Delayed insolvency filing: when it occurs and what penalty you face

What is delayed insolvency filing?

Delayed insolvency filing is filing for insolvency too late despite a statutory duty to do so. It is governed by Sec. 15a InsO (Insolvency Code), not by the Criminal Code: the provision contains the duty to file and, in subsections 4 and 5, the penalty as well. It used to be called delaying bankruptcy (Konkursverschleppung).

The background: in a GmbH, nobody is liable with their private assets for the company's debts. So that creditors do not continue to do business with an insolvent company and the remaining assets do not trickle away, the law requires a prompt application to the insolvency court.

Who is obliged to file?

Managing directors, board members and de facto managing directors

The duty applies to every member of the representative body: in a GmbH and UG, every managing director; in an AG and eG, every member of the management board; in liquidation, the liquidators. If there are several managing directors, each must act personally; internal allocations of responsibility do not relieve them. Anyone who actually runs the company without being formally appointed can also be obliged to file as a de facto managing director.

If the GmbH no longer has a managing director (Führungslosigkeit, being without management), every shareholder is obliged to file, unless they are unaware of the ground for insolvency or of the company being without management (Sec. 15a (3) InsO).

Legal forms affected

• GmbH and UG (haftungsbeschränkt)
• AG and registered cooperative
• foreign corporations with their registered office in Germany, such as a Ltd.
• GmbH & Co. KG and other partnerships in which no personally liable partner is a natural person (Sec. 15a (1) sentence 3 InsO)

For registered associations, it is not Sec. 15a InsO that applies but Sec. 42 (2) BGB (Sec. 15a (7) InsO). The board is liable there if the application is made late, but there is no penalty as in Sec. 15a InsO.

Sole traders, freelance professionals and private individuals

Sole traders, freelance professionals and private individuals are in any case liable with all their assets. For them, there is no duty to file and therefore no delayed insolvency filing. Other offences can, however, be punishable, for example fraud if new liabilities are entered into despite illiquidity, or bankruptcy offences under Sec. 283 StGB. The same applies to a GbR, OHG or KG with a natural person as a fully liable partner.

When does delayed insolvency filing occur?

As soon as a ground for insolvency has arisen and the application is not made without culpable delay. Two grounds for insolvency are decisive:

Ground for insolvency	When it exists	Duty to file	Maximum period	Legal basis
Illiquidity	The company cannot meet its payment obligations that are due; rule of thumb from case law: a gap of 10 per cent or more that cannot be closed within 3 weeks	yes	3 weeks	Sec. 17 InsO, Sec. 15a (1) InsO
Over-indebtedness	The assets do not cover the liabilities, and continuation over the next 12 months is not predominantly likely	yes	6 weeks	Sec. 19 InsO, Sec. 15a (1) InsO
Imminent illiquidity	The company is likely to be unable to meet existing payment obligations when they fall due	no, only a right to file	none	Sec. 18 InsO

Illiquidity

In practice, the most important ground. The available funds, i.e. cash, balances and credit lines available at short notice, are compared with the liabilities that are due. A brief payment hold-up is not yet illiquidity. If you have stopped making payments, illiquidity is usually presumed (Sec. 17 (2) sentence 2 InsO).

Over-indebtedness

Over-indebtedness on paper alone is not enough. What is decisive is the going concern forecast: if financing for the next 12 months is predominantly likely to be secured, there is no ground for insolvency. You should document the forecast in writing, ideally with your tax adviser.

Imminent illiquidity

Some guides also cite imminent illiquidity as a reason for a duty to file. That is wrong: Sec. 18 InsO only gives a right to file an application early. But it is precisely in this phase that restructuring options are open which are closed later on.

The time limits: 3 and 6 weeks

The time limits are maximum periods for serious restructuring attempts. Once it is clear that the rescue will not succeed, you must file immediately, even on the first day. The period begins when the ground for insolvency objectively arises, not only when you notice it (Sec. 15a (1) sentence 2 InsO: "after occurrence").

What penalty do you face for delayed insolvency filing?

Consequence	Legal basis	Intent	Negligence	Who is affected
Imprisonment or fine	Sec. 15a (4), (5) InsO	up to 3 years or a fine	up to 1 year or a fine	those obliged to file
Disqualification as managing director	Sec. 6 (2) GmbHG	5 years from the judgment becoming final	no	convicted managing directors
Reimbursement of prohibited payments	Sec. 15b InsO	yes	yes	managing directors, board members
Damages to creditors	Sec. 823 (2) BGB in conjunction with Sec. 15a InsO	yes	yes	managing directors, board members
Liability for social security contributions	Sec. 823 (2) BGB in conjunction with Sec. 266a StGB	yes	no	employers, managing directors
Liability for taxes	Sec. 34, 69 AO	yes	gross negligence	managing directors

Intent means: you know of the ground for insolvency or consider it possible, and still do not file. Anyone who misjudges the situation through lack of care acts negligently, for example because there is no liquidity planning. Both are criminal offences. The claim found in some guides that negligent delay in filing is not punishable is not correct.

A fine is imposed in daily rates: 5 to 360 daily rates of €1 to €30,000 depending on income (Sec. 40 StGB). How high the penalty is in the individual case depends on the duration of the delay, the damage and any previous convictions. A conviction for intentional delay in filing for insolvency also means that you cannot be managing director of a GmbH or board member of an AG for 5 years from the judgment becoming final (Sec. 6 (2) sentence 2 no. 3 (a) GmbHG, Sec. 76 (3) sentence 2 no. 3 (a) AktG).

Liability: what managing directors have to pay personally

The civil law consequences are often more expensive than the penalty:

• Payments after the onset of insolvency (Sec. 15b InsO): You must personally reimburse the company for every payment from the company's assets after the ground for insolvency has arisen that is not compatible with the care of a prudent business manager. The insolvency administrator asserts this later on.
• Damage to new creditors: Anyone who still enters into contracts after the onset of insolvency is liable to the new contractual partners for the damage they suffer as a result (Sec. 823 (2) BGB in conjunction with Sec. 15a InsO).
• Social security: Failing to pay over employees' social security contributions is a criminal offence (Sec. 266a StGB) and triggers personal liability.
• Taxes: You are personally liable for wage tax and other taxes of the company if you breach your duties (Sec. 34, 69 AO).

D&O insurance does not always cover such claims. Have the policy terms reviewed in your individual case.

Typical related offences under the Criminal Code

Anyone searching for "delayed insolvency filing StGB" will not find the offence itself in the Criminal Code (StGB). It does, however, contain the offences that are frequently examined alongside it in insolvency proceedings:

• Bankruptcy (Sec. 283 StGB): removing assets, sham transactions or improper bookkeeping in the crisis.
• Breach of bookkeeping duties (Sec. 283b StGB) and preferential treatment of creditors (Sec. 283c StGB).
• Fraud (Sec. 263 StGB): orders or loans although it is clear that they cannot be paid (fraud by entering into an obligation).
• Withholding of remuneration (Sec. 266a StGB): employees' social security contributions not paid over.

How investigations for delayed insolvency filing arise

The saying "where there is no plaintiff, there is no judge" does not apply here. The insolvency court notifies the public prosecutor's office of the opening of proceedings and of a rejection for lack of assets, except in the case of private individuals without a commercial connection. The basis is the Order on Notifications in Civil Matters (MiZi, section X nos. 2 and 3). The public prosecutor's office then examines whether there is an initial suspicion. An important role is played by the report of the preliminary insolvency administrator, which records when the crisis began. A rejection for lack of assets or complaints from creditors can also trigger investigations.

Anyone who receives a summons or a letter from the public prosecutor's office should seek legal advice before making any statement. Recht 24/7 offers a written assessment by a criminal law lawyer under Investigation proceedings, at a fixed price.

Criminal complaint for delayed insolvency filing: what creditors can do

You are a creditor and suspect that a company has long been insolvent? You can file a criminal complaint at any police station, directly with the public prosecutor's office or at the local court (Sec. 158 (1) StPO). An anonymous complaint is possible, but the authority cannot then ask you any questions. Make sure you only state facts that you can prove.

A complaint alone does little for your money. Your own insolvency application as a creditor can be more effective: it is admissible if you have a legal interest and can show your claim and the ground for insolvency to be credible (Sec. 14 (1) InsO). Whether this is worthwhile should be checked in the individual case, for example with legal advice at a fixed price.

When does delayed insolvency filing become time-barred?

The intentional offence becomes time-barred after 5 years, the negligent one after 3 years (Sec. 78 (3) nos. 4 and 5 StGB). Because it is an omission, the period only begins when the duty to file ends, for example because an application has been made or the ground for insolvency has been removed. Civil law claims become time-barred under their own rules: claims under Sec. 15b InsO after 5 years, and in the case of listed companies after 10 years (Sec. 15b (7) InsO).

Example: GmbH with a liquidity gap

A tradesman's GmbH has liabilities of €100,000 that are due. On 3 March, its largest customer drops out, and there is only €70,000 left in the account. The gap is 30 per cent.

• Day 0 (3 March): It is foreseeable that the gap cannot be closed within 3 weeks. The GmbH is illiquid, and the time limit is running.
• Days 1 to 10: The managing director negotiates with the bank and asks suppliers for deferral. This is permitted as long as there is a realistic chance.
• Day 21 (24 March): The bank declines, and the gap remains. At the latest now, the maximum period ends.
• Day 40 (12 April): The application reaches the insolvency court.

Consequences: for 19 days, the application was late, possibly even earlier if the bank's refusal was foreseeable. The public prosecutor examines intent or negligence. If the managing director paid suppliers or ordered new materials on account between day 0 and day 40, reimbursement under Sec. 15b InsO and claims by the new suppliers may follow. The amounts are a simplified example; every case is different.

How to avoid delayed insolvency filing

Warning signs that insolvency has set in

If you see several of these points, act immediately:

• Draw up a liquidity status and a plan for the coming weeks.
• Document every decision and every restructuring attempt with the date.
• Get advice from a lawyer and tax adviser early, not only in week three.
• Do not make any payments after the onset of insolvency without checking them.

Selling the company or installing a straw man as the new managing director does not protect you. What matters is when the ground for insolvency arose and who was responsible at that time. Those who act early, on the other hand, have options: restructuring under the StaRUG (Act on the Stabilisation and Restructuring Framework for Businesses) as long as illiquidity is only imminent (Sec. 29 (1) StaRUG; in the event of illiquidity or over-indebtedness, the restructuring matter is usually discontinued, Sec. 33 (2) sentence 1 no. 1 StaRUG), or insolvency proceedings in self-administration (Sec. 270 et seq. InsO), in which the management remains in office.

Liquidation instead of insolvency?

Liquidation is only possible if the company can pay all its debts from its assets. If there is a ground for insolvency, a "quiet" winding up is the wrong route and can itself amount to delayed insolvency filing, because the duty to file also applies to liquidators. If, on the other hand, your company is healthy and you simply want to wind it up, you will find the process in the guide to the liquidation of a GmbH and support at a fixed price under Liquidation for €479 net plus VAT, notary and court fees.