Insolvency check for companies

Yes. Under section 1 (1) of the German Restructuring Act (StaRUG), the managers of a legal entity must continuously monitor developments that could threaten the company’s survival. If they identify such developments, they must take countermeasures and inform the supervisory body without undue delay. For stock corporations, section 91 (2) of the Stock Corporation Act additionally requires a monitoring system that makes such developments visible early.

Restructuring practice usually distinguishes six stages: stakeholder crisis, strategic crisis, product and sales crisis, earnings crisis, liquidity crisis and finally insolvency. The further the crisis has progressed, the less room for manoeuvre and the greater the time pressure. Acting early keeps the most options open.

A sound restructuring plan analyses the causes of the crisis, sets out concrete strategic, operational and financial measures and shows convincingly that the business can continue afterwards. It must start from the actual situation of the company. Larger companies often follow the IDW S 6 standard of the German Institute of Public Auditors.

Directors who fail to monitor the situation or to take countermeasures may be liable to the company for damages. Once the company is illiquid or over-indebted, directors generally may no longer make payments on its behalf, and they must reimburse the company for prohibited payments (section 15b (1) and (4) InsO). Within the filing period, payments in the ordinary course of business are only permitted as long as management pursues the rescue or the filing with due care (section 15b (2) InsO). Once the deadline has passed without a filing, payments are generally no longer compatible with the care of a prudent and conscientious manager (section 15b (3) InsO). Failing to file for insolvency, or filing late, is also a criminal offence (section 15a (4) InsO).

The filing must be made without culpable delay, at the latest three weeks after illiquidity occurs and six weeks after over-indebtedness occurs (section 15a (1) InsO). The periods are tied to the moment the insolvency ground arises, so a company that checks its position late may have much less time left. They are also maximum periods: if it becomes clear that a rescue will not succeed, the filing must be made at once.

Not automatically. Agreements that exclude or restrict the insolvency administrator’s right to choose performance under sections 103 et seq. InsO in advance are void (section 119 InsO). On that basis the Federal Court of Justice struck down termination clauses triggered solely by an insolvency filing in energy supply contracts, but upheld the corresponding clause in construction contracts under the VOB/B. It depends on the contract. For the company’s leases, the landlord may not terminate after the filing because of earlier rent arrears or because the company’s finances have worsened (section 112 InsO).

Corporations such as a GmbH, UG or AG always go through regular insolvency proceedings. Consumer insolvency proceedings, with their mandatory out-of-court settlement attempt, are reserved for individuals who are not self-employed. Former self-employed persons only qualify if their financial situation is manageable and there are no claims from employment relationships against them (section 304 InsO).

The insolvency court publishes the order opening the proceedings (section 30 InsO) on the nationwide portal insolvenzbekanntmachungen.de. Customers, suppliers, banks and credit agencies will therefore usually learn about it. That is why it pays to prepare conversations with key business partners early.

No. While insolvency proceedings are running, individual insolvency creditors may not enforce, neither against the insolvency estate nor against the debtor’s other assets (section 89 (1) InsO). Instead, creditors file their claims with the insolvency administrator and are satisfied collectively.