Obligation to File for Insolvency and Liability of Managing Directors

Legal obligations of filing for insolvency are differing from country to country. In Germany, Section 15 (1) of the Insolvency Code (InsO) stipulates that a company that is insolvent must immediately file an application for creditor protection with the competent local court (obligation to file for insolvency). The purpose of filing for insolvency is to ensure that all creditors’ claims are serviced equally from the assets still available and from the payments still received.

The managing director is personally responsible for filing the application. The term “promptly” is not very elastic and depends on various factors in individual cases. Provided that you can prove that promising measures “with overwhelming probability” will be effective in eliminating the reasons for insolvency, this period can be a maximum of 3 weeks. However, please do not rely on a district court judge granting you full utilization of the deadline. It is therefore urgently recommended that you consult a specialist lawyer for insolvency law as soon as possible in order to avoid delaying insolvency.

For the preparation of the insolvency application, the support of experienced insolvency advisors is recommended, who will also carry out the proper filing for insolvency on your behalf (procedural filer).

If you run a limited liability company combined with a partnership company, make sure that you file applications for the limited liability company and for the partnership company.

For the applications, you need at least a list of all assets and liabilities, a complete list of creditors with all liabilities, a list of all receivables and the order backlog.

Liability risks make the assessment of insolvency risk highly relevant for companies in crisis situations. Insolvency risk can be assessed by specialists, so-called “certifiers”. With a certificate of non-existent insolvency, you as a managing director are currently protected under liability law. Even better is a positive going concern forecast in according with the respective Certified Public Accountants’ standard, because it offers a further outlook into the future.

Once you have identified that you are indeed ready to file for insolvency, you are obliged to transfer all incoming payments immediately to a credit-side account of the company in order to secure them. This also applies to payments for assignments of receivables from factoring transactions. The precautions to be taken are far-reaching, and there are also exceptions such as payments of electricity, water and gas supplies that must be made to maintain operations. It is best to involve a specialist lawyer for insolvency law immediately in order to avoid formal errors.

Particular liability risks for managing directors lie in untimely payment of income tax and untimely payment of employee social security contributions.

As a managing director, you are personally liable for all damages that can be traced back to orders placed and payments made after the company became insolvent (fraudulent entry). Note that executives who work “close to the management” can also be included in this liability.

In each country, local regulations should be applied.


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