29. Dec 21

End to the suspension of the duty to file for insolvency

With the suspension of the duty to file for insolvency having been lifted in late April, businesses facing imminent insolvency are once again required to file for insolvency as soon as possible.

The duty to file for insolvency was suspended in March of 2020 to prevent a wave of insolvencies in the wake of the coronavirus pandemic. This suspension was later extended a number of times – subject to restrictions – until April 30, 2021, with the coalition partners unable to reach an agreement on a further extension. This means that the special arrangements relating to insolvency protection, which most recently only applied to over-indebted companies, have expired.

The standard provisions of insolvency law have thus been in force again since May of 2021. We at the commercial law firm MTR Rechtsanwälte note that this means managing directors or board members are required to file for insolvency as soon as possible but with a delay of no more than three weeks when faced with the prospect of imminent insolvency.

Insolvency describes a situation in which a company is unable to pay its debts and/or is over-indebted. The former is deemed to have occurred if the company is no longer able to pay wages, or its bills, or make payments on loans, whereas the company is assumed to be over-indebted if its debts exceed the entire value of the company.

If there is reason to believe a company is insolvent, it is necessary to file for insolvency as soon as possible and without undue delay, i.e. no more than three weeks delay. However, this period can only be taken advantage of if there is legitimate cause to believe that the grounds for insolvency can be successfully addressed within this three-week timescale. These grounds may have persisted for longer than three weeks because of the coronavirus pandemic, and businesses ought to have been aware that it was only by virtue of the special arrangements put in place by the German government that it was not necessary to file for insolvency within the usual timeframe.

Failure to file for insolvency in due time may render those responsible liable to prosecution for late filing of insolvency. It should also be noted that no further payments may be made following the onset of insolvency. This is another way in which the managing directors or board members responsible can find themselves guilty of an offence.

Filing for insolvency presents businesses with an opportunity to restructure and to start again on sound economic footing. For this reason, it ought to be assessed whether the insolvency process can be administered autonomously.

Lawyers with experience in the field of insolvency law can provide counsel.

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