16 October 2020

Covid-19 insolvency law ordinance not extended

Provisional measures are expiring
As of 20 April 2020, the Federal Council temporarily suspended the obligation of companies to report over-indebtedness with the Covid-19 Insolvency Law Ordinance. At the same time, it also created the temporary, unbureaucratic Covid 19 Debt-Restructuring Moratorium for SMEs (see our blog "'Help is on the way' - The COVID 19 Insolvency Law Ordinance" of 21 April 2020). The extraordinary measures provided for in the Covid-19 Insolvency Law Ordinance expire on 19 October 2020, and will not be extended, according to a communication from the Federal Council on 14 October 2020.

However, the Federal Council has reserved the right to take further measures under insolvency law at a later date if necessary. In view of the current renewed and rapidly increasing number of cases and the potential impact on the economy, such renewed measures can probably not be completely ruled out.

New: Temporary debt-restructuring moratorium of up to eight months
On 14 October 2020, the Federal Council also decided that the extension of the total duration of the provisional debt-restructuring moratorium from four to eight months, which had been decided by Parliament as part of the revision of stock corporation law, would come into force on 20 October 2020 (Art. 293a para. 2 DEBA). Under the Covid-19 Insolvency Law Ordinance, this period was a maximum of six instead of four months (see our blog "'Help is on the way' - The COVID-19 Insolvency Law Ordinance" of 21 April 2020 and our blog "The Debt Restructuring Moratorium under COVID-19" of 14 May 2020).

The definitive debt-restructuring moratorium can be granted by the competent court following the provisional debt-restructuring moratorium for a further four to six months as before, and on application by the administrator even up to a maximum of 24 months (Art. 294 para. 1 DEBA, Art. 295b para. 1 DEBA). The Covid-19 Insolvency Law Ordinance did not change this and the revision of the stock corporation law will not change this either.

Recommendation
Thus, from 20 October 2020, the provision that if there are justified concerns about the over-indebtedness of a company, an interim balance sheet must be prepared and submitted to an approved auditor for review, will again apply without restriction. If the interim balance sheet shows that the claims of the company's creditors are not covered either at the going-concern value or at the sale value, the board of directors has to notify the judge, unless the company's creditors rank behind all other company creditors to the extent of this shortfall (Art. 725 para. 2 CO). Loans which are guaranteed on the basis of Art. 3 of the Covid 19 Solidarity Guarantee Ordinance are, however, still not to be considered as borrowed capital until 31 March 2022 (Art. 24 of the Covid 19 Solidarity Guarantee Ordinance).

However, if the company is convinced that there is a prospect of reorganization or confirmation of a composition agreement, it is advisable, as was the case before the Covid-19 Insolvency Law Ordinance came into force, to file an application for a debt-restructuring moratorium with the competent bankruptcy court. The administrator appointed by the bankruptcy court now has up to eight months to examine the prospects of success of a reorganization or confirmation of a composition agreement in more detail. If the bankruptcy court comes to the conclusion that the above-mentioned prospects of success exist, it will grant the definitive debt-restructuring moratorium for four to six months, which can, however, be extended to up to 24 months.

For further questions regarding the Covid-19 Insolvency Law Ordinance and insolvency law in general, please contact our team "Restructuring and Insolvency".

Categories: Restructuring & Insolvency

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