Russia's invasion into Ukraine and the global disruptions in supply chains following from Putin's aggression intensified the pressure on practically all production lines. So, while the pure Corona related simplified regulations regarding short-time work benefits will expire on 30 June 2022 – as planned – short-time work benefits will continue to be available for companies if 10 percent of the staff of a company are affected by loss of work.

Closing our series on "German State Aid" we will focus now on specific questions which were raised during our online webinar.

What happens if a company falls into insolvency" while employees are still in Kurzarbeit?

In the worst case, employees may be barred from insolvency allowance (Insolvenzgeld) if they are collecting short-time work allowance (Kurzarbeitergeld). The reason for this result lies in the definition of insolvency allowance replacing wage. This risk is foremost given in the event of Kurzarbeit Null", the option where employees collect zero wage but only short-time work allowance. Preliminary insolvency administrators might tend to cancel short-time work (Kurzarbeit) and call employees back to work (e.g., in case of preparing for a sale of the business out of insolvency). Employees are then entitled to wage and insolvency administrators will usually seek to replace wage by insolvency allowance to protect the insolvency estate from costs for the benefit of creditors.

What happens to Kurzarbeitergeld / money paid during Kurzarbeit in the event of insolvency?

Preliminary insolvency administrators will usually be interested in keeping all or at least most of the employees to be able to continue the business and ideally sell it as a whole or in parts. The Federal State Agency recently addressed that payment of short-time work allowance (Kurzarbeitergeld) may still be permissible provided the application for short-time work allowance (Kurzarbeitergeld) was filed prior to filing for insolvency. The Agency, however, confirmed that the company must have reasons to expect to continue its operations and to return to full employment.

Do remedies exist to protect staff from getting nothing?

Be aware, the works councils may reject to agree to short-time work (Kurzarbeit) in the event of pending insolvency risks. Also, individual employees may demand from their employer to increase short-time work allowance (Kurzarbeitergeld) and thereby protect themselves partially against insolvency risks.

Can executives be held liable for applying for and taking KUG whilst the company is not eligible for?

If a company has wrongly applied for short-time work allowance, the allowance must be paid back. Employees who were wrongly sent on short-time work can claim their full salary including social security contributions for this period. Also severe fines or imprisonment for fraud or even subsidy fraud are generally speaking possible, in case of subsidy fraud even grossly negligent actions without intent can be sufficient to justify criminal liability. In addition, sanctions under trade law are possible if short-time work allowance is wrongly drawn, because the necessary reliability of the business owner no longer appears to be given. There is a high risk that executives can be held liable to the company for loss.

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