period to file.
As a precaution, directors should return to using the old statutory forecast period of twelve months as a basis for going concern forecasts as from 1 September 2023 to avoid being held personally liable.