· COVID-19

M&A COVID-19 Wire

1. Ongoing M&A Transactions

  • COVID-19 effects lead to new focal points in ongoing and future legal due diligence processes. In particular,
    • potential litigation in connection with unfulfilled or terminated contracts,
    • HR topics re plant closures, implementation of short-time work, dismissals for operational reasons and continued payment of wages without labor contribution,
    • questions as to insurance coverage for (interim) plant closures or
    • the application of specific data protection rules for employees infected by COVID-19 will have to be analyzed.

will have to be analyzed.

  • In the context of a (legal) due diligence and for existing investments in (portfolio) companies, the above requirements should also be observed.
  • COVID-19 MAC clauses will determine the period between signing and closing.
  • Typical provisions in SPAs excluding the right of rescission due to disturbances of the contract basis pursuant to section 313 of the German Civil Code may be challenged due to the exceptional impact of COVID-19.

(contact person: Andrea von Drygalski -

2. Tax Reliefs

  • In order to improve the liquidity of companies, the possibilities for a deferral of tax payments, a reduction of advance tax payments and a stop of enforcement shall be improved by a circular of the Federal Ministry of Finance and a coordinated decree of the Federal States. In some cases application forms are already available on the websites of the tax authorities in certain German states.
  • Taxpayers demonstrating that they are directly and not immaterially affected by COVID-19 may apply for a deferral of taxes (due or which will become due) until 31 December 2020; no interest shall be applied. This relates to, inter alia, income tax, corporate income tax and value added tax. Upon request, tax advance payments in respect of income tax, corporate in-come tax and value added tax may also be reduced. If taxpayers are directly and not only immaterially affected by COVID-19, enforcement measures (e.g. seizure of accounts) are halted until 31 December 2020. In relation to trade tax, requests addressed to the tax authorities to reduce the trade tax base resulting in a reduction of the advance payments are possible as well. Requests for a deferral or waiver of trade tax, however, need to be addressed to the respective municipality where the company/business is domiciled rather than to the tax authorities. General measures (e.g. for specifically affected sectors) have not been announced.
  • The planned regulations shall only apply if the inability to pay is a specific consequence of COVID-19 for the affected taxpayer. Hence, only the inability of the taxpayer to pay shall not qualify for a relief, the tax authorities, however, are instructed to practically handle the cases. Particularly the tax authorities are instructed to decline requests not due to an inability of the taxpayer to demonstrate in detail the amount of damages caused by COVID-19. In the light of the possible consequences in case of wrong indications on the application form, sufficient evidence should be prepared and maintained, that the inability to pay is a specific consequence of COVID-19 for the affected taxpayer.
  • General extension for filings of tax returns have not yet been announced. However, to the extent tax returns cannot be filed in time due to COVID-19, the Bavarian tax authorities will treat applications for extensions of filings generously and non-bureaucratic. It is expected that other federal states will act similarly.

Sources (in German) - Trade tax measures to account for the effects of coronavirus - Tax measures to take account of the effects of coronavirus - Press release Nr. 050 as of 17.3.2020 - A protective shield for employees and companies - Application for tax relief due to the effects of coronavirus

(contact person: Nico Fischer -

3. Amendment of Insolvency Law

  • The Federal Ministry of Justice and Consumer Protection is planning a legal regulation in connection with COVID-19 to suspend the obligation to file for insolvency until 30 September 2020 (extension option until 31 March 2021). An insolvency application should not have to be filed because the processing of applications for public subsidies or financing or restructur-ing negotiations cannot be completed within the three-week period of the obligation to file for insolvency (Status: 16 March 2020). Until the implementation of this planned regulation, there is no exemption from the application obligation!
  • However, the planned regulation only applies if the reason for insolvency is based on the effects of COVID-19 and if there are reasonable prospects of reorganization based on an application for public subsidies or serious financing or reorganization negotiations by an applicant. Companies must therefore take care to prove the causality of COVID-19 for the oc-currence of illiquidity/overindebtedness.
  • So far, the relationship to civil law liability risks of management for payments after the occurrence of illiquidity and/or overindebtedness is unclear, in particular according to section 64 of the German Limited Liability Companies Act, section 92 para. 2, 93 of the German Stock Corporation Act.

Source (in German): - Suspend the obligation to file for insolvency for companies damaged by the corona epidemic

(contact person: Tobias Jäger -

4. Continuation of Loans

  • MAC clauses in financing agreements are under review due to COVID-19. The consequence of a MAC case would be the refusal of further utilization of loan facilities and/or the termina-tion of financing agreements. The decisive factor is the wording of the MAC clause agreed in the financing agreements and in particular whether the respective MAC clause has a present related or future related wording.
  • Interest groups, such as the Society for Restructuring TMA Deutschland e.V., demand, in addition to an extension of the insolvency filing requirement according to section 15a of the German Insolvency Code, further legislative measures, such as
    • facilitating the provision of debt, e.g. by reducing the liability of commercial or house banks for the granting of super senior loans, or
    • the suspension of the subordination of shareholder loans in insolvency according to sec-tion 39 para. 1 no. 5 and para. 4 and 5 of the German Insolvency Code for the period of COVID-19 in order to facilitate the granting of shareholder loans.

Sources (in German): - Reorganization experts demand longer period for filing for insolvency

5. Government Aids

  • The existing programs for liquidity assistance, such as KfW loans and ERP loans, issued by the Federal Government will be expanded and made available to more companies. For enterprises that temporarily encounter serious financing difficulties due to COVID-19, it is planned to set up additional special programs for all relevant enterprises by KfW.
  • Guarantees can also be provided for companies that had sustainable business models until COVID-19. In case of guarantee banks, the maximum guarantee amount will be doubled to EUR 2.5 million. The large guarantee program (parallel federal and state guarantees) which has been applied so far only to companies in structurally weak regions, will also be opened up to companies outside these regions. In addition, the Federal Government continues to provide export credit guarantees (so-called Hermes Cover).
  • The federal states have also taken appropriate measures. For example in Bavaria the LfA Förderbank Bayern provides liquidity assistance by loans and risk assumption.
  • The EU Commission also wants to support companies affected by COVID-19 throughout Eu-rope in the event of liquidity bottlenecks as part of a Corona Response Initiative.

Sources (in German): - A protective shield for employees and companies - KfW-Corona-Aid: Loans for companies - Jobs and economy during the coronavirus pandemic

6. Short-Time Compensation and further Labour Law Measures

  • If short-time work is caused by COVID-19 (possibly down to "zero"), companies may apply for governmental short-time compensation.
  • In addition to procedural simplifications, the set of measures by the Federal Ministry of Fi-nance and the Federal Ministry for Economic Affairs and Energy provides for the full reimbursement of social security contributions by the Federal Employment Agency as well as a partial or complete waiver of the creation of negative working time balances.
  • These reliefs will enter into force retroactively as of 1 March 2020 (including retroactive payment). Additionally, a prolongation of the duration of the short-time compensation from 12 to 24 months is to come.
  • In case of an ongoing economic crisis and in situations close to insolvency, individual arrangements and the termination of employment due to operational reasons are to be considered.

Sources (in German): - Kurzarbeitergeld - A protective shield for employees and companies - Jointly securing employment with short-time working

(contact person: Nemanja Burgić -

7. Effects on Merger Control

  • In Germany, the Federal Cartel Office informed that its ability to operate is currently ensured.  However, it also asks companies to consider whether notifications could also be submitted at a later date.
  • The European Commission encourages companies to delay merger notifications originally planned until further notice, where possible. It is expected that the pre-notification phase will take longer than usual.
  • The Federal Trade Commission has implemented temporary filing procedures. While these procedures remain in effect, early termination of the HSR Act waiting period (generally 30 days) will not be available.

(contact person: Daniel Wiedmann -

8. Restrictions on Data Protection

  • The Data Protection Conference (DSK) advises in connection with COVID-19 that even the suspicion of a corona infection is particularly protected as a special category of personal data in article 9 para. 1 of the GDPR, but may be disclosed if:
    • the processing is carried out for reasons of public interest relating to public health, or
    • it is necessary for the exercise of rights or the fulfilment of legal obligations arising from labor law, social security and social protection law.
  • The interests of the employee must be given due consideration:
    • Disclosure of the name of an infected person to the entire workforce is only considered in very few exceptional cases, i.e. it is usually sufficient to inform only employees who have worked closely with an infected person in the past.
    • It is a secondary obligation of the employee to inform the employer about the existence of a COVID-19 infection in order to protect the high-ranking interests of third parties; this should also allow the employer to derive a justification for the respective data processing.
    • The employer is obliged and entitled to request, from the employee, any relevant infor-mation on the employee's health.

Source (in German): - Data protection information

(contact person: Christine Funk -

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