Insolvency Delay – What Managing Directors Need to Know Now

Insol­vency delay is one of the most common – yet often misun­ders­tood – offenses in white-collar criminal law. Espe­ci­ally mana­ging direc­tors of small and medium-sized corpo­ra­tions tend to unde­re­sti­mate how quickly they may fall under the scope of § 15a of the German Insol­vency Code (InsO) – and how serious the conse­quences can be. The risks go beyond criminal prose­cu­tion: they include personal liabi­lity, repu­ta­tional damage, and poten­ti­ally the end of one’s profes­sional career.

This article provides a clear and prac­tical over­view of the key legal aspects and outlines how mana­ging direc­tors can protect them­selves effec­tively.

Who is affected? Filing obligation applies only to certain business entities

Insol­vency delay is not a legal risk for all types of busi­ness owners. The obli­ga­tion to file for insol­vency under § 15a of the German Insol­vency Code (InsO) applies exclu­si­vely to specific legal forms – prima­rily corpo­ra­tions. This duty applies to:

• GmbH (inclu­ding UG – Unter­neh­mer­ge­sell­schaft, or “mini-GmbH”)
• AG (Akti­en­ge­sell­schaft – German stock corpo­ra­tion)
• GmbH & Co. KG (limited part­ner­ship with a corpo­rate general partner)
• Ltd. (if managed from a German busi­ness loca­tion)
• Foun­da­tions and regis­tered busi­ness asso­cia­tions
• Legal enti­ties under public law (in certain cases)

Not subject to the obli­ga­tion to file under §15a InsO are Sole proprie­tors, free­lan­cers, civil-law part­ner­ships (GbR), and general part­ner­ships (OHG) are not required to file for insol­vency under § 15a of the German Insol­vency Code. These are busi­ness struc­tures in which natural persons bear unli­mited personal liabi­lity. While they may volun­t­a­rily file for insol­vency in cases of insol­vency or over-indeb­ted­ness, there is no legal obli­ga­tion to do so.

Important: Even without a statu­tory filing obli­ga­tion, other civil or criminal liabi­li­ties may arise—particularly if new debts are incurred or credi­tors are disad­van­taged despite an already hope­less finan­cial situa­tion.

What Does “Insolvency Maturity” Mean? The Three Key Grounds for Filing for Insolvency

“Insol­vency matu­rity” (Insol­venz­reife) refers to a company’s finan­cial state in which it is either insol­vent or over-indebted—meaning it can no longer meet its due finan­cial obli­ga­tions or its liabi­li­ties exceed its assets.

At this point, the manage­ment of a corpo­ra­tion (e.g., a GmbH or AG) is legally obli­gated to imme­dia­tely file for insol­vency.

If the filing is omitted despite the presence of insol­vency matu­rity, this consti­tutes a criminal offense under German law—delayed filing of insol­vency (Insol­venz­ver­schlep­pung) as defined in § 15a of the Insol­vency Code (InsO).

This filing obli­ga­tion does not arise arbi­tra­rily but only if one of the legally defined grounds for insol­vency exists. These are:

1. Illiquidity (Zahlungsunfähigkeit) – § 17 InsO

The most common scenario: The company is no longer able to pay its due debts, and no short-term impro­ve­ment is expected. Accor­ding to the German Federal Court of Justice (BGH), illi­qui­dity exists when less than 90% of due liabi­li­ties can be paid on a sustained basis. In prac­tice, a period of appro­xi­m­ately three weeks is used as a refe­rence point.

2. Imminent Illiquidity (Drohende Zahlungsunfähigkeit) – § 18 InsO

This occurs when a company is likely to be unable to meet its finan­cial obli­ga­tions in the near future. This is deter­mined through a liqui­dity forecast—typically cove­ring a horizon of up to 24 months.

Important: Only the debtor may file for insol­vency in this case, not credi­tors. Thus, this is a right, not an obli­ga­tion.

3. Over-Indebtedness (Überschuldung) – § 19 InsO

For corpo­ra­tions, an addi­tional filing obli­ga­tion arises in cases of over-indebtedness—when the company’s liabi­li­ties exceed its assets and there is no posi­tive going-concern prognosis. This typi­cally requires the prepa­ra­tion of annual finan­cial state­ments, fore­casted balance sheets, and viabi­lity assess­ments.

Over-indeb­ted­ness is one of the most complex grounds for insolvency—and frequently unde­re­sti­mated.

Insolvency Filing Deadlines at a Glance

Once a company reaches the point of insol­vency matu­rity (Insol­venz­reife), the statu­tory dead­lines for filing for insol­vency begin to run (§ 15a (1) German Insol­vency Code – InsO). These dead­lines are strict:

• Over-indeb­ted­ness (Über­schul­dung): Filing must be made within 6 weeks
• Insol­vency (Inabi­lity to Pay – Zahlungs­un­fä­hig­keit): Filing must be made within 3 weeks

Important: The dead­line does not start from the moment the mana­ging director perso­nally becomes aware of the insol­vency situa­tion. What matters is when the crisis would have been reco­gnized with due dili­gence.

In other words: A mana­ging director who ignores warning signs or relies on gut feeling instead of proper liqui­dity plan­ning may already be acting with gross negli­gence – with poten­tial civil and criminal conse­quences.

Common Mistakes in Practice

In day-to-day advi­sory work, it becomes clear:

Most mana­ging direc­tors do not commit delayed insol­vency filing (Insol­venz­ver­schlep­pung) out of malice, but due to igno­rance, denial, or misplaced opti­mism.

Some of the most common mistakes include:

• Confu­sing liqui­dity bott­len­ecks with actual insol­vency
  
  Many entre­pre­neurs believe that a tempo­rary cash short­fall is not critical.However, if no reali­stic pros­pect of over­co­ming the short­fall exists, even an “appar­ently tempo­rary” crisis can trigger legal insol­vency obli­ga­tions.
  
• “We’re working on a restruc­tu­ring – the clock hasn’t started yet”
  Incor­rect.
  Restruc­tu­ring efforts are only permis­sible within the statu­tory filing period.
  If the situa­tion is already hope­less from the outset, the filing dead­line starts imme­dia­tely.
  
• “My tax advisor is hand­ling it”
  A common but dange­rous miscon­cep­tion.
  The legal respon­si­bi­lity lies solely with the mana­ging director – it cannot be dele­gated.
  Even a misun­derstan­ding of the law does not auto­ma­ti­cally exempt the director from liabi­lity.
  
• “I didn’t want to worry my employees”
  While this may be humanly under­stan­dable, it is legally irrele­vant.
  Once payment diffi­cul­ties become fore­seeable, concrete action must be taken without delay.

Legal Consequences of Delayed Insolvency Filing (Insolvency Offence)

Failing to file for insol­vency in time – known as delayed insol­vency filing – can have severe legal conse­quences, both criminal and civil.

Criminal Consequences

(Section 15a (4) and (5) of the German Insol­vency Code – InsO)

• Inten­tional delay: Impri­son­ment of up to 3 years or a mone­tary fine
• Negli­gent delay: Impri­son­ment of up to 1 year or a mone­tary fine
• Profes­sional ban possible e.g. prohi­bi­tion from acting as mana­ging director for up to 5 years
• Entry into criminal record from 91 daily penalty units or more than 3 months’ impri­son­ment

Civil Consequences

• Personal liabi­lity of the mana­ging director for all damages caused by the delayed filing
• Claims for damages by:
  • Credi­tors
  • Social secu­rity insti­tu­tions
  • Tax autho­ri­ties
• Liabi­lity with private assets Personal wealth may be used to satisfy claims

Even De Facto Managing Directors Can Be Held Liable

The obli­ga­tions under Section 15a of the German Insol­vency Code (InsO) do not only apply to formally appointed mana­ging direc­tors. Anyone who acts like a mana­ging director in prac­tice — for example, by making inde­pen­dent busi­ness decis­ions, autho­ri­zing payments, or issuing instruc­tions to staff — may be perso­nally liable as a so-called de facto (or shadow) director.

Case Example from Practice

A mana­ging director of a GmbH becomes aware of liqui­dity problems but delays filing for insol­vency while waiting for a state-backed loan to be approved. The loan is ulti­m­ately denied, and the insol­vency peti­tion is filed two months too late.

Conse­quences:

• Civil liabi­lity: claims from the health insu­rance fund amoun­ting to €25,000
• Criminal penalty: fine of 120 daily units at €60 each
• Entry in the criminal record
• Ban on acting as mana­ging director for 5 years

Act Early: What Managing Directors Should Do

Delayed insol­vency filing is often avoidable — if action is taken early and respon­sibly. The follo­wing measures have proven effec­tive:

1. Establish an Early Warning System

Use liqui­dity plan­ning, weekly cash flow fore­casts, and finan­cial projec­tions.

Those who under­stand their numbers can detect insol­vency risks in time.

2. Separate Business and Private Assets

Clean accoun­ting and sepa­rate accounts create trans­pa­rency and make docu­men­ta­tion easier in a crisis.

3. Seek Professional Advice

When in doubt, consult a specia­lized attorney or tax advisor early.

Early action provides options – delay creates liabi­lity.

4. Document Everything

Keep written records of commu­ni­ca­tions with credi­tors, banks, and advi­sors.

These docu­ments may later be key to asses­sing intent or negli­gence.

5. Take Personal Responsibility

Even in compa­nies with multiple direc­tors: Each is indi­vi­du­ally liable.

Dele­ga­ting to colle­agues or the accoun­ting team does not relieve you of respon­si­bi­lity.

Conclusion: Avoid Delayed Insolvency Filing Through Clarity, Control, and Consequence

Delayed filing for insol­vency is not a sudden fate that over­takes mana­ging direc­tors — it’s usually the result of hesi­ta­tion, misjudgment, or false assump­tions.

Those who act early, reco­gnize risks, and seek profes­sional guidance can avoid criminal liabi­lity, protect their repu­ta­tion, and possibly rescue or orderly wind down their busi­ness.

Those who ignore reality and pin their hopes on a “last-minute turn­around” risk serious legal conse­quences — and often the end of their profes­sional career.