Reduce Managing Directors’ Liability: Document Liquidity
In the event of insolvency, company directors must prove that they are not guilty of delaying insolvency according to § 15a Insolvency Statute (Inso). Company directors should therefore document the development of their liquidity in detail. This enables the managing director to prove in case of doubt that the economic consequences arose within the coronavirus crisis – and that an insolvency application did not, therefore, have to be filed immediately.
For example, evidence can be provided of restrictions such as supply bottlenecks, travel warnings or restrictions on shop opening hours during the coronavirus crisis. If the insolvency is not related to the consequences of the corona pandemic, the protection is also not applicable. At this point, the law imposes rigorous duties of care on a managing director.
Managing Directors’ Liability: Delay in Filing for Insolvency
A managing director’s liability for delay in filing for insolvency arises if the managing director, contrary to his statutory duty, fails or deliberately omits filing for insolvency in good time despite the company’s readiness to file for insolvency and thereby harms existing or even new creditors.
Companies affected by the COVID-19 crisis now have the opportunity to free themselves from the short insolvency application period. However, this obligation to file for insolvency is to be suspended exclusively for those companies whose insolvency is due to the effects of the coronavirus pandemic. See our article on Insolvency Law: COVID-19 Coronavirus for more information.
In the event of imminent insolvency, it is questionable which payments the managing director is still allowed to make, which he must make and which he may no longer make under any circumstances. If insolvency or insolvency is imminent, liability due to a reduction of assets according to § 64 Limited Liability Act, liability due to delay in filing for insolvency according to § 823 BGB in conjunction with § 15a Insolvency Code and general liability of the managing director according to § 43 Limited Liabilities Act may arise.
The consequences under criminal law and criminal tax law that can occur are delays in filing for insolvency, withholding of social security contributions, bankruptcy, fraud or tax evasion. See our article on Insolvency Criminal Offences in Germany for more information.
What is meant by Large Liability Reduction?
Large liability reduction serves to safeguard the interests of creditors and to protect the assets of the GmbH. The main aim is to satisfy creditors evenly and to prevent the preferential treatment of individual creditors.
If the managing director has paid out company assets without authorisation or arranged for payment, he is obliged to repay or compensate in the form of managing director liability. In return, he must make payments to individual creditors of the company and thus reduce the company’s assets. The claimant against the managing director is the GmbH or the insolvency administrator. If the funds of a GmbH are no longer sufficient to settle the due liabilities of the GmbH, the company is unable to pay and is ready for insolvency.
There is a body of case law on this subject that is difficult for laypersons to understand and relates to countless individual cases. Without sound advice from a lawyer specialising in insolvency law, it is easy to lose track of the situation. We recommend comprehensive advice from our lawyers for insolvency law, who can assess your case individually and advise you.
As a matter of principle, an application for the opening of insolvency proceedings must be filed immediately after the company becomes insolvent. According to the law, under certain conditions, a maximum of three weeks remains for this purpose.
The current coronavirus crisis is an exceptional situation and requires appropriate measures. The Federal Ministry of Justice and Consumer Protection has announced that it is preparing a draft law to this effect. According to this law, the obligation to file for insolvency is to be suspended until 30 September 2020 if public aid is not granted in time or financing or restructuring negotiations cannot be concluded in time due to the exceptional situation.
A temporary suspension of the obligation to file for insolvency can help to prevent a flood of insolvency applications, especially as this could also affect companies with a functioning and promising business model.
At Schlun & Elseven Rechtsanwälte, we operate in Germany as a full-service law firm specialising in insolvency law. The COVID-19 coronavirus affects all areas of human interaction and has a massive impact on our clients’ businesses. Against this background, it is clear that the COVID-19 coronavirus will affect numerous areas of law.
Further information on the coronavirus can be obtained from the Robert Koch-Institut website. If you need legal advice regarding the effects of the COVID-19 coronavirus on your company, contracts or other legal issues, please contact us directly. Our offices are located in Cologne, Düsseldorf and Aachen, but we are available by phone or email due to the special situation.