Delaying Insolvency Filing - What Managing Directors Need to Know Now

This article provides a clear and practical explanation of what matters and how managing directors can effectively protect themselves.

Who is affected? Obligation to file only for specific company forms

Delaying insolvency filing is not a risk for all entrepreneurs equally. It exclusively affects certain company forms – primarily corporations. The obligation to file for insolvency under § 15a InsO applies to:

• • GmbH (also UG haftungsbeschränkt)
  • AG
  • GmbH & Co. KG
  • Ltd. (with administrative headquarters in Germany)
  • Foundations and commercial associations
  • Public law entities (under certain conditions)

Not affected by the obligation to file for insolvency under § 15a InsO are sole proprietorships, freelancers, GbR, or OHG, i.e., companies where natural persons are personally liable without limitation. These entrepreneurs can voluntarily file for insolvency in cases of illiquidity or over-indebtedness, but are not legally obliged to do so.

Caution: Even without an obligation to file, other civil or criminal risks may exist – especially if new debts are incurred or creditors are disadvantaged despite a hopeless situation.

What does insolvency maturity mean? The three crucial grounds for insolvency

Insolvency maturity is said to exist when a company is illiquid or over-indebted, meaning it can no longer meet its due liabilities or its assets no longer cover its debts.

At this moment, the management of a corporation (e.g., GmbH or AG) must immediately file for insolvency.

If this application is not made despite insolvency maturity, the offense of delaying insolvency filing exists (§ 15a InsO).

An obligation to file therefore arises not arbitrarily, but only when one of the legally defined grounds for insolvency is present. These are:

1. Illiquidity (§ 17 InsO)

The most common case: The company can no longer meet its due liabilities, and no short-term improvement is in sight. According to the Federal Court of Justice, illiquidity exists if less than 90% of due liabilities can be covered on a permanent basis. In practice, a period of approximately 3 weeks is considered.

2. Impending Illiquidity (§ 18 InsO)

This presupposes that the company will, with a high probability, no longer be able to meet its due payments in the near future. This involves a liquidity forecast over a period of up to 24 months. Important: Only the debtor himself (not the creditors) can file for insolvency in the event of impending illiquidity – it is therefore a subjective right, not an obligation.

3. Over-indebtedness (§ 19 InsO)

For corporations, there is also an obligation to file in cases of over-indebtedness – i.e., when assets no longer cover existing liabilities and there is no positive going concern prognosis. For this purpose, annual financial statements, projected balance sheets, and going concern prognoses must be prepared regularly. Over-indebtedness is one of the most complex grounds for insolvency, but often underestimated.

Overview of Insolvency Application Deadlines

From the moment of insolvency maturity, the statutory deadline begins (§ 15a para. 1 InsO ). And this is a tight deadline:

• • Illiquidity: Application within 3 weeks
  • Over-indebtedness: Application within 6 weeks

Caution: The deadline does not begin only when the managing director “subjectively recognizes” that the company is illiquid. The decisive factor is the point in time when they should have recognized it with due diligence. Therefore, anyone who closes their eyes to reality or relies on gut feeling instead of liquidity planning may already be acting grossly negligently.

Typical Mistakes in Practice

In daily consulting practice, it becomes clear: Most managing directors do not delay insolvency filing out of malicious intent, but out of ignorance or false hope.

The most common mistakes include:

• • Confusion between temporary payment difficulties and illiquidity Many entrepreneurs assume that a short-term bottleneck is not insolvency. However, as soon as no realistic coverage is in sight, even a seemingly “temporary” crisis can become relevant under insolvency law.
  • “I’m working on a restructuring, so the deadline doesn’t count yet” Wrong. Restructuring efforts are only permissible within the deadline. If the situation is hopeless from the outset, the deadline begins immediately.
  • “I left it to my tax advisor” A common but dangerous fallacy. The responsibility lies with the managing director; delegation is not possible. Even an error regarding the legal situation does not automatically relieve responsibility.
  • “I didn’t want to worry my employees”Understandable from a human perspective, but legally irrelevant. Concrete measures must be taken at the latest when impending illiquidity arises.

What are the consequences of delaying insolvency filing?

The legal consequences are serious – both criminally and civilly.

Criminal Law (§ 15a para. 4 and 5 InsO):

• • Intentional delaying of insolvency filing: up to 3 years imprisonment or a fine
  • Negligent delaying of insolvency filing: up to 1 year imprisonment or a fine
  • Professional ban possible (e.g., 5-year managing director ban)
  • Entry in the certificate of good conduct from 91 daily rates or 3 months imprisonment

Civil Law:

• • Personal liability of the managing director for damages incurred due to the delayed insolvency application
  • Claims for damages by creditors, social security, tax authorities
  • Liability with private assets possible

De facto managing directors can also be liable:

The duties under § 15a InsO do not only apply to formally appointed managing directors. Persons who actually act as a managing director – for example, through independent decisions, payment instructions, or directives to employees – can also be held personally liable as so-called de facto managing directors.

Practical Case Study

A managing director of a GmbH recognizes liquidity problems but waits for the approval of a promotional loan. This is not approved, yet he only files for insolvency two months later. Result: Penal order for 120 daily rates at €60 each, entry in the certificate of good conduct, managing director ban for 5 years. In addition, liability claims from the health insurance company totaling €25,000.

Act Early: What Managing Directors Should Do

Delaying insolvency filing is avoidable in many cases – provided one acts promptly and responsibly. The following measures have proven effective:

1. Establish an early warning system

Liquidity planning, weekly payment overviews, forecast calculations – those who know their numbers recognize insolvency maturity early.

2. Separation of business and private assets

Clean accounting and separate accounts create transparency and facilitate documentation in an emergency.

3. Seek advice

When in doubt, involve a specialized lawyer or tax advisor early. Those who come early can still shape the outcome – those who come too late risk liability.

4. Document everything

It is essential to record conversations with creditors, banks, or advisors in writing. This can later be crucial for assessing intent or negligence.

5. Take responsibility

Even if several managing directors are appointed: Each is personally liable. It is not enough to rely on colleagues or the accounting department.

Conclusion: Avoid Delaying Insolvency Filing – Through Clarity, Control, and Consistency

Delaying insolvency filing is not a fate that surprises managing directors – but usually the result of hesitation, uncertainty, and false assumptions. Those who act early, recognize risks, and seek professional advice can not only avoid a criminal offense but also save the company or hand it over in an orderly manner.

However, those who close their eyes to reality or hope for a “spontaneous turnaround” risk not only legal consequences but often also their professional future.