What effect does COVID-19 have on the distribution of profits (dividends)?

Dividends Profit distribution Crisis COVID-19 Bonus Suspension of dividend and bonus payments COFAG

Section 82 para. 5 Limited Liability Companies Act (GmbHG)

Could the crisis brought about by COVID-19 or the legislation introduced in its wake result in a suspension of payouts?

The law already stipulates in Section 82 para. 5 of the Limited Liability Companies Act (GmbHG) that – as an exception to the otherwise applicable cut-off date principle – the balance sheet profit is excluded from distribution as a dividend and must be carried forward (profit carried forward) in the amount of the assets impaired (if such impairment is substantial and not likely to be merely temporary in nature). If necessary, the amount of the payout subject to the suspension has to be determined by preparing an interim balance sheet. Section 82 para. 5 GmbHG is mandatory.

Caution is also advised from the perspective of stock corporation law: although there is no explicit statutory provision corresponding to Section 82 para. 5 GmbHG, it is argued in the literature that Section 82 para. 5 GmbHG should be applied by analogy. For the purpose of proceeding in a way that provides legal security, a careful analysis of all circumstances of the individual case is therefore also required to determine whether a dividend payment is permissible despite the company's crisis.

In the case of losses which only occur after the adoption of resolutions on the appropriation of profits, the fiduciary duty can oblige the partners/shareholders to act with self-restraint (temporary waiver to receive liquidity).

A company is (at present only) required to submit to a suspension of dividend and bonus payments if it applies for financial measures ("capital and liquidity supporting measures") in accordance with Section 2 para. 2 no. 7 in conjunction with Section 3b and Section 6a para. 2 of the Act establishing a State-Owned Holding Company for Wind-Down Purposes (ABBAG-Gesetz) – in particular direct loans and guarantees. These financial measures are provided by COVID-19 Finanzierungsagentur des Bundes GmbH (COFAG).