German Cabinet approves plans to relax insolvency rules

German Chancellor Olaf Scholz attends the weekly cabinet at the Chancellery in Berlin, Germany, October 5, 2022. REUTERS/Michele Tantussi

BERLIN, Oct 5 (Reuters) - The German Cabinet on Wednesday approved plans to loosen insolvency rules until the end of next year in the face of exploding energy and raw material prices.

The planned easing of the law, which must be put to parliament, applies to the obligation to file for insolvency in the case of over-indebtedness.

Companies are to be exempt from this if they can prove that their business is financed for the next four months rather than the current 12-month requirement.

Concerns are growing that Europe's largest economy may be approaching a wave of insolvencies as particularly energy-intensive industries bear the brunt of Russian gas supply cuts.

During the COVID-19 pandemic, the German government loosened insolvency rules more broadly, exempting companies in cases of both over-indebtedness and financial insolvency.

Members of Chancellor Olaf Scholz's Social Democrats have called for similar action this time around, opening up the possibility that the legislative reform may still be changed.

Reporting by Holger Hansen; Writing by Rachel More; editing by Jonathan Oatis

Our Standards: The Thomson Reuters Trust Principles.