Saturday, November 7th, 2020
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At first glance, it seems like a breather: the grace period for over-indebted but solvent companies still applies. In an interview, expert Ziegler explains why over-indebtedness also causes considerable damage to the economy and whether “zombie” companies can avoid filing for bankruptcy.
ntv.de: The grace period for over-indebted but solvent companies is in effect until the end of the year. A welcome breather for companies, isn’t it?
Klaus Ziegler: It may be reassuring for companies at first. However, one has to understand that even over-indebtedness means nothing other than that companies increasingly have to get money elsewhere in order to continue to finance themselves. However, many banks no longer grant companies loans. As a result, companies are increasingly forced to look for financing elsewhere – for example from suppliers and service providers, by not paying their bills. It is precisely these hidden loans that are threatening in the suspended filing for bankruptcy.
Why does the obligation to file for insolvency remain suspended in the event of overindebtedness, but not in the event of insolvency?
Klaus Ziegler is partner and managing director of the restructuring and insolvency consultancy Planer und Kollegen GmbH.
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This is a lazy compromise so as not to trigger a higher wave of bankruptcies now. The inability to pay means that companies can no longer pay their bills and thus cause considerable damage to the economy. Ultimately, however, over-indebtedness will sooner or later have the same effect. Excessive indebtedness simply means that I need money from others.
Do you think it is likely that the obligation to submit an application will cease to exist after January 1, 2021 if you are overindebted?
I have the impression that the grace period will be extended. But what we have already noticed is that this is how so-called zombie companies, which can no longer survive on their own, are artificially kept alive. The longer the obligation to file for bankruptcy is delayed, the more the debt will grow.
What are the consequences of this special regulation for the entire economy?
The special regulation leads into a vicious circle. Because the damage is getting bigger and bigger, at some point you will get the problem that companies will disappear from the scene. As a consequence, fewer taxes and social security contributions will be paid, unemployment figures will rise, but investments on the business side will also be sharply reduced. This will have a negative impact on economic performance in Germany. Ultimately, it will hit the state itself hard too. Because we must not forget one thing: Most recently, many quick loans were granted that were secured by state development banks. If they fail, it will also be at the expense of the state.
Will zombie companies manage to avoid filing for bankruptcy?
There will certainly be a few exceptions that can save themselves. However, if companies now accumulate more and more debts through deferrals or by suspending the obligation to file for bankruptcy, the question must be asked: Can a company that makes perhaps five percent profit under normal circumstances pay back the debt permanently? Very few will succeed; sooner or later they will all have to file for bankruptcy. With one difference: you lost valuable time on restructuring because of the delay.
Companies that see good prospects of continuing their business operations can apply to the court for insolvency proceedings under self-administration. What are the advantages of this procedure?
First of all: self-administration proceedings are also insolvency proceedings within the framework specified by the insolvency regulations. The only difference is that there is no insolvency administrator. In this procedure, the managing director is the insolvency administrator himself, i.e. he remains in the drivers seat. In self-administrating insolvency, companies have the opportunity to finance themselves by not having to pay wages and salaries for three months, but still being able to produce. In addition, no sales tax has to be paid during this period. In self-administration, the company has the entire reorganization tool kit of the insolvency code at its disposal, with which, for example, long-term contractual rights such as rental agreements can be intervened. The big advantage is that companies do not abuse others such as suppliers or service providers as “hidden lenders”. Other companies are therefore not dragged into the downward spiral. Such a procedure is only possible with a viable restructuring plan that should be drawn up at an early stage. Soldiers of fortune who are unable to rehabilitate are excluded from the outset by such an approach.
Would you recommend companies to get out of the crisis with their own efforts?
A bankruptcy in personal responsibility is nothing to be ashamed of, on the contrary. It takes a lot of courage. A very important factor is time. If a company reacts too late, it loses the opportunity. With the further postponement of the obligation to file for insolvency for over-indebted companies, this valuable time is wasted.
The Federal Ministry of Justice wants to give companies with financial problems further options for restructuring. A corresponding law is to come into force in early 2021. Can this ultimately avert a wave of bankruptcies?
Companies without a viable business model will not be saved. This new law, which is due to come into force on January 1st, will certainly create new opportunities – but only if there are no grounds for filing for bankruptcy. That means companies must not be insolvent or over-indebted. Then you could show on the basis of a well-founded planning that you will at some point threaten to become insolvent due to debts and liabilities incurred and that this can only be eliminated by a haircut. The whole thing would then take place within a legal framework, just not in bankruptcy. This can certainly avoid a certain number of bankruptcies, but it will not save the zombie companies.
Juliane Kipper spoke to Klaus Ziegler
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