Filing for Insolvency and Restructuring Options
For various reasons, many companies in Germany face economic difficulties. Management must look for suitable solutions to overcome the crisis. In this context, potential insolvency must always be considered, along with the question of when the insolvency application must be filed at the latest. If the application is delayed, managing directors or board members may be held criminally liable.In economically turbulent times, managing directors and boards typically try to save the company. As an international business law firm, MTR Legal Rechtsanwälte advises financially distressed companies in insolvency law, with a focus on restructuring the company.
Insolvency Application in Case of Insolvency or Over-indebtedness
If insolvency or over-indebtedness occurs, an insolvency application must be filed immediately, or else managing directors or board members may be held criminally liable for delaying insolvency proceedings. In this context, “immediately” means that the insolvency application must be filed no later than three weeks after the onset of insolvency or six weeks after the onset of over-indebtedness. If the insolvency application is not filed in time, those responsible could face severe fines and prison sentences of up to three years. Although impending insolvency also constitutes grounds for insolvency, there is no obligation to file for insolvency at that point.If payments are made despite the company’s insolvency, and these payments are not consistent with the care of a prudent and diligent business manager, managing directors or board members may also be held personally liable.Insolvency occurs when a company no longer has sufficient liquid funds to meet its payment obligations. Over-indebtedness is assumed when the company’s assets are no longer sufficient to cover its liabilities.
Restructuring Without Insolvency
If insolvency has not yet occurred but is looming, there is an option to restructure the company without insolvency under the Corporate Stabilization and Restructuring Act (StaRUG). For this, a restructuring plan must be developed, outlining how the company will be guided out of the crisis. One advantage of StaRUG is that not all creditors need to approve this plan, only those who are directly affected by the planned measures.
Another option for companies that are financially distressed but not yet insolvent is the protective shield procedure. The goal of this process is to avoid insolvency. A prerequisite for the protective shield procedure is a certificate confirming that the company can still be restructured and that restructuring is a reasonable course of action. During the protective shield procedure, the company is supported by an administrator chosen by the management. An insolvency plan must be presented within three months of filing for the protective shield. During these three months, the company is protected, and creditors cannot enforce claims against the company.
Conducting Insolvency Under Self-Administration
If the protective shield can no longer be applied, and StaRUG is no longer an option, filing for insolvency becomes necessary. However, insolvency under self-administration provides an interesting way to restructure the company during insolvency. In this process, the existing management remains in charge and works with an administrator to guide the company back to stable economic conditions. Another advantage of self-administration is that the management continues to represent the company externally, maintaining familiar contact persons and client relationships.
The core of self-administered insolvency is the insolvency plan, which must be approved by the creditors. Additionally, the court must approve the application for self-administered insolvency.
Opening of Insolvency Proceedings
If all these measures fail, the insolvency court will open regular insolvency proceedings.
MTR Legal Rechtsanwälte is experienced in insolvency law and advises companies, shareholders, management, managing directors, and creditors in non-administrative insolvency advice, both within and outside of insolvency proceedings. The primary goal is to develop sustainable solutions for all parties involved, ensuring the successful restructuring of the company.
Feel free to contact our lawyers, who are knowledgeable in corporate and insolvency law!
