Germany to extend insolvency moratorium for virus-hit companies

FILE PHOTO: German Finance Minister and Vice-Chancellor Olaf Scholz attends a news conference in Vienna, Austria August 24, 2020. REUTERS/Leonhard Foeger

VIENNA (Reuters) - German coalition parties have agreed to extend a freeze on insolvency rules put in place to avoid a wave of corporate bankruptcies due to the coronavirus crisis, Finance Minister Olaf Scholz said on Tuesday.

Speaking to reporters in Vienna, Scholz said his centre-left Social Democratic Party (SPD) and Chancellor Angela Merkel’s conservative bloc sealed a compromise deal ahead of a coalition meeting scheduled later on Tuesday.

In March, the government gave companies that find themselves in financial trouble due to the pandemic a respite by allowing them to delay filing for bankruptcy until the end of September.

Justice Minister Christine Lambrecht, a Scholz ally and SPD member, had suggested extending the moratorium until the end of March 2021. But her plan drew criticism from Merkel’s lawmakers who said the waiver should expire at the end of this year.

Scholz did not give any details on the agreement, but added that the deal would be announced later.

A coalition member with knowledge of the talks told Reuters that parties had agreed to extend the insolvency waiver until the end of this year for indebted but still solvent companies.

The freeze on the obligation to file for insolvency will not be extended for insolvent firms, the coalition source added. “We don’t want to create zombie companies,” the coalition source said on condition of anonymity.

The coalition parties are also expected to agree on Scholz’s proposal to double the period over which state aid is paid under a government short-time working scheme to prevent unemployment surging further during the COVID-19 pandemic.

Short-time work, also known as Kurzarbeit, allows employers to switch employees to working fewer hours or even none during an economic downturn. It aims to stop immediate shocks such as the coronavirus crisis from leading into mass unemployment.

Reporting by François Murphy in Vienna and Holger Hansen in Berlin; Writing by Michael Nienaber; Editing by David Holmes