German insolvency law basically provides for two scenarios with the obligation to file and one carries the option to file for insolvency:
- in the event of insolvency (i.e. the liabilities due exceed free liquid assets by at least ten percent) and in the event of overindebtedness (i.e. assets no longer cover the company’s debts), the company’s executive bodies have the obligation to file a complete and correct application with the competent insolvency court. This obligation is subject to possible civil law (damages) as well as possible criminal law consequences for all directors involved.
- In case of imminent insolvency, the company and its directors are granted the right to file for insolvency with the competent insolvency court. This follows aim to promote corporate restructuring by redressing the problem of late filings and thus showing company owners a way to make use of the new German insolvency law that offers a toolbox for the restructuring of companies under insolvency protection that is unique in international comparison.
As announced by the BMJ (Federal Ministry of Justice and Consumer Protection) in a press release on March 16, 2020, a legal regulation to suspend the obligation to file for insolvency is to be created in the short term. This is intended only to protect companies that get into financial difficulties as a result of the corona pandemic.
A precondition for the suspension of the obligation to file for insolvency is that the reason for insolvency is based on the effects of the corona pandemic and that there are reasonable prospects for a successful restructuring as a result of an application for public assistance and/or serious financing or restructuring negotiations already under way.
Even though this initiative is a welcome signal from the BMJ, the suspension of filing requirements will nevertheless be subject to strict conditions. In order to counter the risk of a possible liability of directors, it should be analyzed for each individual case by an insolvency and restructuring expert whether the suspension of the obligation to file for insolvency applies and whether this also exempts from the so-called prohibition of payment according to sec. 64 GmbHG. According to this, a managing director may no longer make payments after the occurrence of a reason for filing for insolvency – and so far only the suspension of the obligation to file for insolvency has been discussed, not the reason itself – which do not directly serve to maintain business operations. He is personally liable for infringements with his entire assets. It also remains to be seen how these measures of the BMJ will deal with the so-called bankruptcy offences (§§ 283 et seq. StGB) that constitute a criminal offense in certain cases of fraud/preference in relation to insolvency cases.