What happens if my employer has to file for insolvency because of corona?

The effects of the corona pandemic are driving many small businesses in particular into insolvency. The va piano restaurant chain filed for insolvency on friday. What comes to the employees concerned?

If a company can no longer meet its payment obligations to creditors or is threatened with insolvency, this is referred to as insolvency or a ground for insolvency. The creditors also include the employees if they still have claims against the company. The company is then obliged to apply to the district court for the opening of insolvency proceedings. The court then decides by order whether to open insolvency proceedings.

The court will open insolvency if there is a reason for insolvency, unless the insolvent company does not even have enough assets left to cover the costs of the insolvency proceedings. In this case, the court will refuse to open insolvency proceedings "for lack of assets".

If the court decides to open bankruptcy or refuses to open it, that's an insolvency event

Regardless of whether the court opens or declines to open bankruptcy proceedings, this decision is an insolvency event. This is especially important for employees, because it is a prerequisite for insolvency benefits.

If insolvency is opened, there are basically several ways in which the proceedings are conducted. There is the normal procedure, in which the court appoints an insolvency administrator. The substitute for the entrepreneur at this time for claims. I no longer have to make claims against my employer, but against the insolvency administrator. The company can also be continued in self-administration. Then the entrepreneur himself continues to run his business under the supervision of a trustee, who is also appointed by the court. A special form of self-administration is the so-called "protective umbrella procedure". This one is primarily about remediation. This means that the company will continue to operate after the insolvency proceedings have been completed.

Insolvency claims and mass claims

In all three cases, it is important for employees to know what will happen to their work and pay in the first instance.

If insolvency proceedings are opened in whatever form, all claims that arose before the opening are insolvency claims. If claims arise after the opening of insolvency proceedings, they are called claims of the insolvency estate. This distinction is very important: insolvency claims are not settled directly, but you have to register them with the insolvency administrator in a table, in which they are included.

If there are assets left over after the insolvency proceedings are completed, they are distributed among the insolvency creditors according to a quota. There is usually not much left.

The insolvency administrator must pay the mass debts (or. The company in the event of self-administration or protective shield proceedings) continues to be paid in full. This also applies to remuneration that must be paid for the period after the opening of insolvency proceedings.

Insolvency in the insolvency or insufficiency of assets

In this respect, however, there is still the risk that at some point during the proceedings it will become apparent that the assets will no longer be sufficient to meet all the debts of the insolvency estate. Then the insolvency administrator will indicate "insufficiency of assets". This is a situation also referred to as "insolvency within insolvency". Then the mass demands, which developed before the announcement, become "old mass obligations", which are to be settled after an order of priority specified by the law. Unfortunately, pay is secondary in this respect. It is also important to note that even compulsory execution can no longer be pursued due to "old estate liabilities".

So far, so complicated. Below, we try to answer some questions that affected employees might have in the event of their employer's insolvency.

What is preliminary insolvency proceedings??

This refers to the procedure between the filing of the petition and the decision to open insolvency proceedings. That usually lasts about two to three months. The insolvency code stipulates that the insolvency court (local court) must take all measures that appear necessary to prevent creditors from being disadvantaged by entrepreneurial actions until a decision is made on the insolvency petition. This also involves the court appointing a preliminary insolvency administrator.

The court has two options:

    It appoints a "weak" preliminary insolvency administrator. In this case, the court does not transfer to him the power of administration and disposition of the assets of the insolvency debtor. This is by far the most common case. For the time being, nothing will change legally for employees until the opening decision is made.

Can the provisional insolvency administrator release me from work and what does this mean for my pay??

If a "strong" insolvency administrator has been appointed, there is a special feature under insolvency law to the disadvantage of employees. After the opening of the insolvency proceedings, debts of the insolvent company, which the preliminary insolvency administrator has created, are considered as mass debts according to ยง 55 of the insolvency code only if he has received a consideration for them. So, that is, remuneration for work for the period after the opening is a debtor-in-possession only if the employee has actually worked.

It is often inferred from this provision that the strong preliminary insolvency administrator can release the employee with the consequence that the employee is no longer entitled to remuneration after the opening of insolvency proceedings. Rather, this becomes an insolvency claim in the same way as remuneration from before the opening.

What about the wages that my employer still owes me?

Wages that must be paid for periods that predate the opening of bankruptcy are, unfortunately, only bankruptcy claims. It doesn't matter when the pay is due. Most employees receive their pay in arrears. If, for example, the insolvency proceedings were opened at the end of march, the salary for march is an insolvency claim, even if it would not have been paid until april. This claim must be reported to the insolvency administrator for the table.

Claims to remuneration arising after the opening of insolvency proceedings are claims of the insolvency estate. Anyone who continues to work after the insolvency proceedings have been opened is still entitled to remuneration.

When am I entitled to insolvency benefits?

However, there is an important protection for employees: for the three months prior to the opening of insolvency proceedings, they are entitled to insolvency benefits in the amount of the net salary from the employment agency.

It is best to file the application immediately, even if the claim requires an insolvency event (decision by the district court). At the latest, the application must be filed with the employment agency within a period of two months after the event of insolvency. Since the period for which the insolvency money is paid can only be determined once the district court has announced the decision, the employment agency can also only approve it after the decision has been made.

Can the employment agency pay an advance on insolvency benefits?

Unfortunately, the employment agency can only pay an advance for those whose employment relationship has ended if the requirements for entitlement to insolvency benefits are otherwise fulfilled with sufficient probability.

What is pre-funding of insolvency pay?

If it is possible that the insolvent company will be continued after the insolvency proceedings, there is the possibility for the employees who are still in an employment relationship that the insolvency money will be prefinanced. In this case, a bank buys the employee's right to insolvency benefits. In return, the employees assign their claim against the federal employment agency. So the banks pay out the insolvency money to the affected employees and get it back later from the employment agency.

Such proceedings are initiated by the insolvency administrator – or, in the case of self-administration or a protective shield, by the employer. However, the federal employment agency must agree to the prefinancing so that it does not lead to abuse.

What happens to my overtime?

There is no good news here. Overtime worked before the opening of insolvency proceedings can basically no longer be recovered. Those who work overtime are in effect giving their employees a loan, which can be reclaimed. In this respect, therefore, one has claims that arose prior to the opening of the insolvency proceedings. As a result, the claim for compensation for these overtime hours is an insolvency claim. So the only option you have is to file a claim in the insolvency table.

The only exception is overtime worked in the last three months before the opening of insolvency proceedings. For these hours there is insolvency money.

What if I am still entitled to vacation?

Those who continue to work also continue to acquire -proportionate- entitlement to recreational leave. It can also apply for leave from the insolvency administrator as normal.

Even vacation from the period before the opening of insolvency does not necessarily expire due to insolvency. A claim to compensation for vacation only arises upon termination of the employment relationship. Therefore, this claim is always a claim of the insolvency estate if the employment relationship continues until after the opening of insolvency proceedings. In this respect, it does not matter when the employer gave notice, but when the notice period ends.

What about special annual payments such as vacation and christmas bonuses??

The situation is somewhat more complicated with annual special payments such as vacation pay. According to the case law of the federal labor court, the conditions under which annual special payments are to be regarded as liabilities of the insolvency estate depend on the purpose of the special payment. It depends on whether the employer additionally remunerates work performed or pursues other purposes. This must then be determined by interpreting the relevant provisions.

If it is a special payment that is somehow attributable to work performance, the entitlement regularly arises during the reference period in accordance with the duration covered ("pro rata temporis") and only becomes due in total at a different time. Under insolvency law, such special payments related to work performance must be allocated to the period for which they are owed as consideration.

Special payments made on a specific date that are purely gratuities, on the other hand, must be attributed to the period in which the key date falls. If the effective date is after the opening of insolvency proceedings, it is a mass liability. If the cut-off date is earlier, such a payment is to be regarded in full as an insolvency claim.

Does the protection of labor law continue to apply despite insolvency??

In principle, the rights and obligations arising from the employment relationship also apply in the event of insolvency. It does not automatically terminate the employment relationship. The dismissal protection act (kundigungsschutzgesetz), which protects employees from arbitrary dismissal, continues to apply.

However, the insolvency code stipulates that the period of notice for termination of an employment relationship must not exceed three months, even if it would normally be significantly longer under a collective agreement.

In regular insolvency proceedings, the insolvency administrator legally has the position of the employer. Claims are therefore to be made against the insolvency administrator. This must also be sued if claims are to be taken to court. This also applies in particular to dismissal protection proceedings. However, if self-administration or protective shield proceedings have been ordered, the employer must be sued.

Can the insolvency administrator terminate the employment relationship due to insolvency??

A clear no! Insolvency itself is not grounds for dismissal. Anyone who receives notice of termination should file an action for protection against dismissal with the labor court within three weeks of receiving the notice. The same rules apply as for dismissals of employers who are not insolvent. The insolvency administrator must justify the termination in the termination protection proceedings and prove the reasons for termination in case of doubt. The mere fact that there are insolvency proceedings is not sufficient as grounds for termination.

However, you only have real protection against dismissal if the company in which you work has more than 10 employees and the employment relationship has already existed for more than six months. If these conditions are not met, you will have very little chance before the labor court. The court then only examines whether the dismissal was purely arbitrary. Employers with small businesses, in fact, do not need a reason for termination under the law.

What happens to my company pension if my employer is insolvent??

Anyone who already receives a company pension from their employer has little cause for concern in this respect. Company pensions are usually provided via a direct commitment, a support fund or a pension fund. This pension is secured by the pension security association (PSV). It takes over the monthly pension payment in the event of insolvency.

The PSV also protects the vested pension rights in accordance with the german company pension act (betravg).

The situation is somewhat different if the company pension is provided through a pension fund or direct insurance. In this case, the employer does not pay the pension, but the insurance company or pension fund does. The employer has only agreed to make contributions to these insurances. However, this pension is not protected against insolvency.

What is covered by the PSV, however, is the employer's so-called obligation to pay. If a pension fund is no longer able to provide the promised coverage due to developments in the financial market, the employer will have to pay for the remainder. If the employer becomes insolvent, the PSV must step in.