Next steps for German businesses navigating the COVID-19 pandemic

10 minute read
25 March 2020

As the impact of the Coronavirus (COVID-19) pandemic increases, more information on government support measures for businesses in Germany is becoming available.

We want to provide you, your people and your business with the information you need to be able to manoeuvre through the current challenges without breaching any of your duties or obligations.

Germany update

The German government announced further measures to support businesses and household incomes. In an historic shift, the German government has committed to balancing the budget. A €156 billion increase in public borrowing (resolved by the German government on 23 March 2020) will be accompanied by state-backed loans for corporates and a €100 billion economic stabilisation fund for the government to take equity stakes in stricken companies.

It will also make €400 billion of state guarantees available to underwrite the debts of companies affected, bringing the total package to €500 billion. This bailout fund should be sufficient to rescue many companies hit by the pandemic.

Over the course of the second half of the last week, the government also released further information on specific measures, including a program of asset purchases launched by the European Central Bank. It plans to buy €750 billion of government and corporate debt in a bid to stabilise markets.

Whilst all of this sounds promising, some of the 'fine detail' required to make use of the support measures is still awaited.

This is what we know of today that could help your business in Germany.

KfW programs and federal support programs

Existing programs provided by KfW through a company's' relationship bank will be expanded. In addition, the personal and factual scope will be increased to address the current challenges. To date, the details of the conditions (interest, repayment, etc.) appear to be unaltered. We expect these conditions to be adjusted however.

Companies in existence for more than five years can apply for:

  • A KfW-Unternehmerkredit, which is a corporate loan. Covenants will be loosened by raising the level of risk assumptions (indemnity) for operating loans and extending these facilities to large enterprises with a turnover of up to €2 billion (previously, the limit was €500 million). KfW will be able to assume risks of up to 80%.
  • A KfW-Wachstumskredit, which is a loan for growth. These will be available to larger companies with a turnover threshold of up to €5 billion. The risk assumption by KfW will be increased to up to 70% (from 50%).

Companies with a trading history of less than five years can apply for:

  • An ERP-Gründerkredit-Universell, which is a founder loan. Covenants will be amended in a similar way to the KfW-Unternehmerkredit.

The application process will continue to go through the company's relationship bank. This bank will apply for a partial - up to 80% or up to 70% (only) - refinancing or coverage from KfW. KfW will not enter into any direct relations with the company. A KfW loan will only be available if the financing bank is willing to assume some additional risk.

Companies that were in a crisis prior to COVID-19 will not have access to the KfW and other governmental financing programs. We expect additional programs for already distressed companies to be announced shortly.

Federal and State guarantee programs

Federal and state guarantees also need to be applied for via the relationship bank. In other words, the relationship bank must be willing to take some additional risk. So-called guarantee banks (Bürgschaftsbanken) in the Federal States are responsible for guarantees up to €2.5 million. For higher limits, the relevant State Government or Federal Government will be the relevant authority.

Export guarantees

If you have business contacts in non-German risk areas and are currently suffering from delivery problems, government export guarantees (Hermes Cover) may help. These state export credit guarantees are a central foreign trade promotion instrument of the Federal government. They insure exporters against bad debt losses caused by economic or political factors and are, in principle, available to all German exporters, irrespective of the size of the company or the transaction. They are granted in accordance with national and international regulations and are linked to specific conditions. They will also apply to exports to COVID-19 risk areas.


If you're considering making use of any of the support measures, you should start the 'exercise' sooner rather than later. There will be strong demand for additional financing and other measures and we expect to see 'queues'. Despite all promises, the German tendency to tedious bureaucracy is unlikely to change overnight.


Because of the crisis, the number of workers registered for short-time work allowance ("Kurzarbeitergeld") has rapidly increased to its highest ever level. A bill that facilitates access to short-time work will come into force retroactively as of March 1.

Under the new provisions, a company can use short-time work if a minimum of 10% of its workforce could be affected by lack of work. During the period of short-time work, the social insurance contributions that employers must normally pay for their workforce will be fully reimbursed by the German Federal Employment Agency. Details of the reduction in working time have to be agreed with the works' councils or - if no works' council exists - with the employees affected.


The German Federal Ministry of Justice and Consumer Protection is preparing new legislation suspending the obligation to file for insolvency in order to protect companies that encounter financial difficulties due to the coronavirus crisis.

The three-week insolvency-filing period will be replaced by statutory regulation for a period up to 30 September 2020. The likely precondition for suspension is that the reason for insolvency is based on the effects of the COVID-19 epidemic and that there are reasonable prospects of restructuring based on an application for public assistance, or serious financing or restructuring negotiations by a party obliged to apply for assistance.

Companies should ensure they can prove that the over-indebtedness or illiquidity was caused by the COVID-19 epidemic. In addition, an authorisation for a (further) extension of the measure until 31 March 2021 has been proposed. It will be crucial for any company experiencing serious financial distress because of the coronavirus outbreak immediately and seriously to consider its restructuring options and to engage appropriate advisers. This will help to maximise the chances of falling within the carve-out of the obligation to file for insolvency.

Management obligations unaltered

The "protective shield for employees and companies" and the partial suspension of the obligations to file for insolvency (only announced but not yet adopted and effective) do not change the general duties and obligations of managing directors and management board members of any affected companies in Germany.

They must continue to act immediately in order to avoid incurring considerable liability risks and file for insolvency up to the end of September 2020 (as announced), if the reason for insolvency is not based on the effects of the COVID-19 pandemic and/or if there are no reasonable prospects of reorganisation (based on an application for public assistance or serious financing or reorganisation negotiations).

If the conditions for suspending the filing obligation are met by a company, it must document all relevant details, the result of the checking exercise and the assessment derived from it and all ongoing monitoring of all relevant issues.

Management must continue to avoid fraudulent representation vis-à-vis contract partners in an attempt to win new projects. They must also continue to comply with all tax and social security obligations.

Implications on contracts: ways to suspend or terminate a contract

In the light of the pandemic, and the various restrictions affecting businesses and workforces, companies may well be able to rely on contractual terms (e.g. force majeure clause) and/or terms implied by law to allow them to suspend performance under a contract governed by German law and/or to terminate it (other than an employment relationship).

In each case, an assessment of the specific situation and the underlying contract is required. Please note that your contract partner will likely have the same options for termination. One should consider using the option of cancelling a contract (only) as a basis for negotiations on amending and adjusting the contract so that it works for both/all contract partners during the COVID-19 period.

Please bear in mind that when entering into new contracts, it is unlikely that one would then be able to rely on a force majeure event if problems arise in the future, because COVID-19 would no longer be deemed an unforeseen and/or unforeseeable event. Such risk should be addressed proactively and put into a specific contract clause.

Other things to consider

If you have not already done so, now is the time to consider developing an emergency plan for your German operations. Think about planning for illness or other unforeseen prolonged absence of the managing director by putting key documents such as powers of attorney, a representation plan, information on customer and supplier structures and a document folder with bank details, passwords, etc. in place and depositing them with another trusted representative of your business in Germany.

If your suppliers discontinue or reduce production and cannot therefore fulfil your orders and as a result you are looking for new business partners, especially internationally, the (German -) Foreign Chambers of Commerce (Aussenhandelskammern - AHKs) could help with a recommendation. The AHKs link German and local companies in more than 90 countries worldwide:

Please contact us should you like to discuss any of the issues raised in this insight.

NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.